PRINCIPLES OF INDIRECT TAXES – A PRELUDE TO

GOODS AND SERVICES TAX

What is Tax ?
A ‘tax’ is a compulsory exaction of money by public
authority for public purpose enforceable by law
and is not for payment of service rendered. -
Matthews v. Chicory Marketing Board, 60 C.L.R.
263.
Adopted by Supreme Court in the case of: Commr,
Hindu Religious Endowments Sri Laksmindra
Thirtha Swamiar of Sri Shirur Mutt AIR 1954 SC
282 – 9 Judge Bench
 ..

“Tax” must have the following aspects:

i) compulsory exaction of money

Ii)by public authority

Iii)for public purpose

Iv)enforceable by law (Art 265)

V)and is not for payment of service rendered.

 Commr. Hindu Religious Endowments v Sri
Laksmindra Thirtha Swamiar of Sri Shirur Mutt AIR
1954 SC 282.
 Facts:
 The Madras Hindu Religious and Charitable
Endowments Act, 1951 was enacted by the Madras
Legislature.
 State Legislature is competent to enact laws on the
subject of religious and charitable endowments
which is covered by entry 28 of List III in Schedule
VII of the Constitution.
 Object of the legislation : to amend and consolidate
the law relating to the administration and
governance of Hindu religious, charitable
institutions and endowments in the State of
Madras

 At the centre of controversy was the Constitutional

validity of s. 76 of the The Madras Hindu Religious
and Charitable Endowments Act, 1951, which reads as
follows:
 “76. (1) In respect of the services rendered by the
Government and their officers, every religious
institution shall, from the income derived by it, pay
(contribute) to the Government annually such
contribution not exceeding five percentum of its
income as may be prescribed.
 The annual payments shall be made,
notwithstanding anything to the contrary
contained in any scheme under this Act for the
religious institution concerned.
 Thus the section authorizes the levy of an annual
contribution on all religious institutions, the
maximum of which is fixed at 5 per cent of the
income derived by them.

 The section expressly states that the levy is in

respect of the services rendered by the
Government and its officers.
 Relevant Issue/s
 The validity of the provision – is attacked on a two-fold
ground:

 i) that the levy of contribution is really a tax and as

such it was beyond the legislative competence of the
State Legislature to enact such provision. -
 ii) The other is, that the contribution being a tax or
imposition, the proceeds of which are specifically
appropriated for the maintenance of a particular religion
or religious denomination,

 it comes within the mischief of art. 27 of the

Constitution and is hence void.
 If the contribution payable under s. 76 of the Act is a
“fee”, it may come under entry 47 of the
Concurrent List which deals with “fees” in respect
of any of the matters included in that list.

 On the other hand, if it is a tax, as this particular tax

has not been provided for in any specific entry in any
of the three lists, it could come only under entry 97
of List I or art. 248(1) of the Constitution
 and in either view the Union Legislature alone
would be competent to legislate upon it.
 On behalf of the appellant, the contention raised is
that the contribution levied is a fee and not a tax.

 However, the point is certainly not free from doubt as

- Art. 277 also mentions taxes, cesses and fees
separately.

 So – the question consideration really is what are the

indicia or special characteristics that distinguish a tax
proper from other aspects -
 A neat definition of what “tax” means has been given by
Latham C.J. of the High Court of Australia, in Matthews
v. Chicory Marketing Board, 60 C.L.R. 263

A tax, according to the learned Chief Justice,

“is a compulsory exaction of money by public authority
for public purposes enforceable by law and is not
payment for services rendered.”
 i) It is said that the essence of taxation is
compulsion, that is to say, it is imposed under
statutory power without the taxpayer’s consent
and the payment is enforced by law.

 ii) The second characteristic of tax is that it is an

imposition made for public purpose without
reference to any special benefit to be conferred on
the payer of the tax
 iii) Another feature of taxation it; that as it is a part of
the common burden, the quantum of imposition upon
the taxpayer depends generally upon his capacity to
pay.

 As the object of a tax is not to confer any special

benefit upon any particular individual, there is, no
element of quid pro quo between the taxpayer and
the public authority.
 On behalf of the respondent it was contended that –
 a ‘fee’ is generally defined to be a charge for a special
service rendered to individuals by some
governmental agency.

it is something voluntary which a person has got to pay

if he wants certain services from the Government;
 but there is no obligation on his part to seek such
services and if he does not want the services, he can
avoid the obligation.

 The example given is of a licence fee. If a man wants

a licence that is entirely his own choice and then only
he has to pay the fees, but not otherwise.
 The element of compulsion or coerciveness is present in
all kinds of imposition though in different degrees and
that it is not totally absent in fees.

 This, therefore, cannot be made the sole or even a

material criterion for distinguishing a tax from fees.
 Compulsion lies in the fact that payment is
enforceable by law against a man in spite of his
unwillingness or want of consent; and this element is
present in taxes as well as in fees.

 If a fee is regarded as a sort of return or

consideration for services rendered,
 it is absolutely necessary that the levy of fees
should, on the face of the legislative provision, be
co-related to the expenses incurred by
Government in rendering the services.

 S. 76 of the Madras Act speaks definitely of the

contribution being levied in respect rendered by
the Government; so far it has the appearance of
fees.

 It is true that religious institutions do not want these

services to be rendered to them.
 It may be noticed, however, that the contribution that
has been levied under s. 76 of the Act has been made to
depend upon the capacity of the payer and

 not upon the quantum of benefit that is supposed to

be conferred on any particular religious institution.
 Further the institutions,
 which come under the lower income group and have
income less than Rs. 1,000 annually, are excluded from
the liability to pay the additional charges under cl. (2) of
the section.
 These are undoubtedly some of the characteristics of a
‘tax’ and the imposition bears a close analogy to
income-tax.
 But the material fact which negatives the theory of
fees in the present case is that the money raised by
levy of the contribution

 is not ear-marked or specified for defraying the

expenses that the Government has to incur in
performing the services.
 All the collections go to the consolidated fund of the
State and all the expenses have to be met not out of
these collections

 but out of the general revenues by a proper method

of appropriation as is done in case of other
Government expenses.
 That in itself might not be conclusive,

 but in this case there is total absence of any

co-relation between the expenses incurred by the
Government and the amount raised by contribution
under the provision of s. 76

 and in these circumstances the theory of a return or

counter-payment or quid pro quo cannot have any
possible application to this case.
 In our opinion, therefore, the High Court was right
in holding that the contribution levied under s. 76 is
a tax and not a fee

 and consequently it was beyond the power of the

State Legislature to enact this provision.
 In view of our decision on this point, the other
ground hardly requires consideration.... What is
forbidden by the article

 is the specific appropriation of the proceeds of any

tax in payment of expenses for the promotion or
maintenance of any particular religion or religious
denomination.
 Because-
 Ours being a secular State and there being freedom of
religion guaranteed by the Constitution, it is against the
policy of the, Constitution

 to pay out of public funds any money for the promotion

or maintenance of any particular religion or religious
denomination
 But the object of the contribution under s. 76 of the
Madras Act is not the fostering or preservation of
the Hindu religion or any denomination within it.

 The legislature seeks to control and to ensure that

the object, as enunciated in the endowment Act is
given effect to i.e endowments are properly
administered and their income is duly appropriated
for the purposes for which they were founded or
exist.
 There is no question of favouring any particular
religion or religious denomination in such cases,
hence Art. 27 of the Constitution is not attracted to the
facts of the present case.

 The result, therefore, is that in our opinion section

Sec 76(1) is void as beyond the legislative
competence of the Madras State Legislature.
 Thus, the appeal will stand dismissed with costs to
the respondent.
 INDIRECT TAXES –
Advantage of Indirect Taxes

 What is Indirect Tax

 The distinction of indirect taxes being able to be shifted
on to the consumer, can be related to the collection of
indirect taxes

 usually having an intermediary who collects it on behalf

of government, like VAT, where the retail collects it and
pays it to tax administration when filling its tax return.
 From a point of efficiency and effectiveness, indirect
taxes are better

 because they cannot be easily evaded as they are

contained in prices of goods and services and the
collection costs are low compared to direct taxes which
due to being complex are costly to collect
 Because indirect taxes are collected from commercial
activity, individuals can easily engage, limit their
engagement or refrain from engaging in the taxable
transaction,

 whereas direct taxes lack such flexibility. It may also

encourage people to work harder in order to continue
with their consumption levels before the tax rate
 Disadvantages of Indirect Taxes

 Indirect taxes are said to be regressive, which means

that tax takes a lower percentage of income from the
rich than from the poor. The rich may be paying more
than the poor in money terms.

 However the proportion of income taken away in

taxation is lower. Most indirect taxes are said to be
regressive especially if the tax is expressed as a fixed
amount of money (specific tax) rather than as a
percentage (ad valorem tax).
 A good example of this is the excise duty on a packet of
cigarettes, the demand for cigarettes is not income elastic,

 i.e. a rich smoker would probably consume the same number

of packets as a poor smoker in the same time period, and

 in terms of income and expenditure, the poor spent more

percentage of his income on cigarettes than the poor smoker.
Increases in indirect taxation may bring about a cost-push
inflation which may greatly affects households
 Taxes on commodities, is essentially a tax on
consumption.
 It is a form of ‘Indirect Tax’ as the tax payer
(producer or trader) and
 the ultimate bearer of tax (consumer) are two
different persons. Excise Duty, Import Duty, Sales
Tax etc. are the examples of indirect taxes.
 Indirect Taxes –Basic Principles
Central Sales Tax

 Sales can be broadly classified into three

categories from the point of view of levy of tax:
 i) Inter- State Sale [sales tax levied by Central
Government called Central Sales tax)
 Ii) sales during import & export - (no sales tax
levied)
 Iii) Intra-State - (sales tax levied by state
government)
 Mode of transaction – illustration :
 A, the buyer places an order on the B, the seller for
supply of goods called ‘purchase order’. After the
goods are ready the A may come to the business
place of the seller and obtain the delivery of the
goods. – This is called sale within the state. (Intra-
State Sale)
 However if the A asks the B to send the goods by
transport. In such a case the B will book the
consignment by rail road air to the destination where
the A requires the goods. In such a case generally -
 the sales from the point of buyer & Seller:
 i) if buyer & seller from same state - Intra-State
sale
 ii) if buyer & seller in different states - Inter- State
Sale
iii) if buyer is outside India – sale during export
iv) if seller is outside India – sale during import.
 So, what is this Central Sales Tax (CST)?
 CST is nothing but the tax payable on inter-State
sales.
 Thus even though CST is levied by Union Govt.,
the revenue goes to the State Govt. CST is
administered by the State Govt.
 Sale tax on interstate sale is levied under Entry 92A of
list I – Union List.
 And tax collected in each State is retained by the State
Government itself is called sales Tax.

 Sales tax on intra – state sale, earlier called sales tax

(VAT) is levied under Entry 54 of list II – State List.
 One very interesting and important feature to note is that
the ‘newspapers’ is specifically excluded from both the
lists (even though it is ‘goods’)
 This is done with the intention of promoting and
safeguarding freedom of speech And free flow of
information is the backbone of democracy.
 Thus the feature of Sales Tax is --
 Though it is levied & collected by the Central
Government, it is assigned to states and thus
administered by the State Governments. and it is
called as Central Sales Tax.
 The next issue is what was the need to enact it.
 Although, the State Government were empowered to
levy and collect tax on sales made within its own
territory
 but there was no specific provisions of levying tax on
sale and purchase having interstate composition.
 As a result, same goods came to be taxed by
several states on the ground that one or more
ingredient of sale was present in their state. This led
to multiple levy of tax.
 Therefore central sales tax Act 1956 was enacted
by the Parliament and received the assent of the
president on 21.12.1956. Imposition of tax became
effective from 01.07.1957.
 The next question is when can be tax be levied?
 In case of sales tax, the taxable event i.e (when is
the sales tax be imposed) is when there is an act of
sale.
 Hence we can say that it is not a tax on goods but
tax on sale. – In Sea Customs Act Re– AIR 1963
STC 437.
 Though Central Sales Tax is levied by Central
Govt, -
 revenue of CST goes to the State from which
movement of goods commences
 State from which inter-state sale takes place
administers the CST Act in respect of the inter-
state sale from that State.
 The next issue is if sales tax is imposed on the act
of sale then what constitutes sale.
 Sale in a normal sense understood means a
transfer of complete property in goods for valuable
consideration.
 Earlier by the said definition, the scope of sales tax was
very limited as it could not be levied for all the
transactions. Consequently, many transactions were
escaping the sales tax net.
 Hence the concept of ‘Deemed Sale’ was introduced by
introducing the definition of Sale or Purchase of Goods in
the Constitution vide Art. 366(29A) by the
46th amendment w.e.f 2/2/1983.
 Thus ‘Deemed Sale’ covers goods involved in
works contract, leasing hiring, hire purchase,
sale of food articles and transfer among
members of incorporated association.
 A transfer, delivery or supply of any goods shall be
deemed to be sale of those goods by the person
making the transfer or delivery or supply and a
purchase of those goods by the person to whom
such transfer, delivery or supply is made.
 These sales are termed as ‘Deemed Sales’.
  A Transfer delivery or supply

 Goods
 shall be deemed to be the sale of those
goods.
 by the person making transfer delivery &
supply
& a purchase of those goods by a person to
whom such transfer delivery & supply is made.
 Now what is the definition of Sale in CST?
 As Sec 2(g) of CST Act, Sale with its grammatical
variations and cognate expressions, means any
transfer of property in goods by one person to
another in cash or for deferred payment or for any
other valuable consideration, and includes:
 i) Transfer other than by contract (compulsory
transfer)
 ii) Goods involved in works contract.
 iii) Right to use goods (like leasing)
 iv)Transfer among members of unincorporated
association
 v) supply of food articles
 vi) Hire purchase, but does not include a mortgage
or hypothecation or a charge or pledge in goods.
 The first part of the definition is ‘sale’ as is
conventionally understood and the second part i.e
the inclusive part is deemed sale.
 It is worthwhile to note that the definition of ‘deemed
sale’ is identical to the wordings as used in the
definition in Article 366(29A) of the Constitution of
India.
 Thus the essentials of a conventional sale are:
 a) There must be transfer of goods
 general property in goods should be transferred to
buyer from seller
 c) consideration i.e price must be paid or agreed to
be paid. It may be in cash , deferred payment or any
other valuable consideration.
 The expanded definition of ‘sale’ includes hire
purchase, goods involved in works contract, lease or
sale of food articles, which is deemed sales.
 Transfer of ‘property ‘ is essential in ‘sale’. – There
is no sale unless there is transfer of property.
Property means a thing over which a person has
domain. This implies transfer of ownership. Mere
‘agreement to sale’ does not mean sale as
there is no transfer of property.
 Now every transaction is not sale. The instances of
transactions which are not sales are as follows:
 Charge/mortgage/hypothecation/pledge are not sale.
 Job work / processing
 The concept of job work is that the owner sends the
goods for some job work like (machining, cutting,
heat treatment, welding etc.) or processing (like
bleaching, painting etc) Goods are returned to the
owner after such job work/processing. Property in
goods remains with the person supplying the
material.
 Thus it is a contract for labour or work and not a
contract of sale and there is no tax liability. Thus it is
a deemed sale.
 Consignment/depot transfer/branch transfer – Goods
are dispatched to Consignment Agent/branch/depot
by Principal.
 Consignment agent collects sale proceeds and
remits the same to the principal. However this does
not amount to sale as ownership of goods continue
with principal.
 Barter or Exchange is not sale – In a barter or
exchange there is no ‘money consideration’ and
hence it is not sale. - Devi Das Gopal Krishnan v
State of Punjab (1967) 3 SCR 557.
 Free Gift is not sale – Free gifts given by Company
cannot be taxed as there is no consideration.
 Goods (e.g Furniture, utensils machinery, mattresses
etc.) given on hire is ‘transfer of right to use for
consideration’ if full possession
 and control is given to hirer. In such a case, sales
tax (VAT) is payable. If complete possession and
control is not handed over, service tax would be
payable.
 Deemed Sale includes Hire Purchase.
 Are hire purchase and instalment purchase and
instalment purchase the same?
 The answer is -- -- -- -- -- -- -- -- -- -- -- -- --
 No. they are not the same.
 In case of a hire purchase title over the goods
does not pass to the buyer till last installment of
price is paid and thereby option to buy is
exercised.
 In case of ‘instalment purchase’ (i.e payment in
instalments), title passes immediately and
stipulation to pay price in instalments is only a
financial arrangement between the buyer and
seller.
 In the former the relationship between seller and
buyer is one of bailor and bailee, while in the later it
is of creditor and debtor.
 Thus in case of hire purchase, full possession and
control should be transferred to the hirer only then it
will be taxable. State of AP v Rashtriya Ispat Nigam
(2002) 3 SCC 314.
 Sale of food in canteen, restaurant or hotel can be
taxed.
 What is Works Contract:
 Sec 2 (ja) defines works contract and
 it means a contract for carrying out any work which
includes assembling, construction, Building, altering,
manufacturing, processing, fabricating, erection,
installation, fitting out, improvement, repair or
commissioning of movable or immovable property.
 Sale includes transfer of property in goods
involved in execution of works contract.
 Sales Tax (VAT) is on the goods involved in works
contract and not on the works contract as such.
 The principle in works contract is that property in
goods should pass when the works contract is
getting executed.
 If property in goods pass after the execution of the
works contract it is a sale and not ‘transfer of
property in goods involved in execution of works
contract. Gannon Dunkerly & Co. v State of
Rajasthan – (1993) 1 SCC 364.
 In case of works contract sales tax/vat can be
levied only on value of goods involved and not on
entire value of contract.
 What is the test for ascertaining whether a
particular contract is contract for work or
contract of sale.
 According to Halsbury‘s laws of England it depends
on the main object of the parties, circumstances and
custom of trade. There is nor rigid or flexible test to
ascertain the same.
 Generally, a contract of sale is contract whose main
object is transfer of property in, and
 delivery and possession of, a chattel as a chattel to
the buyer.
 Where the main object of the work undertaken by the
payee of the price is not the transfer of the chattel
qua chattel, the contract is one of labour and work. –
State of Gujarat v Variety Body Builders – AIR 1976
SC 2108.
Illustrations of works contract :
i) Building Contract – State of Madras v Gannon
Dunkerly AIR 1958 SC 60.
ii) Supplying windows duly fixed in building. –State of
Rajasthan v Man Industrial Corporation
iii) Photographic work. BC Kame v ASTO AIR 1977 SC
1642.
iv) Tax can only be levied on the value of material in
case of works contract – Builders Association of
India v UOI AIR 1989 SC 1371. (5 member
constitution bench)
 Sale
It is a sale
Relationship is seller and buyer

In sale of goods the thing
produced/manufactured as a whole is
the absolute property of the maker
when it comes into existence. He then
transfers it to the buyer.
In sale, the sale is chattel ‘qua’ chattel
i.e goods are sold as goods. The
property in goods is transferred at the at
the time of the delivery of the finished
article.
Works Contract
Relationship is contractor and contractee
In works contract the things produced as a
whole is never the property of the maker
even though the material used in works
contract might have been his absolute
property.
The article produced as a whole directly
becomes property of the buyer, without
first becoming property of the maker.
Property in goods contained in works
contract passes by accretion, accession or
blending during execution of work.
 Sale Works Contract

Rejection of goods is possible Rejection of goods is generally difficult.

Sale can be of standard goods as well as Works contract is only tailor made i.e
tailor made goods for a specific contractee.

Buyer usually never supplies any Contractee often material to the

material to seller contractor

Sale of goods Act applies to transaction Indian Contract Act applies to

transaction
 Kone Elevator India Private Limited v. State of
Tamil Nadu and others [(2010) 14 SCC 788]
 Facts
 By an order dated 13.2.2008 in Kone Elevator
India Private Limited v. State of Tamil Nadu and
others, a three-Judge Bench of this Court, while
dealing with the writ petition preferred by Kone
Elevator India Pvt. Ltd. along with Special Leave
Petitions, noted that the question raised for
consideration in the said cases is whether
manufacture, supply and installation of lifts
 is to be treated as “sale” or “works contract”, and a
three-Judge Bench, in State of A.P. v. Kone Elevators
(India) Ltd., had not noticed the decisions rendered by
this Court in
 State of Rajasthan v. Man Industrial Corporation Ltd.,
State of Rajasthan and others v. Nenu Ram and
Vanguard Rolling Shutters and Steel Works v.
Commissioner of Sales Tax and perceiving the
manifest discord, thought it appropriate that the
controversy should be resolved by the larger Bench.
 The seminal controversy which has emerged in this
batch of matters is whether a contract for manufacture,
supply and installation of lifts in a building is a
“contract for sale of goods” or a “works contract”.
 Needless to say, in case of the former, the entire sale
consideration would be taxable under the sales tax or
value added tax enactments of the State legislatures,
 whereas in the latter case, the consideration payable or
paid for the labour and service element would have to
be excluded from the total consideration received and
sales tax or value added tax would be charged on the
balance amount.

 The petitioner is engaged in the manufacture, supply

and installation of lifts involving civil construction. For
the Assessment Year 1995-96, the Sales Tax Appellate
Tribunal, Andhra Pradesh, considering the case of the
petitioner, opined that the nature of work is a “works

contract”, for the erection and commissioning of lift
 cannot be treated as “sale”. On a revision being filed,
the High Court of Andhra Pradesh affirmed the view of
the tribunal and dismissed the Tax Case (Revision) filed
by the Revenue. Grieved by the decision of the High
Court, the State of Andhra Pradesh preferred special
leave petition
 wherein leave was granted and the matter was registered
as Civil Appeal No. 6585 of 1999 and by judgment
dated 17.2.2005 in Kone Elevators (supra), the view of
the High Court was overturned
 After the pronouncement in the said case, the State
Government called upon the petitioner to submit returns
treating the transaction as sale. Similarly, in some other
States, proceedings were initiated proposing to reopen
the assessments that had already been closed treating the
transaction as sale.

 The said situation compelled the petitioner to prefer the

petition under Article 32 of the Constitution.
 Assessee’s Arguments [‘Works Contract’]
 Prior to the decision in Bharat Sanchar Nigam Ltd. v.
Union of India [2006] 3 STT 245 (SC) and Larsen &
Toubro Ltd. v. State of Karnataka [2013] 41 STT 113/38
taxmann.com 98 (SC), the law as understood was :
 (a) where a contract was divisible by itself, then the
element of sale would be taxed as an ordinary sale of
goods, irrespective of the element of service;
 (b) where a contract was for the supply of goods, and for
rendition of services, if the predominant intention of the
parties was to supply goods, the element of service would be
ignored and the entirety of the contract consideration would
be treated as the price of goods supplied and the tax imposed
accordingly; and
 (c) as the law did not provide for dividing, by a legal
fiction, a contract of such a nature into a contract for goods
and a contract for services, the goods in which property
passed from the contractor to the owner could not be
brought to tax under the law of sales tax.
 In view of judgment in Larsen & Toubro Ltd. v. State
of Karnataka [2013] 41 STT 113/38 taxmann.com 98
(SC), “predominant intention test” is no longer
relevant and, therefore, supply and installation of lift
cannot be treated to be a contract for sale.

 A lift comprises of components or parts [goods] like lift

car, motors, ropes, rails, etc. and each of them has its
own identity prior to installation and they are
assembled/installed to create the working mechanism
called lift.
 The installation of these components/parts with
immense skill is rendition of service, for without
installation in the building, there is no lift. Hence, it is a
works contract.
 Arguments of State of Maharashtra and Karnataka
and Union of India [‘Works Contract’] [Favouring
Assessee]
■ In the case of sale and installation of a lift or
elevator, the contract would include the obligation to
install the lift or to undertake any services in relation to
the lift
 and these elements of value need to be deducted while
taxing the sale of goods involved in such a contract. In a
given case, there can be a contract which is exclusively
for sale of lift,
 i.e., for sale of goods which does not include any labour
or service element at all where the lift is bought from a
manufacturer but a separate contract for installation is
entered into with an independent engineering contractor.
 Lifts are assembled and manufactured to suit the
requirement in a particular building and are not
something sold out of shelf and,

 in fact, the value of goods and the cost of the

components used in the manufacturing and installation
of a lift are subject to taxation while the element of
labour and service involved cannot be treated as goods.
 Parts of the lift are assembled at the site in accordance
with its design and requirement of the building which
may include the floor levels and the lift has to open on
different floors or otherwise depending upon the
requirement.
 It has to synchronize with the building and each door
has to open on the level of each floor and hence, by no
stretch of imagination, it can be treated as a manufacture
or mere supply but cumulatively considered, it is a
works contract and, more so, when the contract is a
composite or turnkey contract.
 Arguments of States of Orissa, Andhra Pradesh, Tamil
Nadu, Gujarat, Rajasthan, Haryana [‘Contract of
Sale’] [Against assessee]
■ Contract was for sale and supply of a lift to the
customer for a monetary consideration.
 A part of manufacture is carried out at the project site of
the customer and the skill and labour deployed in the
installation or the work done is merely a component of
the manufacturing process and, as a matter of fact, the
elevator is supplied to the customer only after its
erection/installation at the site.
 Where a manufacturer of lift first manufactures
components and then completes the manufacture of the
lift at the site and retains ownership in the components
as property while producing the completed lift, it is a
case of pure manufacture.
 It is contended by him that the phraseology used in the
contract is not decisive because it is the economic
reality which is decisive, for the installation is a part of
the manufacturing process resulting in the emergence of
the product of elevator which is contracted for.
 Even if high degree of skill and craftsmanship goes into
installation which is a part of the manufacturing
process, it is not more than erecting an article for sale
on the basis of a special order.

 The primary intention behind the demand of installation

of a lift is the intention to have the lift as a system and,
therefore, the work of installation merely fulfills the
erection and functional part of the system.
 The service or work element may be the means to
render a set of goods constituting a unit to be fit for use
and, in fact, the act of installation is to bring the goods
to use and hence, it is the culmination of the act of sale.

 Principle of “deliverable state” as used in section 21 of

the Sale of Goods Act, 1930 would be attracted and,
therefore, such a contract would be a pure contract for
sale of goods. “Dominant nature test” is still available.
 Issue Involved
 Whether a contract for manufacture, supply and
installation of lifts in a building is a “contract for sale
of goods” or a “works contract”?
 Consequent tax liability
 Judgment : (Majority)
 In State of Madras v. Gannon Dunkerley & Co.
(Madras) Ltd. AIR 1956 SC 560 it was held that if the
words “sale of goods” were to be interpreted in their
legal sense, that sense could only be what it was in the
law relating to sale of goods.
 To constitute a transaction of sale, there should be an
agreement, express or implied, relating to goods to be
completed by passing of title in those goods.
 On the true interpretation of the expression “sale of
goods”, there must be an agreement between the parties
for the sale of the very goods in which eventually
property passes and in a building contract,

 the agreement between the parties being to the effect

that the contractor should construct a building according
to the specifications contained in the agreement, and in
consideration therefore receive payment as provided
therein,
 there was neither a contract to sell the materials used in
the construction nor did the property pass therein as
movables and, therefore, it was impossible to maintain
that there was implicit in a building contract a sale of
materials as understood in law.
 A works contract could not have been liable to be taxed
under the State sales tax laws and whether the contract
was a works contract or a contract for sale of goods was
dependent on the dominant intention as reflected from
the terms and conditions of the contract and many other
aspects.
 No straitjacket formula could have been stated to be
made applicable for the determination of the nature of
the contract, for it depended on the facts and
circumstances of each case As the works contract could
not be made amenable to sales tax as the State
Legislatures did not have the legislative competence to
charge sales tax under Entry 48 List II of the Seventh
Schedule of the Constitution
 on an indivisible contract of sale of goods which had
component of labour and service and it was not within
the domain of the Assessing Officer to dissect an
indivisible contract to distinguish the sale of goods
constituent and the labour and service component.
 The aforesaid being the legal position, the Parliament
brought in the Forty-sixth Amendment by incorporating
Clause (29A) in Article 366 of the Constitution to undo
the base of the Constitution Bench decision in Gannon
Dunkerley case
 It is necessary to state here that if there are two
contracts, namely, purchase of the components of the lift
from a dealer, it would be a contract for sale and
similarly, if separate contract is entered into for
installation, that would be a contract for labour and
service.
 But, once there is a composite contract for supply and
installation, it has to be treated as a works contract, for
it is not a sale of goods/chattel simpliciter. It is not
chattel sold as chattel or, for that matter, a chattel being
attached to another chattel.
 Therefore, it would not be appropriate to term it as a
contract for sale on the bedrock that the components are
brought to the site, i.e., building, and prepared for
delivery. Hence, decision rendered in Kone Elevators
(supra) does not correctly lay down the law and it is,
accordingly, overruled.
 Orders - Concluded assessments which have attained
finality, to stand closed
 The show-cause notices, which have been issued by
taking recourse to reopening of assessment, shall stand
quashed. The assessment orders which have been framed
and are under assail before this Court are set aside.
 It is necessary to state here that where the assessments
have been framed and have attained finality and are not
pending in appeal, they shall be treated to have been
closed, and where the assessments are challenged in
appeal or revision, the same shall be decided in
accordance with this decision.
 Thus sale involves transfer of goods.
 Therefore the question naturally arises is what is
goods.
 Sec 2(d) of the CST Act defines that ----
 ‘goods’ includes all materials, articles,
commodities and all kinds of movable property,
but does not include newspapers, actionable
claims, stocks, shares and securities.
 So what is the attribute that is required to be
present to classify a thing as ‘Goods’ ----
 i) goods must be ‘movable’
 Electrical energy – State of A.P v NTPC (2002) 5
SCC 203.
 Ii) standing trees are not goods and are not
taxable.
 However standing timber is taxable if it is in a
deliverable state.
 In such a state it is ‘movable property’ and is
taxable. – State of Orissa v Titaghur paper mills
Co. Ltd. AIR 1985 SC 1293.
 Newspapers are really ‘goods’ in normal sense but
are specifically excluded in the definition of goods,
in view of entry no. 92 A of List I in the seventh
schedule of the constitution-Union List where
newspapers are specifically excluded from the
purview of tax.

 ‘Old Newspapers’ are also “Newspapers” as they
have element of new in them and as such cannot
be taxed. – Sait Rikhaji v State of A.P AIR 1991
SC 354.
 Whether Lottery tickets are ‘goods’. No. As Lottery
ticket is an actionable claim. Actionable claim has
been excluded from definition of goods and hence
is not goods for the purpose of levy of sales tax.
 ‘Software’ (branded as well as unbranded) is also
‘goods’. – Tata Consultancy Services v State of
A.P – AIR 2005 SC 371.
 Lottery tickets – Lottery ticket is actionable claim.
Actionable claim has been excluded from the from
definition of goods. Therefore lottery ticket is not
goods for purpose of levy of sales Tax. – Sun Rise
Associates v Government of NCT of Delhi. (20060
5 SCC 603 (5 member Constitution Bench)
  INTER STATE SALE.
 Tax on interstate sale can be levied only by
Union Government. The same is payable by the
dealer.

what is the charging section under which this

tax is payable by a dealer on all sale of goods
(other than electrical energy) effected by him in
the course of Interstate trade or Commerce.
 It is under Sec 6 (1) of CST as it imposes levy
on sale of goods in course of Interstate sale.

 i) Levy is on sale of goods (and not on

purchase).
 Ii) Sale is as defined in sec 2(g) of CST.
 Iii) sale should be of goods defined in section
2(d), however there is no levy on electrical
energy, though it is ‘goods’.
 Sale should be in course of interstate trade or
commerce as defined in Section 3.

 Sec 3 of CST defines Inter-State sale or purchase

as follows:
 A sale or purchase of goods shall be deemed to
take place in the course of inter-state trade or
commerce if the sale or purchase
 3a) occasions the movement of goods from one
state to another or
 3b) is effected by transfer of documents of title
of goods during their movement from one state to
another.
 Thus interstate sale can be as per section 3 (a) or
Sec 3(b).
 The first mode of transaction is called ‘direct
interstate sale’, while the second is called ‘sale
by transfer of documents’.
 What is a ‘Movement of goods’ - It commences as
soon as goods are handed over to transporter. The
‘movement’ is deemed continuous till the
delivery of goods is taken at the other end.
 Certain aspects of inter-state sale are as under:
 i) The sale and the movement of goods must form
part of the same transaction, both arising from
same contract or as an incident there to.
 Ii)A ‘complete’ Sale is required.
 Iii) Buyer & Seller may be in same state. – The
location of Buyer and Seller is immaterial.
 Therefore even if the buyer and seller are within the
same state, sale will be interstate sale, -- if the sale
occasions the movement of goods from one state
to another.
 Iv)There should be an express or implied stipulation
for the movement of goods outside the state.
 i.e there should be an agreement to sale which
contains a stipulation regarding movement of
goods from one state to another. It may be
express or implied.
 V) Complete sale may be before or after the
movement of goods. –
 The principle is that it is immaterial whether a
completed sale precedes the movement of
goods or follows the movement of goods or
takes place while goods are in transit.
 Vi) The movement of goods and the sale transaction
must be inseparably connected i. they should arise
from one and same contract.
 Vii) Goods must physically move from one state to
another. Here the principle is that unless goods
physically move from one state to another it
cannot be termed as inter-state sale.
 Viii)-- and such movement should be inextricably
connected with sale.
 Ix) Property in goods may pass in either state. Thus
it is of no consequence in which state the property
(ownership) of goods passes to the buyer.
 X) Sale can be interstate sale even if the buyer
takes delivery within the state of the seller.
 Eg: - If cement is issued within the state to a buyer
but as per the allotment order the buyer had to
necessarily take the goods out of the state,
 it is an inter-state sale – Mohanlal Hargovandas v
State of MP (1955) 6 STC 687 (SC).
 Inter state sale effected by transfer of
documents.
 Sec 3 (b) of CST provides for interstate by
transfer of documents of title to goods during the
movement from one state to another.
 Thus, Sec 3 (b) stipulates that a sale or purchase
of goods shall be deemed to take place in the
course of interstate trade or commerce if the sale
or purchase is effected by a transfer of
documents of title to the goods during their
movement from one state to another.
 Why is this definition under sec 3 (b) of the CST
important?
 ---- As all subsequent transactions inter-state
sales to registered dealers by transfer of
documents during the movement of goods are
exempt from sales–tax ----- if E-I, E-II form are
given.
 The first part of the definition deals with ‘Document
of title of goods? What is it.

 It means a document which evidences that the
person holding the document has title to
goods represented by the document.
 The importance of document of title of goods
is that if it is parted with it is as good as
parting with the ‘Goods’ which the document
represents.
 Now what is the document actually ?
 It is in form of a transport document called as ‘LR’
(Lorry receipt) in case of transport by road,
‘RR’ (Railway receipt) in case of transport by
rail, ‘BL’ (Bill of Lading) in case of transport by
sea ‘AWB’ (Air Way Bill) in case of transport by
air.
 It can also be in form of a godown receipt.
 The above is called document of title as one who
submits the same is entitled to get delivery of
goods, if the document is in his name or endorsed
in his name.
 The second part of the definition speaks about
‘during the movement of goods’. What does it
exactly mean?
 Illustration :
 If goods are booked from Hyd to Mumbai by
railway, movement of goods will commence as
goods are handed over to railway booking office at
Hyd for transport. The movement will deemed to
continue even if goods reach Mumbai and are
lying in the possession of the railways.
 Movement will deemed to have been
terminated only when delivery of goods is
taken at Mumbai on the submission of RR.
 On significant aspect is about stock/branch
transfer, where goods move from one state to
another, but there is no ‘sale’ because goods are
sent to branch, or depot or consignment agent in
another state.
 Now every sale is not taxable. The following
transactions have been excluded from the liability
of CST.

 a) Sec 6(2) of CST provides that no tax is leviable

on in respect of subsequent sales during
movement of goods, if E I & E II forms are given.

 b) Sec 6(3) of CST provides that no tax is leviable

on supplies to foreign diplomatic mission, UN,
International organizations.
 c) Sec 8(1) of CST provides for lower /nil sales tax
rate when sale is to registered dealer.
 d) proviso to section 6(1) of CST provides that no
tax is payable when sale is penultimate to export
as defined u/s 5(3)
 e) Sec 8(6) of CST states that no tax is payable if
sale is to SEZ developer and SEZ unit.
 f) sale during export/import is not taxable, as
charging section 6(1) levies tax only on inter-state
sale.

 Sec 8(5) empowers State Government to grant

partial or full exemption by issue of notification.
Proviso to section 8(1) of CST empowers Central
Government to reduce rate of tax.
  VAT
 Background:
 Tax on sale within the state is a State subject.

 As states had exclusive jurisdiction over the tax on sale

within the state there began a unhealthy competition
among states, each of them giving tax incentives to
gain more revenue and as a result “tax rate war”
started.
 Therefore in order to streamline and rationalize tax
structure many steps were taken since 1999.
 Primary among them, was to introduce Uniform
State level, VAT.
 The introduction of VAT is difficult in India as sales
tax is a state subject.
 After a lot of persuasion by the Central Government
all states finally agreed to introduce State Level
Sales Tax at a conference in November 1999.
 Thereafter ultimately a ‘White Paper’ was released in
17/1/2005 wherein it was announced that all the
States have agreed to introduce VAT fro 17/1/2005.
 What is a ‘White Paper’. It is a policy document
indicating basic policies of State Sales Tax (VAT).
 Now what is the concept of VAT – How does it
work.
 It works on the principle that ---- when a raw
material passes thru’ various manufacturing stages
and the manufactured product passes thru’ various
distribution stages ------
 Tax should be levied on ‘value added’ at each
stage and not on gross sale price.
 This ensures that the same commodity does not
get taxed again and again and thus there is no
‘cascading’ effect.
 ‘Value added’ means the difference Between
the selling price and purchase price.
 So what is VAT?
 VAT is a multi-point tax, with provision for granting
set off (credit) of the tax paid at the earlier stage.
Thus what happens is that tax burden is passed on
when goods are sold. The process continues till
goods are finally consumed.
 Thus VAT works on the principle of ‘tax credit
system’.
 VAT avoids the cascading effect of a tax.
 So what is this cascading effect of tax mean?
 What is a tax related to. It is generally related to
selling price of the product.
 In modern production technology raw material
passes
 thru’ various stages and processes till it reaches ultimate
stage.
 Illustration:
 Steel Ignots - (made in steel mill)

 rolled into plates – (by re-rolling unit)

 Furniture is made from the plates – (by manufacturer)

 Therefore the output of the first manufacturer
becomes input of the second manufacturer, who
carries on further processing and supplies it to the
third manufacturer. This process continues till final
product emerges.
 The same then goes to distributor/wholesaler, who
sells it to the retailer and then it reaches the
ultimate consumer.
 However if the tax is based on the selling price of
the product, the tax burden goes on increasing as
the raw material and final product passes from on
stage to another.
 Illustration :
 For example, tax on a product is 10% of selling
price.
 Manufacturer A supplies his material to B at Rs
100.
 Therefore B gets the material at Rs 110. (which is
inclusive of 10% tax)
 B carries out further processing and sells the same
to C at Rs 150. ---- While calculating his cost B has
considered his purchase cost of materials at Rs
110 and added Rs 40 as his processing charges.
 While selling the product to C, B will again charge
10% tax. Thus C will get the product at Rs 165.
(Rs 150 + 10% tax).
 Actually , ‘value added’ by B is only Rs 40 tax on
which would have been only Rs 4. However in fact the
tax paid was Rs 15.
 Thus, as the stages of production and/or sales continue
each subsequent purchaser has to pay tax again and
again on the material on which tax is already charged
once.
 Thus we find that B is paying tax not only on his
contribution of Rs 40 but also on Rs 100 and
Rs 10. Thus, same material gets taxed again and
again and there is also tax on tax.
 As stages of production and/or sales continue,
each subsequent purchaser has to pay tax again
and again on the material which has already
suffered tax. Tax is also paid on tax.
 Therefore we can say Tax is paid on Tax. This is
called as the ‘cascading effect of tax’.
 Disadvantages of cascading effect to taxes.
 A tax purely based on selling price of a product has a
cascading effect and thus has the following
disadvantages:
 i) Computation of exact tax content difficult – It
becomes very difficult to know the real tax content in
the price of a product, as the product passes thru’
various stages and tax is levied at each stage.
 Ii) Varying tax burden – Tax burden on any
commodity will vary widely depending upon the
number of stages thru’ which it passes from the first
producer to the ultimate consumer.
 Iii) Discourages ancillarisation – What does
ancillaristion mean. It means getting most of the
parts/components manufactured from outside for
making a final assembly and thereby manufacturing the
item. This is resorted to by large scale manufacturer’s
like automobile manufacturer.
 However if parts/components are procured from outside
tax is payable on the same.
 However if the parts/components are manufactured
inside the factory instead of procuring it from outside
then no tax will be payable. As a result of this
manufacturer’s are tempted to manufacture themselves.
Therefore as a result the ancillary units who are engaged
in the manufacture of parts/components are put at a loss.
 Iv) Concessions based on the end use not possible –
Same article may be used for various purpose. For eg:
Copper may be used for utensils,
 Electric cables or air conditioners. One way of
levying a tax is depending upon the use.
 However this is not possible when copper is
cleared from the factory as its final use is not
known.
Therefore in order to avoid cascading effect system
of VAT was introduced.
The system of VAT works on tax credit method. In
tax credit method of VAT, the tax is levied on
full sale price, but credit given of tax paid on
purchases.
 Thus tax is levied only on value added. Most of the
countries have adopted the tax-credit method for
implementation of VAT. - Illustration.
Transaction without VAT Transaction with VAT

Details A B A B

Purchases - 110 - 100

Value added 100 40 100 40

SubTotal 100 150 100 140

Add Tax 10% 10 15 1010 14

Total 110 165 110 154

 B is purchasing goods from A. In second case, his
purchase price is Rs 100 as he is entitled to VAT
credit of Rs 10 i.e tax paid on purchases. His
invoice shows tax paid at Rs 14. However, since
he has got a credit of Rs 10, effectively is paying
only 4 as tax., which is 10% of 40, i.e 10% of
‘value added’ by him.
 Thus ‘Value added’ means the difference
Between the selling price and purchase price.
 Invoice Based Tax Credit
 For obtaining Tax credit, the basis will be ‘tax
invoice’ which is nothing but a cash memo or
bill.
 Who can issue such invoice? It can be issued only
by a registered dealer who is liable to pay sales
tax.
 Most of the countries have adopted the tax-credit
method for implementation of VAT.
 The system of VAT works on tax credit method.
In tax credit method of VAT, the tax is levied on
full sale price, but credit given of tax paid on
purchases.
 Thus tax is levied only on value added. - Tax
should be levied on ‘value added’ at each stage
and not on gross sale price.
 Mr M a manufacturer sells goods to Mrs. D a
distributor for Rs 2000/- (excluding VAT). Mrs. D
sells goods to Mr. W a wholesale dealer for Rs
2400/-. In turn Mr. W sells the goods to Mrs. R a
retailer for Rs 3000/- who ultimately sells the
goods to consumers for Rs 4000/- Compute VAT
liability, VAT being 12.5%
 M (Manufacturer) D (Distributor) W(Wholesaler) R (Retailer)

Net Price 2000 2400 3000 4000

VAT@12.5 250 300 375 500

Sale Price 2250 2700 3375 4500

VAT credit NIL 250 300 375

payable
Net VAT 250 + 50 + 75 + 125 = 500
payable
 Compute Net VAT liability of Rishab using the following
information:
 Raw material purchased from foreign market including duty
of import at 20% -- 12000/-
 Raw material purchased from local market including VAT
on the material at the rate of 4% - 20000/-
 Raw material purchased from neighboring state (including
CST paid @ 2%) 7140/-
 Storage transportation cost – 2500/-
 Other manufacturing expenses incurred – 600/-Rishab sold
the goods to Raju and earned a profit of 10% of cost of
production. VAT rate on sale of such goods is 12.5%
Solution : Computation of VAT liability

Imported Goods (Imported duty is not eligible as input credit, hence import duty will form part of cost) 12000/-

Local Purchases (Input VAT is eligible for credit hence will not form part of the cost) 20000/-

Storage transportation cost, interest & other Manufacturing expenses 3100/-

Purchases from other state (CST is ineligible for credit hence will not form part of the cost) 7140/-

Total Cost 42240/-

Add profit at the rate of 10% 4224/-

Sale Price 46464/-

Add VAT @ 12.5% on sale price 5808/-

Total invoice price 52272/-

VAT on Sales 5808/-

Less : Credit of VAT paid on local purchases 800/-

VAT payable in cash 5008/-

  SERVICE TAX.
 1) Introduction
 2) Constitutional provisions
 a)authority-schedule-entries-application
retrospective effect – new section 93B from
28/5/2012.
 Definition – 65B(44), 66(E)
 3) Essentials of service tax –
 a) parties
 b) liability to pay service tax
 4) Nature & Scope Levy –
 a) Taxable service/event.
 i)Taxable events – Entering into contract for
service – service tax is payable after payment is
made by a party i.e the customer, though
contract is entered into and service is already
provided.
 However the receipt of payment is not a taxable
event. The Service provided is the taxable
event.
 Ii) The second type of taxable event is where
contract for providing service has already being
entered into before the service become taxable,
but service was provided after the service
became a taxable service.
 Iii) service to be provided is also a taxable event.
Service tax becomes payable as soon as payment
is received, even if service is provided later.
 Iv) Thus liability of service tax arises –
 when service is provided and invoice is not issued
within 14 days,
 date of invoice if invoice issued within 14 days,
 date of payment if advance received prior to
provision of service
 No tax payable if payment received after service
becomes taxable ---
 Instance of the above is when a person may
provide service prior to imposition of service tax
but payment is made only after the service
becomes taxable.
 The Normal Rule is that the person rendering
service is liable to pay tax.–
Exception-The Reverse Charge

 However, in few cases, exceptions have been made

and service receiver is made liable to pay service tax.

 The provision that service receiver is liable to pay

service tax is termed as ‘Reverse Charge’.
  CENTRAL EXCISE
 Central Excise is a duty on excisable goods
manufactured or produced in India, other than
alcoholic liquor.
 Duty liability is principally on ‘manufacturer’,
except in a few cases.
 It is a procedure oriented piece of legislation.
The basic theme is to keep control over
manufacture, storage and clearance of goods to
reduce duty evasion.
 Power of Taxation under Constitution of India is as
follows :
 (a) The Central Government gets tax revenue
form Income-tax (except on Agricultural Income),
Excise (except on alcoholic drinks) and
Customs.
 (b) The State Governments get tax revenue from
sales tax, excise from liquor and alcoholic drinks,
tax on agricultural income.
 List I : Union List :
 Entry No. 84 Duties of excise on tobacco and other
goods manufactured or produced in India except
alcoholic liquors for human consumption, opium
narcotics, but including medical and toilet preparations
containing alcohol, opium or narcotics.
 Entry No. 97 Any other matter not included in the
List II, List III and any tax not mentioned in List II or
 List III
 List-II i.e. the State List, in respect of which the
State Government has exclusive powers to levy
taxes, are as follows :
 Entry No. 51 Excise duty on alcoholic liquors,
opium and narcotics.
 List-III : Concurrent List — List III of Seventh
Schedule, called “concurrent list”, includes matters
where both Central Government and State
Government can make laws.
 LAWS RELATING TO CENTRAL EXCISE
 Central Excise Act, 1944(CEA) : The basic Act
which provides the constitutional power for
charging of duty, valuation , powers of officers,
provisions of arrests, penalty, etc.
 Central Excise Tariff Act, 1985 (CETA): This
classifies the goods under 96 chapters with
specific codes assigned.
 Central Excise Rules, 2002: The procedural
aspects are laid herein. The rules are implemented
after issue of notification.
 The duty of Central Excise is levied if the following
conditions are satisfied :
 (1) The duty is on goods.- i.e article must be goods, it
should be movable and marketable.
 (2) The goods must be excisable.- it must be included
in CETA.
 (3) The goods must be manufactured or produced
 (4) Such manufacture or production must be in India.
 In other words, unless all of these conditions are
satisfied, Central Excise Duty cannot be levied.
 Ownership of raw material is not relevant for duty
liability -

 Hindustan General Industries v. CCE 2003 (155)

ELT 65 (CEGAT)
 CCE v. Mahindra & Mahindra 2001(132) ELT 632
(CEGAT).
 The taxable event is of great significance in levy of
any tax or duty. Excise duty is leviable on all
excisable goods, which are produced or
manufactured in India.
 Thus, ‘manufacture or production in India’ of
an ‘excisable goods is a ‘taxable event’ for
Central Excise.
 It becomes immaterial that duty is levied and
collected at a later stage i.e. at the time of removal
of goods. Therefore, removal from factory is not
the ‘taxable event’.
 Rule 4(1) of the Central Excise Rules, 2002
provides that every person who produces or
manufactures any excisable goods, or who stores
such goods in a warehouse,
 shall pay the duty leviable on such goods in the
manner provided in Rule 8 or under any other law,
and
 no excisable goods, on which any duty is payable,
shall be removed without payment of duty from
any place, where they are produced or
manufactured or from a warehouse, unless
otherwise provided.
 Thus it can be concluded that the following
persons shall be liable to pay excise duty :
 (i) A person, who produces or manufactures any
excisable goods,
 (ii) A person, who stores excisable goods in a
warehouse,
 (iii) In case of molasses, the person who procures
such molasses,
 (iv) In case goods are produced or manufactured on
job work,
 (a) the person on whose account goods are
produced or manufactured by the job work, or
 (b) the job worker, where such person authorizes
the job worker to pay the duty leviable on such
goods.
 Goods manufactured or produced in SEZ are
“excluded excisable goods”.
 This means, that the goods manufactured or
produced in SEZ are “excisable goods” but no duty
is leviable, as charging section 3(1) excludes these
goods.
 Thus, the goods manufactured in SEZ are not
“exempted goods”. They can be termed as
“excluded excisable goods”.
 The word ‘goods’ is not defined under Central
Excise Act, but it includes any article, material or
substance which is capable of being bought
and sold for a consideration and such goods
shall be deemed to be marketable’.

 Basic Ingredients
 From the above definitions of ‘goods’, the two
essential elements of goods are :
 (i) They should be movable, and
 (ii) They should be marketable.
 Goods must be movable
 In order to be movable, an article must fulfill two
conditions:
 (i) It should come into existence (as a result of
manufacture); and
 (ii) It should be capable of being moved to market
to be bought and sold.
 Thus, goods must exist. Where goods have not
come into existence, they can not be moved as
well.
 So long as the goods have not come into
existence, no question of levy of excise duty would
arise. It has been observed that the word
‘manufacture’ or ‘production’ are associated with
movables.
 CBEC has clarified that whatever is attached to
earth, unless it is like a tree/building/similar thing,
shall not necessarily be regarded as immovable
property if the whole purpose behind such
attaching to the concrete base is to secure
maximum operational efficiency and safety.
 Thus, excise duty cannot be levied on immovable
property.
 Goods must be marketable
 Marketability denotes the capability of a product, of
being put into the market for sale. Where goods
are not marketable, excise duty cannot be charged
on them. Marketability is the decisive test for
durability. The article must be capable of being
sold to consumer without any additional thing.
 The test of marketability will depend on the facts
and circumstances of each case.
 It is a question of fact. Marketability is to be
decided on the basis of condition in which goods
are manufactured or produced.
 Everything that is sold is not necessarily
‘marketable’.
 Waste and Scrap can be ‘goods’ but dutiable only
if ‘manufactured’ and are mentioned in Tariff.
 The marketability test requires that the goods as
such should be in a position to be taken to market
and sold.
 If they have to be separated, the test is not
satisfied. Thus, if machinery has to be dismantled
before removal, it will not be goods -
 MANUFACTURE OR PRODUCTION
 According to Section 2(f) of Central Excise Act
“manufacture” includes any process: -
 i). Incidental or ancillary to the completion of
manufactured product or
 ii). Which is specified in relation to any goods in
the Section or Chapter notes of the Schedule
to the Central Excise Tariff Act, 1985 as
amounting to manufacture, or
 iii. Which, in relation to goods specified in
third schedule to the CEA, involves packing
or repacking of such goods in a unit container
or labelling or re-labelling of containers or
declaration or alteration of retail sale price or
any other treatment to render the product
marketable to consumer.
 GOODS AND SERVICES TAX ACT, 2017

 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 where burden borne by final consumer.

 GST eliminate cascading effect of tax.

 GST brings uniform tax structure all over India.
  Brief History of GST
 Key milestones of the journey of GST in India :
 2003: The Kelkar Task Force on Indirect Tax had
suggested a comprehensive Goods and Services Tax
(GST) based on VAT principle.
 2007: An announcement was made by the then Hon’ble
Union Finance Minister in the Central Budget
(2007- 08) to the effect that GST would be introduced
with effect from April 01, 2010.
 November, 2009: Based on inputs from Government(s)
of Centre and States, Empowered Committee released
its First Discussion Paper on GST.
 March, 2011: The Constitution (One Hundred and
Fifteenth Amendment) Bill, 2011 to give concurrent
taxing powers to the Union and States was introduced in
Lok Sabha.
 The Bill suggested the creation of Goods and Services
Tax Council and a Goods and Services Tax Dispute
Settlement Authority.
 The Bill lapsed in 2014 and was replaced with the
Constitution (122 Amendment) Bill, 2014.
 November, 2012: A “Committee on GST Design”,
consisting of the officials of the Government of India,
State Governments and Empowered Committee (EC)
was constituted.
 January, 2013: The Empowered Committee deliberated
on the proposed the design including the Constitution
(115 ) Amendment Bill and submitted the report.
 December, 2014: The Constitution (One Hundred and
Twenty-Second Amendment) Bill, 2014 seeking to
amend the Constitution to introduce the Goods and
Services Tax (GST) and subsume state
Value Added Tax, octroi and entry tax, luxury tax, etc.
was introduced in the Lok Sabha on December 19, 2014
by the Hon’ble Minister of Finance, Mr. Arun Jaitley.
 Constitution Amendment (122 ) Bill was passed by Lok
Sabha on May 06, 2015.
 On June 14, 2016, the Ministry of Finance released draft
model law on GST in public domain for views and
suggestion.
 On August 03, 2016, the Constitution (122 Amendment)
Bill, 2014 was passed by Rajya Sabha with certain
amendments. The changes made by Rajya Sabha were
unanimously passed by Lok Sabha, on August 08, 2016.
 September, 2016: The Bill was adopted by majority of
State Legislatures wherein approval of at least 50% of
the State Assemblies was required
 September, 2016: Final assent of President of India
was given on 8th September, 2016
 April, 2017: Parliament passed the Goods and
Services Tax Bill
 • GST came to be implemented from 1st July 2017.
 ADVANTAGES OF GST
 (a) One Nation One Tax.
 (b) Removal of bundled indirect taxes such as VAT,
CST, Service tax, Excise Tax.
 (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.

 (f) It will boost export and manufacturing activity,

generate more employment and thus increase GDP with
gainful employment leading to substantive economic
growth;
 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.

 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.
 2. 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.
 (3) Cascading of taxes on account of levy of CST
Inter-state purchases:
 (4) The existing Indirect Tax frame work in India
suffer from various duties and taxes at Central as
well as at State level:
 Existing Indirect Taxes subsumed by GST:
 Taxes currently levied and collected by Centre:
 Central Excise Duty
 Customs Duty
 Service Tax
 State Taxes subsumed under GST
 Value Added Tax (VAT)
 Central Sales Tax Act
 Entertainment Tax
  CONSTITUTIONAL PERSPECTIVE OF GST
 Introduction of GST required amendments in the
constitution so as to simultaneously empower Centre
and States to levy and collect this tax.

 Since state governments have their interest in GST,

implementation of GST could not take place without
amendment to the constitution.
 CONSTITUTION [101 ST AMENDMENT] ACT, 2016
 For this purpose, 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. GST will be levied on all supply of goods
and services except alcoholic liquor for human
consumption. Parliament will retain exclusive
power to legislate on inter-state trade or
commerce.
 (e) According to Article 269A of Constitution tax will
be levied and collected between Union and States as
per recommendations of GST Council.
 (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 recommends the date
from which GST is imposed on these products
(except alcoholic liquor for human consumpiton),
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.
 As a result, the following bill became an Act on 12th
April 2017:
 ● Central Goods and Services Tax Act, 2017
 The Central Government notified 1st July, 2017 as the
date from indirect tax reform in India, i.e Goods and
Services Tax (GST) has been implemented.
 Accordingly, Goods and Services Tax (GST) has been
implemented in India w.e.f. 1st July, 2017.
  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.
 Constitutional Validity of GST
 Mohit Minerals Pvt. Ltd v UOI (2017) 84 Taxmann
268 Delhi-
 FACTS
 The assessee, a trader in coal, filed a writ petition
challenging the constitutional validity of the Goods and
Services Tax (Compensation to States) Act, 2017. It
stated that prior to the impugned Act, under the Finance
Act, 2010, with effect from 1-7-2010, a Clean Energy
Cess was levied under Chapter VII.
 As a result, on every metric tonne of coal that was sold,
it was required to pay initially a cess at the rate of
Rs. 100 per tonne which was progressively increased
and stood at Rs. 400 per tonne as on the date of its
abolition when the new GST regime was introduced.
 It brought to the notice of the Court that section 18 of
the Taxation Laws (Amendment) Act, 2017 states that
enactments specified in the third column of the Third
Schedule thereto stand repealed to the extent specified
in the fourth column thereof.
 Under the Third Schedule has been included the entire
Chapter VII of the Finance Act, 2010. Chapter VII
pertained to the Clean Energy Cess.
 In other words, with effect from 1-7-2017 the Clean
Energy Cess levied under the Finance Act, 2010 stands
abolished.
 Clause 4(a) of article 279A of the Constitution of India,
which was inserted by the Constitution (One Hundred
and First Amendment) Act, 2016 states that the Goods
and Services Tax Council (GST Council) shall make
recommendations to the Union and States on ‘the taxes,
cesses and surcharges levied by the Union, the States
and local bodies which may be subsumed in the Goods
and Services tax.’
 Further clause 4(f) states that the GST Council may
recommend special rates for a specified period ‘to raise
additional resources during any natural calamity or
disaster.’
 The idea was to have all the cesses and levies
abolished and subsumed under the GST. Additional
revenue could be raised only for natural calamities
and disasters.
 It pointed out that the Parliament did not propose or
intend to use the GST regime to impose new cesses.
 Significantly clause 18 of the Constitution (One
Hundred and Twenty-Second Amendment) Bill, 2014
contemplated levying an additional tax not exceeding 1
per cent on supply of goods in the course of inter-State
trade or commerce.
 Such additional tax was to be levied for a period of two
years or for such other period as the GST Council
recommended and was to be assigned to the States in
the manner prescribed there under.
 However, when the Bill was debated in the Parliament,
clause 18 was dropped. What was clause 19 of the said
Bill been enacted as section 18 of the COI 101st
Amendment Act.
 It states that the parliament shall, by law, on the
recommendation of the GST Council, provide for
compensation to the States for loss of revenue arising on
account of implementation of GST, for a period which
may extend to 5 years.

 The crux of the assessee’s submission is that section 18

of the COI 101st Amendment Act does not enable the
Parliament to levy any cess which stood abolished in
terms of the Third Schedule of the TLA Act.
 Even if the purpose was to compensate the States for
loss of revenue, that had to be done by some other
means. Section 18 does not permit the levy of such cess.
 HELD
When the Goods and Services Tax (Compensation to
States) Bill, 2017 was introduced in the Parliament, it
made an express reference to only section 18 of the COI
101st Amendment Act.
There is merit in the contention of the assessee that the
power of Parliament to enact the impugned Act cannot
be traced to section 18 of the COI 101st Amendment
Act.

There is, therefore, a prima facie case made out as

regards the legislative competence of the Parliament to
enact the impugned Act.
 Another aspect of the matter is that section 8 of the
impugned Act contemplates levy of ‘a cess on such
intra-State supplies of goods or services or both’, the
same that is provided in section 9 of the Central Goods
and Services Tax Act, 2017 [CGST Act]

 and such ‘inter-State supply of goods and services or

both’ as provided for in section 5 of the Integrated
Goods and Services Tax Act, 2017 [IGST Act].
 Therefore, it is clear that cess is being levied on the
same taxable event that is the subject matter of the levy
under the CGST and IGST Acts viz. supply of goods
and services
 For the purpose of providing compensation to States for
loss of revenue arising out of the implementation of the
GST regime, section 8 contemplates the cess being
collected in such a manner as may be prescribed. This
has led to the enactment of the Goods and Services Tax
Compensation Cess Rules, 2017.
 Notification No. 1/2017-Compensation Cess (Rate),
dated 28-6-2017 issued by the Ministry of Finance,
Department of Revenue has re-introduced the cess at the
rate of Rs. 400 per tonne of coal.

 If the Act is vulnerable to being challenged for lack of

legislative competence that the Rules can fare no better.
 The situation in which the assessee is placed is that, for
stocks of coal on which it has already paid the Clean
Energy Cess, it has to again pay the fresh levy of cess at
the rate of Rs. 400 per tonne under the impugned Act.
Further for the Clean Energy Cess that was already paid
by the assessee under the Finance Act, 2010 no input
credit is given.
 The assessee states that it is a bona fide trader in coal,
carrying on business for a long time.
 The immediate concern is that for the transactions that
are to take place, it is required to make payment of the
additional levy as cess which, according to it, is clearly
without the authority of law. The representations made
by the assessee to the GST Council and to the Central
Government have not received any response.

 The Court, at this stage, is of the view that, the assessee

has made out a prima facie case for partial ad interim
relief subject to conditions.
 As far as the additional levy on the stocks of coal on
which it has already paid the Clean Energy Cess in
terms of Finance Act, 2010, it should not be required to
make any further payment.

 However, on stocks of coal on which no Clean Energy

Cess under the Finance Act, 2010 was paid, any
payment made in terms of the impugned Act would be
subject to the result of the petition.
  IMPORTANT DEFINITIONS UNDER
 CGST LAW
 (1) 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;
 (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; 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;
 (2) 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.
 (3) Sec 2(45), Electronic Commerce Operator
means: Any person, who owns, operates or
manages digital or electronic facility or platform
for electronic commerce.
 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.
 (5) 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;
 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 : (1) Alcoholic Liquor for human

consumption is Non-taxable Supply. (2) Sale of
Land etc.
 Sec 2(84), “person” includes— (a) an individual;
 (b) a Hindu Undivided Family;
 (c) a company;
 (d) a firm;
 (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
 (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 of the Companies Act,
2013;
 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;
 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;
 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;
 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;
 Section 2(105), “supplier” in relation to:
 Any goods or services or both, shall mean the
person supplying the said goods or services or both
 and shall include an agent acting as such on behalf
of such supplier in relation to the goods or services
or both supplied;
 Section 2(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) or section 24 (i.e.
Compulsory registration under GST).
 Section 2 (108), “taxable supply” means: A supply
of goods or services or both which is leviable to tax
under this Act;
  LEVY AND COLLECTION OF TAX

 Article 265 of the Constitution of India mandates that no tax

shall be levied or collected except by the authority of law.
The charging section is a must in any taxing statute for
levy and collection of tax.
 Before imposing any tax, it must be shown that the
transaction falls within the ambit of the taxable event
and
 that the person on whom the tax is so imposed also gets
covered within the scope and ambit of the charging
Section by clear words used in the Section.
 No one can be taxed by implication.
 Section 9 is the charging provision of the CGST Act.
It provides that all intra-State supplies would be
liable to CGST.
 The levy is on supply of all goods or services or both
except on the supply of alcoholic liquor for human
consumption. Besides, supply of petroleum crude, high
speed diesel, motor spirit (petrol), natural gas and
aviation turbine fuel are also included in GST.
 However, the tax will be levied on these goods only
with effect from such date as may be notified by the
Government after recommendation of the Council.
 Under the GST law, the levy of tax is as follows:

 (a) In the hands of the supplier - on the supply of goods

and/or services (referred to as tax under forward charge
mechanism);
 (b) In the hands of the recipient – on receipt of goods
and / or services (referred to as tax under reverse charge
mechanism)
 (iv) In the normal course, the tax would be payable by
the supplier of goods and / or services. However, in
specific cases (as may be notified), the onus of payment
of tax is shifted to the recipient of goods and / or
services.
 To impose tax on reverse charge basis, the following
conditions would be mandatory: (a) Notification to be
issued by the Central Government specifying the
categories of supply of goods and / or services.
 (b) Should be notified only on recommendation of the
Council.
 When the goods/ services are supplied by a supplier,
who is un-registered person
 to a receiver, who is registered person, the liability to
pay tax on such supplies will be on recipient under
reverse charge basis.
 Thus, a registered person would be required to pay GST
on all supplies received by it from un-registered
persons.
 - This is applicable to both, goods as well as, services.
 Ex: Mr A is not registered in GST as his aggregate
turnover of taxable supplies is below threshold limit.
Mr. B purchased goods from Mr. A. In such case, Mr. A
would be required to pay tax under reverse charge on
value of such goods.
 AUTHORITY FOR ADVANCE RULINGS,
MAHARASHTRA Reliance Infrastructure
Ltd., In re. [2018] 93 taxmann.com 100
(AAR - MAHARASHTRA)
 The applicant was engaged in business of
generation, transmission and distribution of
electricity
 which called for laying and maintenance of
power lines and other incidental work
which required digging up of trenches.
 Applicant being a distribution licensee would be
required to make payment of reinstatement
charges for the reinstatement of trenches arising
out of the excavation work done by the distribution
licensees and

 access charges to the Municipal Authorities to

carry out the excavation of roads for laying, repair
and maintenance of electric supply lines.
 ISSUES
 i. Whether reinstatement charges paid to
Municipal Authorities would he liable to
GST?

 ii.Whether access charges paid to

Municipal Authorities would be liable to
GST?
 Held :
 The following observations were made :
 a. The questions are raised by the recipient and not
by the supplier.

 c. There is also a Demand Note No. 783184406 dated

16-10-2017 which informs the applicant in response to
their application to undertake excavation in trench.
 It is categorically mentioned that payment of
reinstatement charges do not guarantee the grant
of permission.
 c. The Permit issued for the location of the trench
as specified therein states that simultaneous work
order for reinstatement is issued to Ward
Contractor and further that he will take up the
work on the date of completion of the applicant’s
work mentioned in the permit or in phases as per
clause No. 10 of the Permit.
 The applicant herein is Reliance Infrastructure
Limited and the supply would be by the Municipal
authorities. As can be seen the issue is in respect of
the supply undertaken or proposed to be
undertaken by the Municipal authorities. ■
 when the services are supplied by the local
authority, the GST Act has cast the duty on
the recipient of service to pay the tax on
reverse charge basis as if he is the person
liable to pay the tax in relation to the
supply.
 In the instant case, it is informed that the service
would be provided by the Municipal authorities.
 Therefore, in view of the above entry in the notification
issued for the purposes of section 9(3) of the GST Act,
the applicant would be liable to pay tax in respect of
the services received from the Municipal authorities.
Hence the questions are valid.
 Question 1
 Whether reinstatement charges paid to
Municipal Authorities would be liable to GST?
 It has been contended by the applicant that the service
falls under entry 4 of Notification No. 12/2017 -
Central / State Tax (Rate), dated 28-6-2017.
 The entry covers services provided by a local authority.
However, it has been specifically mentioned
that the service has to be by way of any activity
in relation to any function entrusted to a
municipality under article 243 W of the
Constitution.
 The, word ‘Municipality’ is defined in the Constitution
in the definitions in article 243P(e)A to mean an
institution of self-government constituted under article
243Q.
 ‘Roads’ is a matter listed in the Twelfth Schedule.
So there is a function of a Municipality in relation
to ‘Roads’.
 It is seen above that the Constitution defines
‘Municipality’ as an institution of self-government.
 The function as entrusted by the
Constitution in relation to ‘Roads’ is the
construction of roads for the use by the
general public.
 These are sovereign functions. The applicant is
inter alia engaged in the business of generation,
transmission and distribution of electricity.

 This calls for laying and maintenance of the power

lines and other incidental work which requires the
digging up of trenches.
 The Municipal Authorities grant the needful
permissions. However, these permissions come
with charges for restoring the street or pavement
which has been dug up.

 Thus, the activity in the instant case is the charges

recovered by the Municipal Authorities to restore
that portion of the street or pavement which has
been dug up. It does not amount to
construction of the entire road, as such.
 The copies of the application for undertaking
excavation work reveal that the permission was
sought and was granted for a trench of length/area
of 10 mtrs.

 The function in relation to ‘Roads’ as

entrusted by the Constitution does not
entitle the Municipality, as the one
performing the function, to receive any
charges from anyone for doing the said
work.
 It is by nature a sovereign function done for the
community at large. These are governmental
functions which are legislated to be performed by
the Municipalities. Such functions are in the nature
of performing works for the public.
 In the instant case, the business entities while
performing their business activities request the
Municipal Authorities to be allowed to dig up
trenches for works such as laying or repairing
some cables or pipes.
 There are so many such entities such as the
telephone, gas, etc. Each time each one of them
digs up the road and there is restoration required
to be done. This restoration work would not
result in performing of the sovereign
function.

 The sovereign function has already been

performed by constructing the road or
undertaking maintenance works of the
roads.
 The restoration work can be equated neither to
construction work nor to maintenance work as
suo-motu undertaken by the Municipal Authorities.

 The restoration charges are also not in the

nature that the Municipal Authorities are
performing any job of construction for the
applicant.
 The street or pavement or road that is dug up is a
general road.
 In view of all above, it is firmly viewed that it
should not be disputed that the recovering of
charges for restoring the patches which have been
dug up by business entities of the nature

 as the applicant cannot be equated to performing a

sovereign function as envisaged under article
243 W of the Constitution.
 The applicant has made a whole lot of arguments
to hold that the recovering of charges for the
restoration of the street or pavements amounts to a
service activity in relation to a function entrusted
to a municipality under article 243 W of the
Constitution.

 However, the arguments fail to make a point.

 It is found that there is no other entry in the
Schedule contained in the Notification
No.12/2017-Central/State Tax (Rate) for
services exempted from GST which would cover
the impugned transaction.
 Neither is a specific entry for the impugned
transaction in the Notification No. 11/2017-
Central/State Tax (Rate) for services taxable to
GST at various rates.
 In view thereof, the residuary entry No.35 of the
Notification No.11/2017-Central/State Tax (Rate)
covering ‘services nowhere else classified’ and
attracting GST at the rate of 18 per cent would be
applicable.
 Question 2-
 Whether access charges paid to Municipal
Authorities would be liable to GST?
 ■ The reinstatement charges apply towards
restoration of excavation work on the roads carried out
by the various business entities providing services such
as gas, telephone, electricity, etc.
 The Guidelines for Trenching activity-2015
[No:AMC/ES/7725/II, dated 18-12-2014 - policy
guidelines for granting trench excavation
permissions to underground service provider
Utility agencies and Municipal agencies & the
reinstatement of trenches]
 as provided by the applicant state that in addition
to the regular RI charges, access charges for
right of way will be recovered by MCGM
from all utilities which lay underground
services below MCGM roads.
 This statement helps to understand the position as
respects MCGM [Municipal Corporation of Greater
Mumbai], that these charges would be exigible to
GST is not doubtful even to the applicant and the
same is agreeable.

 However, the applicant has made a general query

as regards access charges paid to Municipal
Authorities. There is no further information than
the receipt raised and the policy guidelines of
MCGM.
 To determine whether it is a composite supply by
Municipal Authorities, the available information is
insufficient

 as the question posed is in respect of Municipal

authorities in general and not any specific
Municipal Authority with complete details and
therefore is not answered.
 Order
 ■ For reasons as discussed in the body of the order,
the questions are answered thus - ■
 Question 1 Whether reinstatement charges paid to
Municipal Authorities would be liable to GST? ■
 Question 2 Whether access charges paid to
Municipal Authorities would be liable to GST? ■

 Both the questions are answered in the

affirmative.
 AUTHORITY FOR ADVANCE RULINGS,
KERALA
 Caltech Polymers (P.) Ltd., In re [2018] 92
taxmann.com 142 (AAR-KERALA)
 M/s. Caltech Polymers Pvt. Ltd., Malappuram
(hereinafter called the applicant or the Company)
has preferred an application for Advance Ruling
 on whether recovery of food expenses from
employees for the canteen service provided by the
applicant/company comes under the definition of
outward supplies and are taxable under Goods &
Services Tax Act.
 The applicant is a Private Limited Company
engaged in the manufacture and sale of footwear.
It is submitted that they are providing canteen
services exclusively for their employees.

 They are incurring the canteen running expenses

and are recovering the same from its employees
without any profit margin.
 The applicant has further submitted that the service
provided to the employee is not being carried out
as a business activity.

 It is according to the provisions of the

Factories Act, 1948.

 As per section 46 of the said Act, any factory

employing more than 250 workers is required to
provide canteen facility to its employees. The
applicant detailed the work as follows:—
 (a) The space for the canteen is provided by the
Company, inside the factory premises.

 (b) The cook is employed by the Company and is paid

monthly salary.

 (c)The vegetables and other items required for preparing

the food items are purchased by the Company directly
from the suppliers.

 (d) The number of times, the Canteen facility is availed,

each day, by the employees is tracked on a daily basis.
 Based on the details above, the expenditure
incurred by the Company on the vegetables and
other items required for preparation of food is
recovered from the employees, as a deduction from
their monthly salary, in proportion to the foods
consumed by them.
 The company does not make any profit while
recovering the cost of the food items, from the
employees. Only the actual cost incurred for the
food items is recovered from the employees.
 The company is of the opinion that this
activity does not fall within the scope of
‘supply’, as the same is not in the course or
furtherance of its business.

 The company is only facilitating the supply of

food to the employees, which is a statutory
requirement, and is recovering only the actual
expenditure incurred in connection with the
food supply, without making any profit.
 The company also referred to the Mega Exemption
Notification No. 25/2012-ST dated 20.06.2012
issued by the Government of India

 whereby services in relation to supply of food or

beverages by a canteen maintained in a factory
covered under the Factories Act, 1948 was
exempted under the Service Tax Law.
 The applicant, in their application dated 30-12-2017,
raised the following questions to be determined by
the authority for Advance Ruling.

 “Whether reimbursement of food expenses from

employees for the canteen provided by company
comes under the definition of outward supplies as
taxable under GST Act.”
 It is true that in the pre-GST period, vide SI No. 19
and 19A of Notification No. 25/2012 ST dated
20.6.2012 as amended by Notification No.
14/2013-Service Tax dated 22.10.2013

 the ‘services provided in relation to serving of

food or beverages by a canteen maintained in a
factory covered under the Factories Act, 1948 (63
of 1948),
 including a canteen having the facility of
air-conditioning or central air-heating at any time during
the year’ as exempted from service tax.
 But, there is no similar provision under the GST laws.
 The term “business” is defined in section 2(17) of the GST
Act, which reads like this:—
 “business” includes:- (a) any trade, commerce,
manufacture, profession, vocation, adventure, wager or any
other similar activity, whether or not it is for a pecuniary
benefit:
 (b) any activity or transaction in connection with or
incidental or ancillary to sub-clause (a);...
 From the plain reading of the definition of
“business”, it can be safely concluded that the
supply of food by the applicant to its employees
would definitely come under clause (b) of section
2(17) as a transaction incidental or ancillary to the
main business.

 Schedule II to the GST Act describes the activities

to be treated as supply of goods or supply of
services.
 As per clause 6 of the Schedule, the
following composite supply is declared as
supply of service.
 “supply, by way of or as part of any service or in
any other manner whatsoever, of goods, being food
or any other article for human consumption or any
drink (other than alcoholic liquor for human
consumption), where such supply or service is for
cash, deferred payment or other valuable
consideration.”
 Even though there is no profit as claimed by
the applicant on the supply of food to its
employees, there is “supply” as provided in
section 7(1)(a) of the GST Act, 2017.

 The applicant would definitely come under

the definition of “Supplier” as provided in
sub-section (105) of section 2 of the GST
Act, 2017.
 The term ‘consideration’ is defined in section 2(31)
of the GST Act, 2017 which is extracted below:
 ‘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.
 Since the applicant recovers the cost of food
from its employees, there is consideration
as defined in section 2(31) of the GST Act,
2017.
 In the light of the aforesaid circumstances, we rule
as under.
 RULING
 It is hereby clarified that recovery of food expenses
from the employees for the canteen services
provided by company would come under the
definition of ‘outward supply’ as defined in section
2(83) of the Act, 2017, and therefore, taxable as a
supply of service under GST.
 Analysis
 Levy of tax: Every supply will be liable to tax. The
nature of tax would depend upon the nature of supply,
viz., inter-State supplies will be liable to IGST and
intra-State supplies will be liable to CGST and SGST
(UTGST).
 (i) Supply should involve goods and / or services – viz.,
either as wholly goods or wholly services.
 Even where a supply involves both, goods and services,
the law provides that such supplies would classifiable
either as, wholly goods or wholly services.
 Sec 7
 Supply: (a) Generic meaning of ‘supply’: Supply
includes all forms of supply (goods and / or services)
and includes agreeing to supply when they are for a
consideration and in the course or furtherance of
business.

 It specifically includes:
(i) Sale (ii) Transfer (iii)
Barter (iv) Exchange (v) License (vi) Rental (vii)
Lease (viii) Disposal
 The law has provided an inclusive meaning to the word
‘supply’ which implies that the specific transactions
which are listed in the said section are only illustrative.
Supply should be by a person engaged in business: It is
essential that such supplies should be by the supplier
who is engaged in business. (‘Business’ as defined in
Section 2(17) of the Act).
 However, in case of import of services for a
consideration, even if such services are imported
otherwise than in the course or furtherance of business,
it would be deemed to be a supply.;
 The word ‘supply’ should be understood as follows: —
 It should involve delivery of goods and / or services to
another person; —
 The supply will be treated as wholly one supply – goods,
or services, based on Schedule II and the provisions
pertaining to composite supply and mixed supply; —
 It should involve quid-pro-quo – viz., there should be
something in return which the person supplying will
obtain from the recipient (except in cases of matters
specified in Schedule I where it is deemed to be a
supply, even if it is made without consideration).
 It is not important that what is received in return is
‘money’; it can be money’s worth; — Transfer of
property in goods from the supplier to recipient is not
necessary
 Under this clause, it is essential that all the above forms
of transactions including the extended and generic
meaning given to ‘supply’ should be made for a
‘consideration’.
 Only exception for this will be cases specified in
Schedule I. Absence of consideration (as defined in
Section 2(31)) will take away the character of ‘supply’
under this clause.
 (b) Supply should be in the course or furtherance of
business: For a transaction to qualify as ‘supply’, it is
essential that the same is ‘in the course or furtherance of
business’.

 This implies that any supply of goods and / or services

by a business entity would be liable to tax, so long as it
is in the course or furtherance of business.
 Supplies which are not in the course of business
(or in furtherance of business) will not qualify as
‘supply’ for the levy of tax,

 except in case of import of service for

consideration, where the service is a supply
whether or not it is made in the course or
furtherance of business.
 The said transaction should be with a
commercial motive, whether or not there is a
profit motive in it or its frequency / regularity.

 E.g.: sale of goods in an exhibition, participation

in a trade fair, warranty supplies, supply of free
samples to induce customers to purchase other
goods, sale of used assets, etc. would be in the
course of business.
 Import of service will be taxable in the hands of the
recipient (importer):

 The word ‘supply’ includes import of a service, made

for a consideration (as defined in Section 2(31)) and
whether or not in the course or furtherance of business.
 This implies that import of services even for personal
consumption would qualify as ‘supply’ and therefore
would be liable to tax.

 This would not be subject to the threshold limit as tax is

expected to be payable on reverse charge basis, and the
threshold limits do not apply in case of supplies attracting
tax on reverse charge basis.
 As per Section 7(2) Supply excludes(a) activities or
transactions specified in Schedule III;

 or (b) such activities or transactions undertaken by the

Central Government, a State Government or any local
authority in which they are engaged as public
authorities, as may be notified by the Government on
the recommendations of the Council,
 Note: Activities specified in Schedule III (i.e.
Negative list):
 1. Services by employee to employer in the course
of or in relation to his employment. 2. Services by
court or Tribunal 3. Services by Member of
Parliament and others 4. Services by funeral, burial
etc. 5. Sale of land/Building 6. Actionable claim
other than lottery, betting and gambling
 Illustrations of supply and Tax implication
 Supply made in the course or furtherance of
business: (a) In the course of business: Every
person carries out certain activities regularly for
running trade or commerce.
 1. CMA Ram a practicing Cost Accountant carries
out the activity of Accounting, Auditing, Filing
returns, Certifying documents and so on so forth.
 These activities can be considered as performed
in the course of business.
.
 (b) Furtherance of business: Every business person
use to think how to develop his business or
carrying out new activities. Such activities called as
furtherance of business.
 2. M/s X Ltd. manufacturing of motor cars.
Company use to sell more number of cars in
Southern India. In view of demand in Southern
India, company intends to establish manufacturing
unit in Chennai. M/s X Ltd. appointed Mr. Y as a
consultant for searching, evaluating and short-
listing places for prospective targets.
 Finally company decided to establish unit at Ambattur
Industrial Estate Chennai. Hence, Mr. Y carried out
various activities is in furtherance of business of M/s X
Ltd.
 GST is essentially a tax only on commercial
transactions. Hence, only those supplies that are in the
course or furtherance of business qualify as supply
under GST. Hence, any supplies made by an individual
in his personal capacity do not come under the ambit
of GST unless they fall within the definition of business
as defined in the Act.
 Sale of goods or service even as a vocation is a
supply under GST.

 Therefore, even if a famous politician paints

paintings for charity and sells the paintings even as
a one-time occurrence, the sale would constitute
supply.
  legal Activity vs Prohibited Activity:
 3. Mr. T, a thief has stolen motorbike and sells the
motorbike to Mr. Q. It is illegal to steal a motorbike.
Sale of motorbike considered as supply of goods liable
to be taxed.
 4. Mr. T sold Narcotic drugs and psychotropic
substances, to Mr. Q for Rs 3 Lakhs. These goods are
prohibited goods. Such activity cannot constitute
supply. Mr. T is punishable under the law.
 5. Mr. A is the owner of Xerox machine. He transferred
the right to operate the Xerox machine to Mr. B for a
consideration of Rs 10,000 per month for four months.

 Hence, ownership of the machine is not transferred but

the right in the machine is transferred. It is supply of
service leviable to GST.
 6. Mr. C, a practicing Cost Accountant provided
services to M/s A Ltd., dealer of laptops. In return M/s A
Ltd., given to Mr. C two laptops.

 Here, two-way supply takes place. Mr. C is making

taxable supply of service and M/s A Ltd., is making
taxable supply of goods. Hence, tax is payable by both.
 7. Salary paid to partners by partnership firm is liable to
GST?
 No. It is not supply. It is merely an appropriation of
profit.
 8. CMA Ram, a Practicing Cost Accountant, has a
registered head office in Chennai. He has also obtained
registration in the State of Andhra Pradesh in respect of
his branch office.
 CMA Ram shall be treated as distinct persons in respect
of registrations in Tamil Nadu and Andhra Pradesh.
Transactions between head office and branch office will
be considered as supply of service even though there is
no consideration.
  COMPOSITE & MIXED SUPPLY OF
GOODS AND SERVICES
 Composite supply is when two or more goods are sold
in a combination, it becomes difficult to identify the rate
of tax to be levied. For such goods or services, CGST
Act, 2017 has provided with two terms:
 (i) Composite supply and (ii) Mixed supply.
 Composite supply is similar to the concept of “bundled
service” as under service tax laws in the existing
regime.
 Both Composite supply and Mixed supply consist of
two or more taxable supplies of goods or services or
both but the main difference between the two is that
Composite supply is naturally bundled
 i.e., goods or services are usually provided together
in normal course of business and cannot be
separated.
 Whereas in Mixed supply, the goods or services can be
sold separately.
 Composite Supply : Composite supply consists of
two or more goods/services,
 which is naturally supplied with each other in the
ordinary course of business and one of them is a
principal supply. The items cannot be supplied
separately.
 Principal supply means the supply of goods or
services, which constitute the predominant
element of a composite supply and to which
another supply is ancillary/secondary.

 Following two conditions are necessary for

composite supply: (a) Supply of two or more goods
or services together, and
 (b) It should be a natural bundle and they cannot
be separated.
 Illustrations
 Booking of Air Tickets which involves cost of the meal to be
provided during travel will be Composite supply and tax
will be calculated on the principle supply which in this case
is transportation of passengers through flight.
 M/s P Ltd. entered into a contract with M/s Z Ltd. for supply
of goods. 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.
 A Five-star hotel provides four days and three-night
package, with breakfast. This is a composite supply as the
package of accommodation facilities and breakfast is a
natural combination in the ordinary course of business for a
hotel. In this case, the hotel accommodation is the principal
supply, and breakfast is ancillary to the hotel
accommodation.
 The hotel accommodation attracts 18% tax and the
restaurant service attracts 28% tax. As per the example,
hotel accommodation is the principal supply, and the entire
supply will be taxed at 18%.
 Mr. Ravi being a dealer in laptops, sold a laptop bag along
with the laptop to a customer, for ` 55,000. CGST and SGST
for laptop @18% and for laptop bag @28%. What would be
the rate of tax leviable? Also find the GST liability. Answer:
If the laptop bag is supplied along with the laptop in the
ordinary course of business, the principal supply is that of
the laptop and the bag is an ancillary.
 Therefore, it is a composite supply and the rate of tax would
that as applicable to the laptop. Hence, applicable rate of
GST 18% on Rs 55,000. CGST is Rs 4,950 and SGST is
Rs 4,950
 Mixed supply : In Mixed supply two or more individual
supplies combination of goods or services with each other
for a single price. Each of these items can be supplied
separately and is not dependent on each other. In other
words, the combination of goods or services are not
bundled due to natural necessities, and they can be
supplied individually in the ordinary course of business.
 For tax liability purpose, mixed supply consisting of two
or more supplies shall be treated as a supply of that item
which has the highest tax rate.
 Diwali gift hamper which consist of different Items like
sweets, chocolates, cakes, dry fruits packed in one pack is
Mixed supply as these items can be sold separately and it
shall be treated as a supply of that particular item which
attracts the highest rate of tax.
 M/s X Ltd. a dealer offer combo packs of shirt, watch,
wallet, book and they are bundled as a kit and this kit is
supplied for a single price and the supply of one item does
not naturally necessitate the supply of other elements.
 Hence the supply is a mixed supply. Tax rate for a shirt,
watch, wallet and book are 12%, 18%, 5% and Nil
respectively. In this case, watch attracts the highest rate
of tax in the mixed supply i.e., 18%.

 Hence, the mixed supply will be taxed at 18%.

 Mr. A booked a Rajdhani train ticket, which includes
meal. Is it composite supply or mixed supply? Answer:
It is a bundle of supplies. It is a composite supply where
the products cannot be sold separately.
 The transportation of passenger is, therefore, the
principal supply. Rate of tax applicable to the principal
supply will be charged to the whole composite bundle.
 Therefore, rate of GST applicable to transportation of
passengers by rail will be charged by IRCTC on the
booking of Rajdhani ticket.
 Space Bazar offers a free bucket with detergent
purchased. Is it composite supply or mixed supply?
Assume rate of GST for detergent @28% and bucket
@18%.

 This is a mixed supply. These items can be sold

separately. Product which has the higher rate, will apply
on the whole mixed bundle.
 Analysis
 Where a supply involves multiple (more than one) goods or
services, or a combination of goods and services, the
implication of such supplies would be as follows:
 (a) If it involves more than one goods and / or services
which are naturally bundled together:
 These are referred to as composite supply of goods and / or
services.
 It shall be deemed to be a supply of those goods or services,
which constitutes the principal supply therein.
 Illustration (provided in Section 2(27)):
 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 the principal supply.

 This implies that the supply will be taxed wholly as

supply of goods.
 If a contract is entered for (i) supply of certain goods and
erecting and installation of the same thereto or
 (ii) supply of certain goods along with installation and
warranty thereto, it is important to note that these are
naturally bundled and therefore would qualify as ‘composite
supply’.
 Accordingly, it would qualify as supply of the goods
therein, which is essentially the principal supply in the
contract.
 Thus, the value attributable to erecting and installation or
installation and warranty thereto will also be taxable as if
they are supply of the goods therein.
 A supply of more than one goods and / or services as
a bundle will be reckoned as ‘mixed supply’

 if: (i) such goods and / or services are supplied together

for a single price
 (ii) they are not naturally bundled together and
 (iii) it does not qualify as composite supply.
 Illustrations
 If a tooth paste (say for instance it is liable to GST at
12%) is bundled along with a tooth brush (say for
instance it is liable to GST at 18%) and is sold as a
single unit for a single price, it would be reckoned as -
------.

 This would therefore be liable to GST at 18% (higher of

12% or 18% applicable to each of the goods therein).
 Illustration (provided in Section 2(66)): A supply of a
package consisting of canned foods, sweets, chocolates,
cakes, dry fruits, aerated drink and fruit juices when
supplied for a single price is a mixed supply.
 Each of these items can be supplied separately and is
not dependent on any other. It shall not be a mixed
supply if these items are supplied separately.
 This implies that the supply will be taxed wholly as
supply of those goods which are liable to the highest
rate of GST
 While there are no infallible tests for such
determination, the following guiding principles
could be adopted to determine whether a supply
would be a composite supply or a mixed supply.

 However, every supply should be independently

analysed.
 AUTHORITY FOR ADVANCE RULINGS,
KARNATAKA (2018)
 Giriraj Renewables (P.) Ltd., In re- 94 taxmann.com
286 (AAR-KARNATAKA)
 The applicant was an Engineering, Procurement &
Construction (EPC) contractor.
 It enters into contract with various developers who desire
to set up and operate solar photovoltaic plants for supply
of power generated.
 The contracts were for supply of goods as well as
services.
 The applicant had sought advance ruling in whether supply of
turnkey EPC contract for construction of solar power
plant wherein both goods and services are supplied
 can be construed to be a Composite Supply in terms of
section 2(30);
 if yes, whether the Principal Supply in such case can be said
to be ‘Solar Power Generating System’ which is taxable at 5
per cent GST;
 Secondly, whether benefit of concessional rate of 5 per cent of
solar power generation system and parts thereof would also be
available to sub-contractors.
 HELD
 Composite Supply is defined under section 2(30) as 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 the principal supply.
 As per section 8, in case of composite supply, taxes
applicable on principal supply would be applicable on
composite supply.
 In order that a supply be categorised as a composite
supply its essential to have (a) two or more taxable
supplies, and (b) they should be naturally bundled in
conjunction with each other.

 In the present application and in terms of the draft

contract
 the applicant contends that they are supplying the
goods and are also carrying out services related to
the installation of the supplied good.
 Thus they are engaged in the supply of both goods and
services. Hence the entire contract (both goods and
services) is bundled and linked where the main intent
is provision of the goods which constitute solar
power generating system.

 The scope of contract, provides that the contractor

(applicant) shall supply all the equipment as per the
terms of the said contract and in accordance with
the execution schedule, to the plant site and complete
development, installation
 and commissioning of the works in accordance
with the technical specifications, applicable law
applicable permits and the terms of the contact, in
addition to the detailed drawings/documents
finalized during engineering.

 This clause indicates that the applicant would

supply all the required goods and also
provide services related to installation and
commissioning of the project.
 The applicant submits that the major component of
Solar Power System is Solar Photovoltaic module (PV
module), which comprises around 60 per cent to 70 per
cent of the entire Solar Power Plant and
 the rest of the components constitute for around to 30
per cent to 34 per cent and are merely parts or sub-parts
which are required for panel housing and setting up of
the module such as controllers and switches.
 The PV module is a packaged, connect assembly of
typically 6x10 photovoltaic solar cells, which constitute
system that generates and supplies solar electricity.

 In other words they are nothing but an assembly of

solar cells that helps in converting solar power into
electricity.
 Hence PV module is the most important
component of solar power generating
system.

 Further the applicant claims that they would be

supplying PV module, which is a major
equipment and installation of the same, for
which they supply connectors etc.
 The provisions of the draft contract indicates that the
major Portion of contract, i.e., the PV module
constituting 60 per cent to 70 per cent of the total
contract value, is supplied by the owner and not
the contractor.

 Therefore the contractor cannot claim that

they will supply the PV Module and thereby
there is principle supply involved in the
present case.
 Hence the question is whether the supply
envisaged in the draft contract qualifies to
be a composite supply. The different goods
and/or services supplied should be naturally
bundled.

 However, the draft contract opens up the

question whether such supplies are indeed
bundled or not.
 The draft contract clearly demonstrates that in
such projects the owner can procure the
major equipments involved on their own
also and the contractor may carry out the
supply and services portion in respect of
the remaining portion.

 Thus the concept of natural bundling does

not apply to the present envisaged supply.
In other words the envisaged supply does
not constitute a composite supply.
 The major component (PV Module) said to have been
constituting 70 per cent of the whole project can not be
construed to be supplied by the applicant

 and hence it cannot be construed to be a principal

supply of the project and thereby cannot be a composite
supply.

 The supply made by sub-contractor need to be

viewed as an individual supply and thereby the
appropriate rate of GST has to be applied depending
on the specific nature of supply.
 Secondly, the sub-contractor is an individual supplier
and the rate of GST applicable depends on the type of
supply and no concessional rate of GST is provided to
sub-contractor on the basis of main contractor.

 Hence the supply made by sub-contractor need to be

viewed as an individual supply and thereby the
appropriate rate of GST has to be applied.
 AUTHORITY FOR ADVANCE RULINGS, MADHYA
PRADESH
 Arpijay Fabricators (P.) Ltd., In re[2018] 96
taxmann.com 44 (AAR-MADHYA PRADESH)

 The applicant company was engaged in building bodies of

various vehicles over the chasis provided by their principal on
job work basis.
 During the course of carrying out the process of body
building, the applicant was consuming its own
material.
 The applicant has contended that as per their understanding
they are working as a job worker and, accordingly, the ensuing
transaction is covered under service category.
 Thus, the applicant has approached the Authority for
advance ruling on:

 (i) Whether activity of body building undertaken by

applicant carried out on chasis supplied by principal in
capacity of a job worker is to be classified as
supply of goods or supply of services?;

 (ii) What would be the appropriate classification

and applicable rate of tax for the above transaction?
 HELD
 The activity and the question raised herein has
been suitably clarified and dealt with in Circular
No.34/08/2018-GST dated 1-3-2018,
 wherein, the Fitment Committee to GST Council
has clarified this particular issue by holding that
in the case of bus body building there is supply of
goods and service.
 Thus, classification of this composite supply, as
goods or services would depend on which supply
is the principal supply
 which may be determined on the basis of facts
and circumstances of each case.
 Having regard to the Circular referred above, there is
hardly anything left for the Authority to decide. The
issue has been set to rest by the clarification.

 Accordingly, the activity undertaken by the applicant

has to be treated as ‘Composite Supply’ as defined
under section 2(30) of the CGST Act 2017.
 Further, as regards tax liability on composite supply,
section 8(a) of the CGST Act 2017 provides that ‘a
composite supply comprising of two or more supplies,
one of which is a principal supply, shall be treated as a
supply of such principal supply.’
 The term ‘Principal Supply’ has been categorically
defined under section 2(90) of the CGST Act 2017
 to mean 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.
 Though the applicant, in their additional submission
dated 23-6-2018 have briefly described the process
being undertaken by them during the course of body
building of buses,

 they have not come forward with the details of

component of ‘Goods’ and ‘Services’ involved in the
supply under question
 However, they have pleaded that though the supply
in this case would be a ‘Composite Supply’ but
depending upon the predominant intention of
the buyer, it should be classified as ‘Service’.
 On a careful consideration of submissions made by
the applicant, there is no force in the argument
regarding deciding the classification on the basis of
‘predominant intention’ of the buyer.
 The contention of the applicant is misplaced and
arbitrary. The statute nowhere provides for
‘predominant intention’.

 The classification in case of a composite supply has

to be arrived at on the basis of ‘predominant
element’ of a composite supply, which in turn
would be the ‘Principal Supply’.
 Thus the principle supply component of the
composite supply involved in the activity of Body
Building would determine the rate of tax applicable
on such composite supply.
 In case the ‘Goods’ part is predominant, then the
Composite Supply in this case would be governed
by Chapter 87 depending upon the nature of body
being built by the applicant on the chasis supplied
by the principal.
 In case, the ‘Service’ part is predominant in the
composite supply, then the rate of tax would be
applicable as per Heading No.9988.
 However, due to incomplete information
provided by the applicant, no definitive
ruling on this aspect can be provided by the
Authority
Therefore in view of the facts and circumstances of
the case it is held as under :
 (1) In respect of Question 1, it is held that the activity of
Body Building undertaken by the applicant, carried out
on the chasis supplied by the principal in the capacity of
a job worker, would amount to ‘Composite Supply’ as
defined under CGST Act 2017.
 (2) In respect of Question No.2, it is held that the rate of
tax on such Composite Supply would be determined by
the predominant component involved in such
Composite Supply
 in terms of section 8(a) of the CGST Act 2017,
depending upon the character of the body being
built on the chasis, which would eventually be
classifiable under Chapter 87 of the Tariff.

 On the other hand, if the predominant element

happens to be the Service part, then the Principal
supply would be classified under Heading no.9988.
  TIME AND VALUE OF SUPPLY
 INTRODUCTION
 The supplier has to pay the tax according to the
date of supply of goods or service. The time of
supply fixes the point when the liability to
charge GST arises. It also indicates when a
supply is deemed to have been made.
 The GST Act provides separate time of supply
for goods and services.
 it is here that the liability to pay GST arises. The subject
matter of levy – goods or services – becomes
encumbered with the tax upon occurrence of the
taxable event – supply.

 Thus, the tax levied in terms of section 9, comes to reside

only at the time determined by section 12 and 13 of the
Goods and Services Act, 2017. Accordingly, these
sections play a important role in the imposition of GST.
 The provisions state that the time of supply “shall be”
and as such is a “must”.

 It signifies that “time of supply” is not a fact to be

inquired by the taxable person –
 but one that is to be admitted as the time of supply
appointed by the will of legislature as declared in the
section.
 In order to not allow any opportunity for a suggestion
by the taxable person or even the tax administration as
to any alternative to what could be the time of supply,
the legislature retains for itself the exclusive
authority to appoint the time of supply by employing
the words “shall be”.

 Therefore, the time of supply is what is stated in the

law to be the time of supply and nothing else.
 Tax laws require the preparation of an invoice not
because absence of an invoice defeats the levy

 but prescribes an unambiguous occasion

when the tax may become recoverable with a
proper record of the terms of the underlying
arrangement.
 Time of supply –

 It means the date on which the charging event has

occurred. As a result the rate of CGST will be decided
in accordance with the time of supply.

 Based on time of supply we will also

determine the due date of payment of GST.
 The time of supply differs for supply of goods and
supply of services.

 This is because goods are tangible and involve

physical movement /removal or transport whereas
services are intangible that involve performance of
making supply.
 Time of Supply of Goods – Sec 337
12(2)

Actual date of issue of invoice by the supplier

Due date for issue of invoice by the supplier [Section
31(1)*]:
- Non-Continuous Supply involves movement: Time of
As per Section 12(2) removal of goods for supply [31(1)(a)]
of CGST ACT, time - Non-Continuous Supply - Other cases: Delivery of
of supply of goods goods/ making available to the recipient or [31(1)(b)]
shall be earlier of
the following i.e., - Continuous Supply: Date of issue of statement of
– account/receipt of payment [31(4)]
- Sale on approval basis: Earlier of time at which it becomes
known that the supply has taken place OR 6 months from date
of removal [31(7)]
Date of receipt of payment (date on which payment is entered in the books of Accounts
of supplier or Date on which payment is credited to the supplier’s bank a/c whichever
is earlier- Explanation 2 to Section 12(2)

*Where payment is received in advance, the Supplier shall issue a

receipt voucher, and NOT a tax invoice
 Time of Supply of Goods – 338
Sec 12(2) Illustrations

Paymen
Invoice Invoice t entry Credit Time of
Section 12(2) date due in in bank
date supplier account supply
's books

1 Invoice raised 10-Oct-17 20-Oct- 26-Oct-17 30-Oct- 10-Oct-17

before removal 17 17

2 Advance received 30-Oct- 20-Oct- 10-Oct-17 30-Oct- 10-Oct-17

17 17 17
 Time of Supply of Goods – Sec 339
12(2) Illustrations
Supply
involves
movement of Invoice/ Receipt
Removal Delivery Time of
goods docume of
of goods of goods supply
Section 12(2) nt date payment
r/w Section
31(1)(a)
Delayed issue of
3 26-Oct-17 20-Oct-17 26-Oct-17 26-Oct-17 20-Oct-17
invoice
Inter-State stock
4 10-Oct-17 20-Oct-17 26-Oct-17 - 10-Oct-17
transfer
Advance received,
5 30-Oct-17 30-Oct-17
invoice for full
amount issued on
30-Oct-17 10-Nov-17 14-Nov-17
same day (40% 20-Nov-
30-Oct-17
advance, 60% post 17
supply payment)
 Supply otherwise
than by involving Receipt of
Invoice Delivery Receipt of Time of
movement of goods invoice by
date of goods payment supply
Section 12(2) r/w recipient
Section 31(1)(b)

Delayed issue of 30-Oct- 05-Nov-

6 26-Oct-17 10-Nov-17 26-Oct-17
invoice 17 17

Invoice issued prior 20-Oct-

7 10-Nov-17 26-Oct-17 10-Nov-17 20-Oct-17
to delivery 17
 Continuous supply of
SoA/
goods Invoice Removal Receipt of Time of
payments
Section 12(2) r/w date of goods payment supply
due date
Section 31(4)

01-Nov- 15-Oct-17 05-Nov- 01-Nov- 01-Nov-

8
17 25-Oct-17 17 17 17

Contract provides for 08-Nov-

successive 17
11-Dec- 05-Dec- 05-Dec-
9 statements of 11-Dec-17
17 30-Nov- 17 17
account/ successive
payments 17

10 08-Jan- 14-Dec-17 05-Jan-

01-Jan-18 01-Jan-18
18 23-Dec-17 18
 Time of Supply of Goods – Sec 342
12(2) Illustrations

Sale on approval
Accepted Receipt
basis Removal Issue of Time of
by of
Section 12(2) of goods invoice supply
recipient payment
r/w Section 31(7)
Acceptance
communicated
11 01-Nov-17 25-Nov-17 15-Nov-17 25-Nov-17 15-Nov-17
within 6 months of
removal
Amount paid to
supplier before
12 01-Nov-17 25-Nov-17 15-Nov-17 12-Nov-17 12-Nov-17
informing
acceptance
Acceptance not
communicated 02-May-
13 01-Oct-17 15-May-18 15-May-18 01-Apr-18
within 6 months of 18
removal
 Time of Supply of Services – 343
Sec 13(2) Illustrations

Payment
Section 13(2) Invoice Invoice entry in Credit
bank
in Time of
date due date supplier' account supply
s books

Invoice raised
1 before completion 10-Oct-17 20-Oct-17 26-Oct-17 30-Oct-17 10-Oct-17
of service

2 Advance received 30-Oct-17 20-Oct-17 10-Oct-17 30-Oct-17 10-Oct-17

 Time of Supply of Services – 344
Sec 13(2) Illustrations

Based on due
date for Commen Completi Receipt
invoicing Invoice cement Time of
date of on of of supply
Section 13(2) service payment
r/w Section service
31(2).

3 Delayed issue of
26-Dec-17 20-Oct-17 16-Nov-17 28-Jan-18 16-Dec-17
invoice

4 Advance received, 30-Oct-17 30-Oct-17

invoice for full
amount issued on
30-Oct-17 30-Oct-17 30-Dec-17
same day (40%
advance, 60% post 04-Dec-17 30-Oct-17
supply payment)
 Time of Supply of Services – 345
Sec 13(2) Illustrations
Continuous Entry of
supply of Date as Receipt provisio
Invoice Time of
services per of n of
date supply
Section 13(2) r/w contract payment services
Section 31(5) in books
Section 31(5)(a) 02-Nov-17 10-Nov-17 15-Nov-17 31-Oct-17 02-Nov-17
Contract provides
for payments
5 17-Dec-17 10-Dec-17 15-Dec-17 30-Nov-17 10-Dec-17
monthly on the 10th
of succeeding
month 10-Jan-18 10-Jan-18 06-Jan-18 31-Dec-17 06-Jan-18

Section 31(5)(c) 12-Nov-17 10-Nov-17 25-Nov-17 12-Nov-17 10-Nov-17

Contract provides
for payments on
6 completion of
event. Recipient to 24-Apr-18 24-Apr-18 20-Apr-18 24-Apr-18 20-Apr-18
pay within 1 month
from date of
completion
© Indirect Taxes Committee, ICAI
 Time of Supply of Goods /
Services - Reverse Charge – Sec
12(3) / 13(3)
346
Date on which payment is
Date on which payment is
entered in the books of
debited to the recipient’s bank a/c
recipient

Where tax liable to be paid on reverse

charge basis, the time of supply of
goods/services shall be earliest of

31st day (in case of goods) / 61st day (in

case of services) from the date of issue of Where it is not possible to
invoice by supplier determine time of supply in the 3
Note: This factor is not relevant in other cases: Date of entry in
case of services from a supplier the books of account of the
being an associated enterprise recipient
outside India
Note: On the date of receipt of goods (or services) from a supplier
being an unregistered person, the recipient shall issue an invoice
[Section 31(3)]
 Time of Supply of Goods /
Services - Reverse Charge – Sec
12(3) / 13(3)
347

Date of
invoice Payment
Reverse charge Removal Receipt Time of
issued by
Section 12(3) of goods of goods supply
by recipient
supplier

1 General 31-Oct-17 31-Oct-17 20-Nov-17 30-Nov-17 20-Nov-17

2 Advance paid 31-Oct-17 31-Oct-17 20-Nov-17 05-Nov-17 05-Nov-17

No payment made
3 31-Oct-17 30-Dec-17 05-Jan-18 - 30-Nov-17
for the supply

Note: On the date of receipt of goods (or services) from a supplier

being an unregistered person, the recipient shall issue an invoice
[Section 31(3)]
 Time of Supply of Goods / Services -
Reverse Charge – Sec 12(3) / 13(3)
348

Reverse charge Date of Date of Payment Entry of Time of

Section 13(3) invoice completio by receipt of supply
issued by n of recipient services in
supplier service recipient's
books

4 General 31-Oct-17 31-Oct-17 20-Nov-17 30-Nov-17 20-Nov-17

5 Advance paid 31-Oct-17 31-Oct-17 05-Nov-17 31-Oct-17 05-Nov-17

6 Delay in payment 31-Oct-17 31-Oct-17 10-Jan-18 31-Oct-17 31-Dec-17

(Max. 60 days from
date of invoice)
7 Service received 31-Oct-17 30-Nov-17 05-Apr-18 31-Mar-18 31-Mar-18
from associated
enterprise located
outside India (No
time extension
allowed)

Service by
unregistered
- 30-Nov-17 - 05-Dec-17 05-Dec-17
person, no
payment made
 Time of Supply of Vouchers –
Sec 12(4)/13(4)
350

Time of supply in case of supply of

voucher–

Date of issue – If supply

is identifiable at the point
of issue of voucher

Date of redemption of
voucher – Other cases

Note: Voucher – can be for goods or services

 Time of Supply of Vouchers –
Sec 12(4)/13(4)
351
Last date
First
Issue of vouchers Redempti for
service/ Issue of Time of
Section 13(4) [or on of acceptanc
delivery of voucher supply
Section 12(4)] voucher e of
goods
voucher
Voucher issued to a
recipient after supply
of a service [or
1 01-Nov-17 01-Nov-17 14-Dec-17 30-Oct-18 01-Nov-17
specific goods], for
the same service -
valid for 1 year
Voucher issued to a
recipient of
machinery along at
the time of delivery,
2 for availing repair 01-Nov-17 01-Nov-17 14-Dec-17 30-Oct-18 01-Nov-17
services [or specific
goods] worth Rs.
5,000 - valid for 1
year
 Voucher issued to
a recipient after
supply of a service,
3 for any other 01-Nov-17 01-Nov-17 14-Dec-17 30-Oct-18 14-Dec-17
services or goods
across India, -
valid for 1 year

Gift voucher for Rs.

1,500 for services [or
4 - 01-Nov-17 25-Dec-17 31-Mar-18 01-Nov-17
goods]- valid for 6
months
Residual Provision – Sec 12(5) /
13(5)
353

Where it is not possible to determine

the time of supply under any of the
circumstances discussed, it shall be
determined as:

Due date for filing of

such return – If periodical
return has to be filed

Date on which the Tax is

paid – Other cases
 Time of Supply of Goods / Services -
Value Addition – Sec 12(6) / 13(6)
354

For Date on
Time of Interest, Delayed which the
supply for Late Fees, payment supplier
value of receives
addition Penalty Considerat such
by way of ion shall addition
be in value
 Change in rate of tax in respect of
supply of goods or services – Sec 14
355
Date of supply Date of Date of Time of supply Rate of tax
of goods or invoice receipt of
services payment
(1) (2) (3) (4) (5)
Before the After the After the Date of receipt of New rate
change in rate of change change in payment or date of
tax in rate rate issue of invoice
whichever is earlier
Before change in Before After the Issue of invoice Old rate
rate of tax the change in
change rate
in rate
Before change in After the Before the Receipt of Payment Old rate
rate of tax change change in
 Change in rate of tax in respect of
supply of goods or services – Sec 14
356
Date of supply Date of Date of Time of supply Rate of tax
of goods or invoice receipt of
services payment
(1) (2) (3) (4) (5)
After the change Before After the Receipt of payment New rate
in rate of tax the change in
change rate
in rate
After the change Before Before the Date of receipt of Old rate
in rate of tax the change in payment or date of
change rate issue of invoice
in rate whichever earlier
After the change After the Before the Issue of Invoice New rate
in rate of tax change change in
in rate rate
  VALUE OF SUPPLY
 Introduction
 Consideration is quid pro quo in a contract and
 price is the consideration expressed in money terms.

 Value - is the price prevalent when a transaction takes

place under controlled conditions.
 Value of Supply in common terms is nothing
 but the amount paid by the recipient of supply to the
supplier as consideration for supply (also known as
transaction value).

 Thus,
 Value of supply is the component upon which tax is
levied and collected.
 This section applies to both goods and services
supplied for purposes of valuation of the taxable
supply.

 Valuation must be as provided exclusively in this

section. ‘Transaction value’ has not been defined but is
provided in the section itself as the ‘price’. Price is
consideration in money terms.
 Value of Taxable Supply – Sec 15
360

Value of Taxable Supply

Value of supply of goods and / or services on which

GST is to be discharged shall be the ‘Transaction
Value’, where
• Supplier and recipient of supply are unrelated
• Price is actually paid / payable –
• AND price is the sole consideration for the
supply
 Explanation to Section 15 of the CGST Act
deems the persons below to be “related
persons”:

• Officers / Directors of one another’s business

• Partners in business
• Employer – employee
• A person directly / indirectly owns / controls /
holds 25% of shares of both the persons
• One directly / indirectly controls the other
• Both are directly / indirectly controlled by a third
person
• Together, they directly / indirectly control a third
person
• Members of the same family
• Sole agent / distributor / concessionaire of the
other
 Transaction value: Inclusions
and exclusions
363

Transaction Value
Transaction Value INCLUDES:
EXCLUDES discount:
 Amounts charged by supplier to recipient in
respect of any taxes, duties, cesses, fees  Before / at the time of
and charges levied under any statute, supply
other than taxes paid under GST regime; • Single condition:
 Amount incurred by Recipient which is Such discount is duly
liable to be paid by the Supplier; recorded in the invoice
 Transaction value: Inclusions
and exclusions
364

 Charges by Supplier to Recipient being:  After the supply:

• Incidental expenses (e.g: packing, Cumulative conditions:
commission) • Agreement establishing
• Charges for anything done by the discount entered into
Supplier at the time or before the before / at the time of
supply, in respect thereof supply
• Interest/ late fee/ penalty for delayed
• Discount specifically
payment of consideration
linked to relevant
• Subsidies directly linked to price –
invoices
for supplier receiving the subsidy
(excluding Central and State Govt • ITC reversed by the
subsidies; i.e., Government subsidies recipient to the extent
will not be included in transaction of discount
value)

© Indirect Taxes Committee, ICAI

 Transaction value:
Recourse to Rules
365

Where value cannot be determined u/s 15 (1),

i.e., when:
1. Price is not the sole consideration
2. Supplier-recipient are related persons:
3. Recourse to Rules even if the Supplier-Recipient
relationship:
 Did not influence the price;
 Precedes agreement to the supply;
 Has no bearing on pricing;
 Has no bearing on Agreement to the Supply;
 Has no relevance to the Supply;
 Was to meet with different criteria or purpose;
(Rules will apply both ways – supplier to
recipient and recipient to supplier).
 Valuation Rules
under CGST Rules,
2017
(Rule 27 to 35)
 Rule 27 of CGST Rules
368

Value of supply of goods or services where

consideration is not wholly in money

 The value of supply shall be-

a) The open market value of such supply

b) If open market value not available, under clause

(a), -
be the sum total of consideration in money
and any such further amount in money as is
equivalent to the consideration not in money,
if such amount is known at time of supply
 Rule 27 of CGST Rules continued
369

 The value of supply shall be-

c) If value is not determinable under (a) or (b), the

value of supply of goods/ services of like kind
and quality

d) If value not determinable under (a), (b) or (c), be the

sum total of consideration in money and such further
amount in money that is equivalent to consideration
not in money
as determined by application of rule 30 or 31 in
that order.
© Indirect Taxes Committee, ICAI
 Rule 27 of CGST Rules continued
370

 Illustration:
 (1) Where a new phone is supplied for twenty
thousand rupees along with the exchange of an old
phone and
 if the price of the new phone without exchange is
twenty four thousand rupees, the open market
value of the new phone is twenty four thousand
rupees.
 (2) Where a laptop is supplied for forty thousand
rupees along with the barter of a printer that is
manufactured by the recipient
 and the value of the printer known at the time of
supply is four thousand rupees
 but the open market value of the laptop is not
known, the value of the supply of the laptop
is forty four thousand rupees.
 Rule 28: Value of supply of goods or services or both
between
distinct or related persons, other than through an agent
shall
372
(a) be the open market value of such supply

Value of supply of goods or

services of like kind and quality

Value as determined by
application of Rule 30 or Rule
31, in that order
 Provided that where goods are intended for further
supply as such by the recipient, the value shall,
at the option of the supplier, be an amount
equivalent to 90% of the price charged for the
supply of goods of like kind and quality
by the recipient to his customer not being a related
person
 Where the recipient is eligible for full input tax
credit, the value declared in the invoice shall be
deemed to be the open market value of goods or
services
 Rule 29: Value of supply of goods made or received
through an agent
374

a) be the open market value, or

 at the option of the supplier, be 90% of the price
charged for the supply of goods of like kind and
quality by the recipient (agent) to his customer not
being a related person,
 where the goods are intended for further supply by the
said recipient (agent)

b) where the value of a supply is not determinable under

clause (a),
 the same shall be determined by application of rule 30
or rule 31 in that order.
 Rule 29: Value of supply of goods
made or received
through an agent
375

 Illustration:
 A principal supplies groundnut to his agent and
the agent is supplying groundnuts of like kind and
quality in subsequent supplies at a price of five
thousand rupees per quintal on the day of the supply.
 Another independent supplier is supplying
groundnuts of like kind and quality to the said agent
at the price of four thousand five hundred and fifty
rupees per quintal.
 The value of the supply made by the principal
shall be four thousand five hundred and fifty
rupees per quintal or

 where he exercises the option, the value shall be

90 per cent. of five thousand rupees i.e., four
thousand five hundred rupees per quintal.
 Rule 30: Value of supply of goods
or services or both based on cost
377

• Where value is not determinable by any of the

preceding rules,

• the value shall be 110% of the:

 cost of production or manufacture or

 cost of acquisition of such goods or

 cost of provision of such services.

 Rule 31: Residual Method
378

• Where value cannot be determined under any above

provision, the same shall be determined using reasonable
means consistent with the principles and general
provisions of Sec15 and these Rules.

• Further, in case of supply of services, the supplier may

opt for this rule, disregarding rule 30.

© Indirect Taxes Committee, ICAI

 Rule 32: Determination of value in respect of
certain supplies
379

Rule 32(2) Dealing in forex including money

changing

 Option-1
 When exchanged from or/ to INR:
 Difference of Buying rate / Selling rate and RBI reference
rate x Total units of currency
(If RBI reference rate is not available, value shall be 1% of
gross amount of INR received or provided)
• If neither of two currencies exchanged in INR ,
• the value shall be equal to 1% of the lesser of the
two amounts
• the person changing the money would have
received by converting any of the two currencies
into INR
• on that day at the reference rate provided by RBI.
 Rule 32: Determination of value
in respect of
certain supplies
381
OPTION-2
Amount of currency 1% of the gross amount of currency
exchanged up to Rs.1 exchanged or Rs. 250/-, whichever
lakh is higher
Amount of currency
Rs. 1,000/-plus 0.5% of the gross
exchanged exceeding
amount of currency exchanged
Rs.1 lakh and up to
above Rs. 100,000/-
Rs.10 lakhs
Rs. 5,500/- plus 0.10% of the gross
Amount of currency
amount of currency exchanged
exchanged exceeding
above Rs.10 lakhs or Rs. 60,000/-,
Rs.10 lakhs
whichever is lower
© Indirect Taxes Committee, ICAI
 Rule 32: Determination of value
in respect of
certain supplies
382

Rule 32(3) - Air Travel Agents:

• Domestic bookings: 5% of Basic Fare

• International bookings: 10% of Basic Fare

 “Basic fare” means that part of the air fare on which

commission is normally paid to the air travel agent
by the airline.

© Indirect Taxes Committee, ICAI

 Rule 32: Determination of value in respect of
certain supplies
383

Rule 32(4)
Life Insurance Business
a) gross premium charged from a policy holder
reduced by the amount allocated for investment, or
savings on behalf of the policy holder, if such
amount is intimated to the policy holder at the time
of supply of service;

 This shall not apply where the entire premium paid

by the policy holder is only towards the risk cover in
life insurance.

© Indirect Taxes Committee, ICAI

a) in case of single premium annuity policies other
than (a) - 10% of single premium charged from
the policy holder; or
c) in all other cases, 25% of the premium charged
from the policy holder in the first year and 12.5%
of the premium charged from policy holder in
subsequent years;
 This shall not apply where the entire premium paid
by the policy holder is only towards the risk cover
in life insurance.
 Rule 32: Determination of value in respect of
certain supplies
385
Rule 32(5)
Second Hand Goods
• Supply of used goods as such or after such minor
processing which does not change the nature of the
goods and
• where no ITC has been availed on purchase of such
goods,
• the value of supply shall be the difference between the
selling price and purchase price and
• where the value of such supply is negative it shall be
ignored.
 Rule 32: Determination of value
in respect of
certain supplies
386

Rule 32(6)
Token / Coupon / Voucher / Stamp
• The value of a token, or a voucher, or a coupon, or a
stamp (other than postage stamp)

• which is redeemable against a supply shall be

• money value of the goods or services redeemable

against such token, voucher, coupon, or stamp.
 Rule 32: Determination of value
in respect of
certain supplies
387
Rule 32(7)
Distinct Persons
• The value of taxable services provided by such class of

service providers;
• as may be notified by the Government between distinct

persons, (Entry-2 of Schedule I);

• other than those where ITC is not available under S.17(5);

• shall be deemed to be NIL.

 Rule 33: Definition of Pure Agent
388

 Agency supplies are different from ‘pure agent’ in

relation to valuation
 There is a payment made to third party by a payer
 Payer is a supplier of goods or services or both to a
beneficiary (client)
 Underlying obligation to pay third party is of the
beneficiary (client)
 Payment by payer is to discharge beneficiary’s
obligation toward third party
 Third party enjoys recourse to beneficiary in case
of non-payment by payer
 For example, income-tax liability of a client is paid
by the CA
 Rule 33: Value of supply of services in case
of
Pure Agent
390

 The expenditure or costs incurred by the pure agent

shall be excluded from the value of supply, if all the
following conditions are satisfied, namely:
a) pure agent makes payment to the third party on
behalf of recipient as the contract is between third
party and recipient;
b) Recipient uses the services procured by pure agent -
a) Recipient is liable to make payment to third
party;
b) Recipient authorizes pure agent to make payment
on his behalf;
c) Recipient knows that the services for which
payment has been made by pure agent shall be
provided by third party;
 Rule 33: Value of supply of
services in case of
Pure Agent
392

f) Payment made by pure agent on behalf of

recipient has been separately indicated in
invoice issued by pure agent to recipient;

g) Pure agent recovers from recipient only such

amount as has been paid by him to third party;

h) Services procured by pure agent from third party

are in addition to supply he provides on his own
account.
 Illustration
393

 Illustration.- Corporate services firm A is

engaged to handle the legal work pertaining to
the incorporation of Company B. Other than its
service fees, A also recovers from B, registration
fee and approval fee for the name of the
company paid to the Registrar of Companies.
 The fees charged by the Registrar of Companies for
the registration and approval of the name are
compulsorily levied on B. A is merely acting as a pure
agent in the payment of those fees.

 Therefore, A’s recovery of such expenses is a

disbursement and not part of the value of supply
made by A to B.
 Rule 34: Rate of exchange of
currency, other than INR,
for determination of value
395

 Rate of exchange shall be applicable reference rate

for that currency as determined by RBI on the date

when point of taxation arises as per Sec 12 and Sec 13.
 Rule 35: Value of supply inclusive of
integrated tax, central tax,
State tax, Union territory tax
396

 Where Value of Supply is inclusive of IGST/ CGST/ SGST/

UTGST then:
Value inclusive of taxes X tax rate in % of IGST
or as the case may be CGST, SGST or UTGST
Tax
Amount = (100 + sum of tax rates, as applicable, in %)

© Indirect Taxes Committee, ICAI

 ILLUSTRATIONS

 1. Mrs. Jaya purchases a Samsung television set costing

Rs 85,000 from Giriyas, in exchange of her existing TV
set. After an hour of bargaining, the shop manager agrees
to accept Rs 78,000 instead of his quote of Rs 81,000, as
he would still be in a profitable position (the old TV can
be sold for Rs 8,000).
 Ans. Where the price is not the sole consideration for the
supply, the ‘open market value’ would be the value of the
supply.
 Therefore, Rs 85,000 would be the value of the supply.
[Section 15(4) r/w Rule 27(a) of Central Goods and
Service Tax Rules]
 Illustrations
398

 2. Mr. Mohan located in Manipal purchases 10,000 Hero ink

pens worth Rs.4,00,000 from Lekhana Wholesalers located
in Bhopal. Mr. Mohan’s wife is an employee in Lekhana
Wholesalers.

 The price of each Hero pen in the open market is Rs.52. The
supplier additionally charges Rs.5,000 for delivering the
goods to the recipient’s place of business.
 Ans. Mr. Mohan and Lekhana Wholesalers
would not be treated as related persons
 merely because the spouse of the recipient is an
employee of the supplier,
 although such spouse and the supplier
would be treated as related persons.
Therefore, the transaction value will be accepted as
the value of the supply.
 The transaction value includes incidental expenses
incurred by the supplier in respect of the supply up
to the time of delivery of goods to the recipient.

 This means, the transaction value will be:

Rs.4,05,000 (i.e., 4,000,000 + 5,000).
 [Section 15(1) r/w Section 15(2)]
 Illustrations
401

 3. Sriram Textiles is a registered person in

Hyderabad. A particular variety of clothing has been
categorised as non-moving stock, costing
Rs.5,00,000.

 None of the customers were willing to buy these

clothes in spite of giving big discounts on them, for
the reason that the design was too experimental.
 After months, Sriram Textiles was able to sell this
stock on an online website to another retailer
located in Meghalaya for Rs.2,50,000, on the
condition that the retailer would put up a poster of
Sriram Textiles in all their retail outlets in the
State.

 Ans. The supplier and recipient are not related

persons. Although a condition is imposed on the
recipient on effecting the sale, such a condition has
no bearing on the contract price.
 This is a case of distress sale, and in such a case, it
cannot be said that the supply in lacking
‘sole consideration’. Therefore, the price of
Rs. 2,50,000 will be accepted as value of supply.

 [Section 15(4) r/w Rule 27(d) r/w Rule 31 of

Central Goods and Service Tax Rules
 Illustrations
404

 4. Rajguru Industries stock transfers 1,00,000 units

(costing Rs.10,00,000) requiring further processing
before sale, from Bijapur in Karnataka to its Nagpur
branch in Maharashtra.

 The Nagpur branch, apart from processing units of its

own, engages in processing of similar units by other
persons who supply the same variety of goods, and
thereafter sells these processed goods to wholesalers.
 There are no other factories in the neighbouring area
which are engaged in the same business as that of its
Nagpur unit. Goods of the same kind and quality are
supplied in lots of 1,00,000 units each time, by
another manufacturer located in Nagpur.

 The price of such goods is Rs.9,70,000.

 Ans. In case of transfer of goods between two
registered units of the same person (having the same
PAN), the transaction will be treated as a supply
even if the transfer is made without consideration, as
such persons will be treated as ‘distinct persons’
under the GST law.

 The value of the supply would be the open market

value of such supply.
 If this value cannot be determined, the value shall be
the value of supply of goods of like kind and quality.
In this case, although goods of like kind and quality
are available, the same may not be accepted as the
‘like goods’ in this case would be less expensive given
that the transportation costs would be lower.
 Therefore, the value of the supply would be taken at
110% of the cost, i.e., Rs. 11,00,000 (i.e., 110% x
10,00,000).
 However, if the Nagpur branch is eligible for full
input tax credit, the value declared in the invoice will
be deemed to be the open market value of the goods
in terms of 2nd proviso of Rule 28.

 [Section 15(4) r/w Rule 28(b) & (c) r/w Rule

30 of Central Goods and Service Tax Rules]
 Illustrations
409

 5. M/s. Monalisa Painters owned by Vasudev is popularly

known for painting the interiors of banquet halls.
M/s. Starry Night Painters (also owned by Vasudev) is
engaged in painting the machinery equipment. A factory
contracts M/s. Monalisa Painters for painting its machinery
to keep it from corrosion, for a fee of Rs.1,50,000.
 M/s. Monalisa Painters sub-contracts the work to
M/s. Starry Night Painters for Rs.1,00,000, and ensures
supervision of the work performed by them. Generally,
M/s Starry Night Painters charges a fixed sum of Rs.1,000
per hour to its clients; it spends 120 hours on this project.
 Ans. Since M/s. Monalisa Painters and M/s. Starry
Night Painters are controlled by Mr. Vasudev, the
two businesses will be treated as related persons.
Therefore, Rs. 1,00,000 being the sub-contract price
will not be accepted as transaction value.

 The value of the service would be the open market

value being Rs. 1,20,000 (i.e., Rs. 1,000 per hour x
120 hours) .
Note: This view is based on the grounds that there are
no comparable to this supply. However, if M/s.
Starry Nights is eligible for full input tax credit,

the value declared in the invoice shall be deemed to

be the open market value of services i.e.
Rs 1,00,000/- [Section 15(4) r/w Rule 28(a) of
Central Goods and Service Tax Rules]
 Illustrations
412

 6. Prestige Appliances Ltd. (Bangalore) has 10 agents

located across the State of Karnataka (except Bangalore).
The stock of chimneys is dispatched on Just-In-Time
basis from Prestige Appliances Ltd. to the locations of
the agents, based on receipt of orders from various
dealers, on a weekly basis.

 Prestige Appliances Ltd. is also engaged in the wholesale

supply of chimneys in Bangalore.
 Ans.: The law deems these supplies between the
principal and agent to be supplies for the purpose of
GST.

 Therefore, the transfer of goods by the principal

(Prestige) to its agent for him to effect sales on behalf
of the principal would be deemed to be a supply
although made without consideration.
 The value would be either the open market value, or
90% of the price charged by the recipient of the
intended supply to its customers, at the option of the
supplier.
 Thus, the value of the supply by Prestige to its agent
would be either Rs 2,80,000, or 2,70,000 (i.e.,
90%x10,000 x 30), based on the option chosen by
Prestige.
 [Section 15(5) r/w Rule 29(a) of Central
Goods and Service Tax Rules]
 Illustrations
415

 7. Mr. & Ms. Mehta purchase 10 gift vouchers for

Rs. 500 each from Crossword, and 5 vouchers from
Four Fountains Spa costing Rs. 1,000 each, and
gives them as return gifts to children and their
parents for their son’s birthday party.

 The vouchers from Four Fountains Spa had a

special offer for couples – services for both persons
at the price chargeable to one.
 Ans. The value of the supply would be the money
value of the goods redeemable against the voucher.

 Thus, in case of vouchers from Crossword, the value

would be Rs. 5,000 (i.e., Rs. 500 x 10) and the value
of vouchers in case of Four Fountains Spa would be
Rs. 10,000 (i.e., Rs. 1,000 x 2 x 5).
 [Section 15(5) r/w Rule 32(6) of Central
Goods and Service Tax Rules]
 Text Hundred India (P.) Ltd v. Commissioner of
Service Tax, Delhi-[2018] 94 taxmann.com 170 (New
Delhi - CESTAT)
 The appellant is registered with the Service Tax
Department for providing the taxable service under
the category of event management.
 For providing such service, the appellant receives the
retainership fee and fixed mechanical income, on
which the appellant discharged appropriate service
tax liability
 However, the appellant did not pay the service tax
on the reimbursable expenses incurred on actual.
During the course of audit for the period
01/04/2004 to 31/03/2006,

 the Service Tax Department observed that the

appellant had recover certain expenses for
providing the taxable service, but did not pay the
service tax thereon.
 Accordingly, show cause proceedings were
initiated against the appellant, which culminated
in adjudication order dated 16/12/2009, wherein
the service tax demand of Rs. 15,51,838/- and Rs.
6,42,675/- alongwith interest was confirmed
against the appellant.
 Besides, penalties were also imposed under Section
77 and 78 of the Finance Act, 1994. On appeal, the
learned Commissioner (Appeals) has upheld the
adjudication order.
 Learned Advocate appearing for the appellant
submits that the adjudged demand confirmed
against the appellant relates to the mechanical
expenses and reimbursable expenses.

 He submits that in respect of mechanical expenses,

the appellant had already deposited the service tax
before issuance of the show cause notice and the
amount deposited by it has also been appropriated to
the Government account.
 Thus, he submits that the appellant is contesting the
includibility of reimbursable expenses of
Rs. 3,63,344/- in the gross value by the Department.

 It is the contention of the learned Advocate that the

reimbursable expenses received from the client on
actual basis, should not form part of the gross value
for the purpose of payment of service tax.
 On the other hand, the learned DR opposed the
contentions.
 Heard both sides and perused the case records.
 6. On perusal of the service agreements dated
01/01/2005 available in the case file, we find that the
client of the appellant was under the obligation to
reimburse the extra ordinary expenses incurred by
the appellant on actual basis
 Reimbursable expenses cannot be considered as
amount charged by service provider, ‘for providing the
taxable service’. Since, the appellant was entitled for
receiving the actual expenses incurred by it,

 the same should not be included in the gross value for

the purpose of payment of service tax, inasmuch as,
such amount is not towards the consideration received
for providing the taxable service.

 In view of above, we do not find any merits in the

impugned order. Accordingly, after setting aside the
same, we allow the appeal in favour of the appellant.
 Mail Related Services v. Commissioner of
Service Tax, Chennai [2018] 95 taxmann.com
242 (Chennai - CESTAT)
 The assessee was engaged in providing mailing
services using franking machines of the postal
department.
 In this exercise, the assessee collected the mail from
its clients, frank them as per weight and then mail
the documents/packets concerned.
 In respect of franking charges, the clients take out
demand drafts in favour of the Post Master General.

 In some cases, the assessee paid the franking charges

on behalf of the clients and received it from the latter
subsequently.

 The assessee also received a rebate of 3 per cent on

the franking charges from the postal department.
 The Adjudicating Authority held that the franking
charges formed part of value of taxable service.

 He further held that the rebate received by the

assessee from the postal department was required to
be taxed under the category of ‘Business auxiliary
service’.

 On appeal to Tribunal:
 HELD

 It is not disputed that the charges related to franking

are paid directly to the Post Master General by the
assessee’s clients or are otherwise paid by the
assessee and subsequently reimbursed by the said
clients.
 Therefore, it cannot be alleged that the said charges
are accruing to the assessee.
 Hence, they cannot be made part of the value of
taxable service. Even in cases where the assessee
pays the franking charges to the postal department
on behalf of the clients, it gets reimbursed for the
same by the said clients.
 Therefore, the franking charges cannot be made part
of the value of taxable service.
 Coming to the controversy on rebate received from
the postal department, it cannot be treated as a
commission or an amount received for promoting
the postal services.
 Such incentives are given by the postal authority to
encourage use of franking machines, especially
where the volumes are above a certain threshold
level.
 Therefore, there is no merit in the Adjudicating
Authority’s stand that the rebate received by the
assessee is required to be taxed under the category of
‘Business auxiliary service’
 In view of the aforesaid, the impugned order was
liable to be set aside.
  INPUT TAX CREDIT
 Input tax credit (ITC) is the backbone of GST
system. The main objective of the ITC is to
eliminate cascading effect of taxes paid. Cascading
effect of tax (i.e. tax on tax) happens where tax is
levied at every stage of supply.
 Input tax has been defined in Section 2(63) of
CGST Act, “input tax credit” means the credit
of input tax.
 The taxable person is allowed to claim ITC
on GST incurred on his purchases and with
out put.
 Illustrations :
 1) Y has manufactured a dress, she pays a tax of Rs.50 on
each dress that she sells as per the GST regulations.
Y bought the fabric (raw material) for manufacturing
process from Z. Z paid a tax of Rs.40 to the government
on the fabric that she sold to Y.
 Since already the government has got Rs.40 as tax from
Z, hence Y will be paying only Rs.10 to the government
informing that the rest of the tax has been paid by Z.
Government will check the receipts and will convey that
Y has paid the tax of Rs.50 for the dress.
 This is the concept known as is input tax credit under
which you can claim the “credit” of “input tax” that is
paid by the supplier of the raw goods.
 What is Input Tax Credit?
 GST taxation structure allows businesses across India to
claim input credit for the tax they paid while purchasing
capital goods for their company.
 How does it work?
 At each stage of the supply chain, the buyer gets credit
for the input tax paid, and they can use it to offset the
GST that needs to be paid to the Centre and State
governments
2) MK Kitchen Knives sells custom-made kitchen
knives.

 They purchase steel and plastic worth Rs.2000

from a vendor at a GST rate of 12.5%. Thus, the
input tax they pay is Rs.250.
 The company now sells the manufactured knives
for Rs.4000, plus an output tax of 12.5%, making
the total selling price Rs.4500 (Rs.4000 +
Rs.500).

 Thus, the tax that MK Kitchen Knives owes

to the Government = Output tax - Input tax
credit = Rs.500 - Rs.250 = Rs.250
 The meaning of ITC can be easily understood
when we take the words ‘input’ and ‘tax credit’.

 Inputs are materials or services that a

manufacturer purchases
 in order to manufacture his product or services
which is his output.
 Tax credit means the tax a producer is able to
reduce while paying his tax on output.
 Input tax credit means that when a manufacturer
pays the tax on his output, he can deduct the tax he
previously paid on the input he purchased.
 Here, while paying the tax on his output, he can
deduct or take credit for the tax he paid while
purchasing inputs.
 Example:
A readymade garment firm buys polyester (input)
from a supplier (of input) at Rs 100 and a GST
of Rs 10 is also has to be paid (@ rate of 10%).
The price of polyester input will be Rs 110.
 Now the garment manufacturer sells the product at
Rs 200 plus tax (means his value addition is
Rs 100). Imagine that the GST rate of readymade
shirt is 12%.
 Here, the manufacturer must pay a tax of Rs 24.
But he has previously paid a tax of Rs 10 while
purchasing the input of polyester.

 Hence, he can claim this Rs 10 and has to pay only

the remaining Rs 14 (of the total Rs 24). The Rs 10
that the manufacturer claimed is the input tax
credit.
 How the ITC under the GST avoids the
cost-cascading effect?

 Pre-GST situation.
 Here, the price paid by the readymade
manufacturer is Rs 110 and his value addition is Rs
100. Totally this will come to Rs 210.

 In the absence of proper input tax credit (between

Union Excise Duties and State VAT), the
readymade manufacturer will charge 12% of Rs 210
as tax for the shirt.
 Hence, the price will be Rs 210; plus Rs 25.2 =
Rs 235.2. This is higher than the GST price of Rs
224.
 Thus, it is the input tax credit that makes the GST
efficient and constructive.
 Relevant definitions:
 (a) Taxable person: Means a person who is
registered or liable to be registered under section
22 or section 24 of the Goods and Services Tax Act,
2017.
 As such, the liability to pay tax devolves on every
‘taxable person’ whether or not registration has
been sought. However, that input tax credit
will be available only to a ‘registered’
taxable person
 Input: “Input” in terms of section 2(59) means —
 any goods, — other than capital goods, —
 used or intended to be used by a supplier — in the
course or furtherance of business
 (g) Input service: “Input service” in terms of
section 2(60) means — any service —
 used or intended to be used by a supplier — in the
course or furtherance of business.
 ITC is an integration of Goods and Services: Since
GST is charged on both goods and services,

 input tax credit can be availed on both goods and

services (except those which are on the
exempted/negative list).Input tax credit is allowed
on capital goods.
 Eligibility to avail input tax credit :
 Registered person to take credit: Every registered
person subject to Section 49 (payment of tax),

 shall be entitled to take credit of input tax charged

to him on any supply of goods or services or both
which are used or intended to be used by him
in the course or furtherance of his business.
 The input tax credit is credited to the electronic
credit ledger.
 Rule 36 of the Central Goods and Service Tax Rules,
2017 provides that input tax credit can be taken on
the basis of any of the following documents:

 (i) Invoice issued under section 31 by supplier of

goods or services.
 (ii) Debit note issued under section 34 by supplier of
goods or services.
 (iv) Invoice prepared in respect of supplies made under
reverse charge basis issued u/s 31(3)(f).

 (v) Invoice/ Credit Note issued by ISD for distribution

of credit in accordance with Rule 54(1) of CGST Rules,
2017.

 (iii) Bill of entry or any similar documents under

Custom Act, 1962.
 It is important to observe the words ‘used by him’ and
‘in his business’ are appearing in section 16(1).

 These words refer to the registered taxable person in

question and not the legal entity.

 So, input tax paid in a State must not be in relation to

the business of a taxable person in another State albeit
belonging to the same person.
 For example, A Company has Branch-A which is a
registered taxable person in Andhra Pradesh
conducts conference in a hotel in Lonavla
(Maharashtra) where CGST is charged by the hotel.

 This Company also has Branch-M which is a

registered taxable person in Mumbai,
 Now the provisions of section 16(1) operate as
follows: CGST charged by the hotel in Lonavla
(Maharashtra) is ‘used in the business of Branch-A’
in Andhra Pradesh and not in the business of
Branch-M in Mumbai.

 Hotel would not be aware about the above fact and

may issue the bill in the name of Branch-M
because both are branches of the same Company.
 Since, CGST has been charged by the hotel, input
tax credit would not be available to Branch-A as
tax paid in Maharashtra is not a creditable tax in
Andhra Pradesh

 Branch-M may be compelled to forego the tax paid

to the hotel.
 However, there may be an urge to save this loss by
informing the hotel the GSTIN of Branch-M.

 But, Branch-M in Mumbai cannot justify this input

tax credit as it is not ‘used by him’ in ‘his business’
but it is ‘used by another’ in ‘that others business’
 Care should to taken to verify ‘whose’ business
each input tax credit relates to;

 If nexus is established between the services of the

hotel and the ‘business’ of Branch-M, input tax
credit may be availed by Branch-M. Nexus
emerges if inter branch supply of services
occurs between Branch-M and Branch-A
 Conditions for taking ITC - Section 16(2)
Notwithstanding anything contained in this section, no
registered person shall be entitled to the credit of any
input tax in respect of any supply of goods or services
or both to him
 unless,––
 (a) he is in possession of a tax invoice or debit note
issued by a supplier registered under this Act, or such
other tax paying documents as may be prescribed;
 (b) he has received the goods or services or both.
 Explanation.—For the purposes of this clause, it shall
be deemed that the registered person has received the
goods
 where the goods are delivered by the supplier to a
recipient or any other person on the direction of such
registered person,
whether acting as an agent or otherwise,
before or during movement of goods,
either by way of transfer of documents of title to goods
or otherwise;
 subject to the provisions of section 41, the tax charged
in respect of such supply has been actually paid to the
Government, either in cash or through
utilisation of input tax credit admissible in
respect of the said supply; and
 (d) he has furnished the return under section 39:
Provided that where the goods against an invoice are
received in lots or instalments,
 the registered person shall be entitled to take
credit upon receipt of the last lot or
instalment:
 Provided further that where a recipient fails to pay
to the supplier of goods or services or both, other
than the supplies on which tax is payable on
reverse charge basis, the amount towards
the value of supply along with tax payable
thereon
 within a period of one hundred and eighty
days from the date of issue of invoice by the
supplier, an amount equal to the input tax
credit availed by the recipient
 shall be added to his output tax liability, along with
interest thereon, in such manner as may be
prescribed:

 Provided also that the recipient shall be

entitled to avail of the credit of input tax on
payment made by him of the amount
towards the value of supply of goods or
services or both along with tax payable
thereon
 Section 16(3) of the CGST Act, 2017:
 Where the registered person has claimed
depreciation on the tax component of the cost of
capital goods and plant and machinery under the
provisions of the Income-tax Act, 1961,

 theinput tax credit on the said tax

component shall not be allowed.
 Section 16(4) of the CGST Act, 2017: A registered
person shall not be entitled to take input tax credit in
respect of any invoice or debit note for supply of
goods or services or both after the due date of
furnishing of the return under section 39

 for the month of September following the end

of financial year to which such invoice or
invoice relating to such debit note pertains or
furnishing of the relevant annual return,
whichever is earlier.
 Sec 18 - Availability of credit in special
circumstances

 Input tax credit is available to a registered person on

inputs held in stock, inputs contained in
semi-finished and finished goods and on capital
goods held in in some cases
 Declaration in Form GST ITC 1 must be filed
within thirty (30) days from the date of becoming
eligible to input tax credit – and as extended from
time to time.
 Rule 40 of Central Goods and Service Tax Rules,
2017 requires a declaration to be filed containing
details of stocks and capital goods
 along with a certificate from a Chartered
Accountant or Cost Accountant where the
credit so claimed exceeds Rs 2 lakhs.
 The supplier will not be entitled to credit of
goods or services or both after expiry of
1 year from date of issue of tax invoice.
 The credit on capital goods shall be reduced by five
(5) percentage per quarter or part thereof from the
date of invoice.
 Such credits are subject to verification of details
furnished by the supplier in GSTR - 1 or GSTR – 4
on the common portal.
 To summarize, the credit of input tax can be taken
as and when the person applies for the registration
but the entitlement of credit of inputs
would be from the day liability to pay tax
arises.
 Examples: (i) A person becomes liable to pay tax
on 1st August 2017 and has obtained registration
on 15th August 2017.
 Such person is eligible for input tax credit on
inputs held in stock as on 31st July 2017.
 (ii) Mr. An applies for voluntary registration on
5th June 2017 and obtained registration on
22th June 2017. Mr. A is eligible for input tax
credit on inputs in stock as on 21st June 2017.
 (iii) Mr. B, registered person was paying tax under
composition rate upto 30th July 2017.
 However, w.e.f 31st July 2017. Mr. B becomes
liable to pay tax under regular scheme. Mr. B is
eligible for input tax credit on inputs held in stock
as on closure of business hours on 30th July
 APPELLATE AUTHORITY FOR ADVANCE
RULING, MAHARASHTRA CMS Info Systems
Ltd., In re - [2018] 96taxmann.com 292
(AAAR-MAHARASHTRA)

 The Appellant is having cash management network

pan India. During the course of providing the cash
management services, the appellant is engaged in
the following activity:

 Providing ATMs and installing the same at various

locations across India.
 Such transportation of cash is done through the
security vans popularly known as “cash carry
vans”.

 The appellant purchases raw motor vehicles and by

requisite fabrication, get them converted to cash
carry vans. The appellant also pays GST on
fabrication.
 For this purpose, the appellant purchases motor
vehicle and pays GST. Credit of GST is not
availed by the appellant presently.

 While purchasing Cash Carry Vans during pre-GST

era, the appellant has paid the Central Excise Duty
as well as Value added Tax.
 When these vans cannot be used further,
the appellant sells these motor vehicles as
scrap. In certain cases, instead of purchasing
motor vehicles, the appellant prefers to hire these
motor vehicles.

 The Appellant had approached the Advance Ruling

Authority (AAR) for seeking an advance ruling
under Section 97(1) of the CGST Act, in respect of
the following questions:
 I. Whether supply of such motor vehicles as scrap after
its usage can be treated as supply in the course
or furtherance of business and whether such
transaction would attract GST?

 II. If answer to Question I is in affirmative, whether

Input Tax Credit is available to CMS Info
Systems Limited on purchase of motor vehicles
i.e. cash carry vans which are purchased, used
for cash management business and supplied
post usage as scrap.
 Regarding the issue raised in the Question I of the
application, it is held that supply of motor vehicles
i.e. cash carry vans as scrap after its usage

 will be treated as supply in the course or

furtherance of business in terms of the
provision of Section 7 of the CGST Act, 2017
and such transaction would attract GST
 as the disposal of cash carrying van is a
transaction in connection with or incidental
to or ancillary to business

 in so much as the sale proceeds of such vans

is treated as income and reflected in P&L
Account, thereby marking such transaction
as taxable supply attracting GST thereon.
 As regards, the rate of GST leviable on such supply,
the applicant has not provided any invoice and

 Further, it is also not clear whether after sale these

would be usable as vehicles or would be fully
scrapped.
 As the said goods do not appear in the
notification no. 2/2017-C.T. (Rate) which
exempts the goods from the levy of GST,

 these taxable supply would be taxed at rates

mentioned in the Notification No. 1/2017-C.T.
(Rate), which may be referred by the applicant
accordingly.
 Regarding the issue raised in the Question II of the
application, wherein it was asked whether Input
Tax Credit is available to CMS Info Systems
Limited on purchase of such motor vehicles
 i.e. cash carry vans which are used for cash
management business and supplied, post usage, as
scrap, there was difference in opinion on this
particular issue between two members of the
Advance Ruling Authority.
 Therefore, the matter has been referred to the
Appellate Authority for Advance Ruling for giving
the appropriate ruling in this regard.
 GROUNDS OF APPEAL
 The Appellant submitted that they are lawfully
eligible and entitled for input tax credit of the GST
paid on standard motor vehicle and also GST paid
on the fabrication of the vehicles to suit the need
for cash carrying vehicle.
 According to Section 17(5)(a) of CGST Act, 2017,
input tax credit on motor vehicles and other
conveyance is not available; however, the
exception has been carved out inter-alia to
the motor vehicles and other conveyances
used for transportation of goods.

 In other words, if the motor vehicles and

conveyance is used for transportation of
goods, input tax credit on motor vehicles is
available.
 In the instant case, the currency transported
by the appellant is for the purpose of carrying
out the business of maintaining ATMs by the
Appellant and hence, the Appellant are not
using the same as a consideration for settling
of any obligation.

 The job assigned to the appellant is for the

transportation of currency to the desired
destination as per their customer banks
 and while carrying out the activity of
transportation, the said currency is plain
goods for the Appellants and cannot be
used/is not used in exchange of other
Indian legal tender of another
denomination.
 In view of the above, the cash carry vans are
used for transportation of goods as the
currency being transported is not covered
under the definition of ‘money’ and
 since the motor vehicle converted into the
cash carry vans are used for transportation
of goods, input tax credit of tax paid is
admissible going by the exclusion from the
bar on availability of input tax credit as
stipulated under Section 17(5)(a)(ii) of
CGST Act.

 Section 2 of the CGST Act assigning meanings to

various terms used under CGST Act begins with
the expression
 “In this act, unless context otherwise requires”.
Normally, the term ‘means’ makes the definition
exhaustive one but such exhaustive definition has
to be departed from

 if the definition section opens with the word

“unless context otherwise requires” if there be
something in the context to show that the
definition could not be applied.
 In the present case, the context in which the
cash carry vans are used for transportation
of currency is that the goods of the customer
banks are transported by the Appellant

 and not the money as defined under Section 2

(75) of the CGST Act as the said currency
cannot be used as money as understood in
the common parlance.
 Further, the intention of the legislature in
excluding money from the definition of “goods” is
not to levy CGST on supply of money.

 It is further submitted that the Appellant are

carrying out the business as defined in Section
2(17) of the CGST Act and without currency being
transported by the Appellant could not have
rendered supply of business support service on
which GST is paid.
 Hence denial of input tax credit of tax paid on
motor vehicle converted into cash carry van is
incorrect.
 The Applicant refers to the view expressed by both
the Hon’ble Members to the effect that there is no
issue of admissibility when the vehicle is carrying
bullion.
 In the present case vehicle is capital goods under
Section 2 (19) and hence even if it is used in stray
cases in transportation of bullion

 input tax credit is admissible as there is no bar

from taking credit and in any case, the Appellant
are not making any exempt supplies.
 Hence - Appellant are eligible and entitled for input
tax credit of GST paid by them to vehicle
manufacturers for supply of standard vehicles and
GST paid on the fabrication.

 The Appellate Authority for Advance Ruling may also

be pleased to hold cash carry vans would be covered
under exclusion clause of 17(5)(a)(ii) of CGST.
 Submissions by Respondent
 The applicant is engaged in the services of
transportation of cash. The cash carrying vans
cannot be treated merely as transport vehicles,
carrying the goods as claimed by the appellant,

 as it is a special purpose vehicle which is

deployed to collect the currency under the
security guards with arms and with 2
supervisors as per the Guidelines of Reserve
Bank of India letter dated 06th April, 2018.
 Findings :
 The issue before us is to determine whether the money
being transported by the Appellant in the cash carry
vans is “goods” or otherwise for the purposes of
availing Input Tax Credit under the GST law.
 For this purpose, we observe from a plain reading of the
definition of the ‘goods’ provided in the Section 2(52)
of the CGST Act, 2017, that the very first line of the
definition, i.e., ‘goods’ means every kind of movable
property other than money/clearly excludes money
from the purview of goods under the GST law.
 The definition of money under the Section 2(75) of the
CGST Act, 2017, we find that “money” means the
Indian legal tender but shall not include any currency
that is held for its numismatic value.
 Since the cash carry vehicles are deployed to carry cash
and bullion for other than for numismatic purposes, the
cash carried by them is to be construed as money
and not goods.
 Further, GST council in its 281st meeting has inter
alia proposed to widen the scope of the ITC to cover
the ITC even in respect of motor vehicles used for
transportation of money for or by a banking
company or financial institution, -

 which was previously not available to them

clearly shows that the intention of the
legislature was earlier to not treat ‘money’ as
‘goods’, as defined under Section 2(52) of the
CGST Act.
 Now the GST Council have recommended to the
Government to lay before the legislature an
amendment in the provision

 which will extend the benefit of ITC in respect

of the motor vehicles, used for transportation of
money for or by a banking company or financial
institution
 Thus, this proposed amendment recommended by
the GST Council during its 28th meeting, further
strengthens our findings above
 that money being transported by the Appellant in
the cash carry van is certainly not “goods” as is
being claimed by the Appellant.
 In fact, given the collective mind of the GST
Council on the subject, the argument stands
clinched in favour of the Respondents.
 The argument of the Appellant that, although in
general understanding, what is being transported
by the appellants is currency or cash or money -
from the Appellant’s point of view or for the
appellant, what is transported is ‘goods’ and not
‘money’, does not support their cause,
 as the definitions provided in Acts are universal
and same cannot be interpreted for suiting the
requirement of any individual as claimed by the
Appellant.
 If ‘Money’ is not covered as Goods’ in the definition of
‘Goods’ under CGST Act, then it is not ‘goods’ for
everyone and it cannot be said that it is not ‘goods’ for
general perception and it is ‘goods’ for the Appellant.
 ORDER
 In view of the above we hold that, as the law
now stands, Input Tax Credit is not available to
CMS Info Systems Limited on purchase of
motor vehicles i.e. cash carry vans, which are
purchased and used for cash management
business and supplied post usage as scrap.
 Accordingly, the issue referred before the appellate
authority is decided in terms of the above order.
  Registration
 INTRODUCTION
 Registration is the most fundamental requirement for
identification of taxpayers ensuring tax compliance in
the economy.
 Without registration, a person can neither collect tax
from his customers nor claim any input tax credit of
tax paid by him.
 Registration of any business entity under the GST Law
implies obtaining a unique number from the concerned
tax authorities for the purpose of collecting tax on
behalf of the government and to avail input tax
credit for the taxes on his inward supplies.
 Advantages of registration: The following are
advantages to a taxpayer who obtain registration
under GST:
 (i) He is legally recognized as supplier of goods or
services or both.

 (ii) He is legally authorized to collect taxes from his

customers and pass on the credit of the taxes paid on
the goods or services supplied to the
purchasers/recipients.
 (iii) He can claim Input Tax Credit of taxes paid
and can utilize the same for payment of taxes due
on supply of goods or services.
 (iv) Seamless flow of Input Tax Credit from
suppliers to recipients at the national level.
 (v) Registered person is eligible to apply for
Government bids or contracts or assignments.
 (vi) Registered person under GST can easily gain
trust from customers.
 PERSONS NOT LIABLE FOR REGISTRATION
 (i) Sec 23(1)(a): Any person engaged exclusively in
the business of supplying of goods or services or
both they are not liable to tax or wholly exempt
from tax under CGST .
 (ii) Sec 23(1)(b): An agriculturist, to the extent of
supply of produce out of cultivation of land.
 (iii) Sec. 23(2): The Government may, on the
recommendation of the GST Council.
 Inter State supply of services exempted from
registration: The GST Council, in its 22nd meeting
held on 6th October 2017, has recommended that it
has now been decided to exempt those service
providers
 whose annual aggregate turnover is less than Rs 20
lacs (Rs 10 lacs in special category states. Rs 20 lacs
for J & K) from obtaining registration even if they are
making inter-State taxable supplies of services (vide
Notification No. 10/2017 – Integrated Tax Dt 13th
Oct 2017).
 Section 22 provides for registration of every
supplier effecting the taxable supplies. Registration
of a business with the tax authorities implies
obtaining a unique identification code from the
concerned tax authorities so that all the operations
of, and data relating to the business can be
agglomerated and correlated.
 In any tax system, this is the most fundamental
requirement for identification of the business for
tax purposes and for having any compliance
verification mechanism.
 A registration from the concerned tax authorities
will confer among others the following advantages
to the registrant. — Legally recognised as a
supplier of Goods and/or Services; — Proper
accounting of taxes paid on the input goods and /
or services; —
 Utilisation of input taxes for payment of GST due
on supply of goods and / or services or both; —
Pass on the credit of the taxes paid on the goods
and / or services supplied to purchasers or
recipients.
 Analysis — Every supplier shall be liable to be
registered under the Act in the State from which he
makes a taxable supply of Goods or Services or
both.

 It is important to note that registration is required

‘in’ the State ‘from where’ taxable supplies are
made. Registration is not required ‘in’ the State ‘to’
which taxable supplies are made, even though this
is a destination-based tax.
 This greatly reduces the burden of the taxable
person from having to seek registration in every
State ‘to’ which taxable supplies are made.

 If the supplies are ‘to’ another State, then the

nature of tax will not be CGSTSGST but IGST and
is paid to the Union who will ensure that the same
reaches the appropriate ‘destination’ State.
 Therefore, for purposes of obtaining registration, it
is important to identify the ‘origin’ of supply even
though GST is a ‘destination’ based tax. Tax goes to
the destination-State but registration is in the
origin-State.

 Place of Supply (as determined from IGST Act)

provides the ‘destination’ and this is not relevant
for registration. The Location of Supplier is
relevant for registration.
 The State “from” where taxable supply is made is a
question of fact and that must be determined based
on the requirement of law. In the case of services,
Location of Supplier of Services is defined in 2(71)
of CGST Act but in the case of goods, Location of
Supplier of Goods is not defined.
 And this is not an oversight but deliberate. Services
leave no trail as to the location ‘from’ where they
are supplied and for that reason, a definition is
required.
 Whereas goods leave a trail, that is, where the
goods are actually ‘located’. This can be seen from
the definition of Place of Business 2(85) of CGST
Act.

 Place of Business is where business is ‘ordinarily

carried on’ – this would be the location ‘from’
where taxable supplies are made, whether for
goods or for services.
 But, if this is not (in case of goods), this definition
goes on to include ‘place where goods are stored’.
Hence, location of supplier of goods is where
business is ordinarily carried on or where the
goods themselves are located, if that were more
accurate.
 For example, a company incorporated outside
India purchases goods from a manufacturer and
instructs that the goods be deposited with a
warehouse-keeper in India.
 And then after some time, supplies the goods
from the warehouse to a customer also within
India.

 By being incorporated outside India, the place

where business is ordinarily carried on is not in
India but the location where goods are stored
being within India, attracts the requirement to
register at the warehouse.
 It is true that mere storage is not the ‘place of
business’ in general understanding but in GST this
appears to the unequivocal intent of the law-
maker.

 Care should be taken to correctly identify where

registration ought to be obtained so as not to end
up with a serious misapplication of the
requirements of law.
 Registration is required if his aggregate turnover in a
financial year exceeds Rupees Twenty Lakhs. This
threshold limit will be Rupees Ten Lakhs if a taxable
person conducts his business in any of the special
category states as specified in sub-clause (g) of clause
(4) of Article 279A of the Constitution
 i.e. Arunachal Pradesh, Assam, Manipur, Meghalaya,
Mizoram, Nagaland, Sikkim, Tripura, Himachal
Pradesh and Uttarakhand. However, the threshold
limit remains Rupees Twenty Lakhs for the State of
Jammu and Kashmir.
 How the Aggregate Turnover is Calculated? XYZ
Pvt. Ltd. is a manufacturing unit in Mumbai,
Maharashtra along with unit at Assam.

 Turnover details of all the units are as follows:

Mumbai Unit: Rs 8 Lakhs Assam Unit: Rs 11
Lakhs Assam Unit is a special category state
wherein the registration limit is Rs 10 lakhs.
 Hence, in the given case XYZ Pvt. Ltd would be
required to take registration in Assam due to
aggregate turnover being Rs 11 Lakhs.

 Now it needs to be analyzed whether Mumbai unit

also requires to get registered even though the
aggregate turnover of all the units is less than Rs
20 lakhs.
 So even though aggregate turnover is less than 20
Lakhs, registration would be mandatory in Mumbai
also by virtue of mandatory registration in Assam —
 It means that for each State, the supplier liable for
registration will have to take a separate registration
even though such supplier may be supplying goods
or services or both from more than one State as a
single entity.
 The application for registration shall be made within
30 days from the date when he becomes liable for
registration.
 It is necessary to admit the distinction between
‘person and taxable person’. Person is defined in
the most familiar manner in section 2(84) and a
taxable person is defined in section 2(107).

 A proper reading of section 22 helps us understand

that a State is the smallest registrable unit in GST
– except where multiple business verticals are
registered separately under section 25.
 A taxable person is therefore the presence of the
person in a State from where taxable supplies are
made in the name of such person.

 When a person becomes liable to be registered in a

State at any place from where taxable supplies are
made therein such person shall be a taxable
person.
 Casual taxable person or a non-resident taxable
person shall apply for registration at least 5 days
prior to the commencement of business. —

 A person having multiple business verticals [as

defined in Section 2(18)] in one State may obtain
separate registrations for each of the business
vertical, subject to prescribed conditions. —
 Every registered person shall display his certificate
of registration in a prominent location at his
principal place of business and at every additional
place or places of business. —

 Every registered person shall display his Goods

and Services Tax Identification Number on the
name board exhibited at the entry of his principal
place of business and at every additional place or
places of business.
 Jaimin Engineering (P.) Ltd., In re [2018]
97 taxmann.com 195 (AAR- RAJASTHAN)
 FACTS
 Applicant-works contractor is engaged in
construction of Cold storage.
 Applicants are expecting to do some construction
work in the State of Rajasthan whereas they are
located in the State of Gujarat and registered there
in GST.
 As per GST provisions every supplier is required to
take registration in each State where they have a
place of business. In instant case, they have place
of business in Gujarat and are duly registered
there.
 They will be charging IGST on their activity in
Rajasthan making it a place of supply. The State
share of that IGST will go to the State of Rajasthan
as it is the place of supply.
 The taxpayer believes that he is not required to
take registration in the State of Rajasthan.
 SUBMISSION OF THE APPLICANT:
 M/s. Jaimin Engineering Private Limited is engaged in
construction of Cold storage.
 Section 22 of CGST Act provide for the basic
requirement for registration as reproduced below:
 “Every supplier shall be liable to be registered under
this Act in the State or Union territory, other than
special category States,
 from where he makes a taxable supply of goods or
services or both, if his aggregate turnover in a
financial year exceeds twenty lakh rupees:
 Provided that where such person makes taxable
supplies of goods or services or both from any of
the special category States, he shall be liable to be
registered if his aggregate turnover in a financial
year exceeds ten lakh rupees."
 Also section 2(71) provide the location of supplier.
We can say that the place from where the supply is
made will be taken as a location of supplier. In our
case the supply will be made from Gujarat.
 Section 2(71) “location of the supplier of services”
means,—
 (a) where a supply is made from a place of
business for which the registration has been
obtained, the location of such place of
business;
 (b) where a supply is made from a place other than
the place of business for which registration has
been obtained (a fixed establishment elsewhere),
the location of such fixed establishment;

 (c) where a supply is made from more than one

establishment, whether the place of business or
fixed establishment, the location of the
establishment most directly concerned with
the provisions of the supply; and
 (d) in absence of such places, the location of the
usual place of residence of the suplier;
 Issues to be decided:
 M/s. Jaimin Engineering Private Limited is a
company incorporated under the Companies Act,
1956. It is engaged in construction of cold storages
at various parts of Country.

 They are expecting to do some construction work

in the state of Rajasthan whereas they are located
in the state of Gujarat and registered there in GST.
 As per GST provisions every supplier is required to
take registration in each state where he have a
place of business.

 Here they have place of business in Gujarat and are

duly registered there.

 Whether the tax payer is required to take

registration in the state of Rajasthan ?
 Findings and analysis:
 The Works Contracts has been defined in Section
2(119) of the CGST Act, 2017 as “works contract”
means a contract for building, construction,
fabrication, completion, erection, installation, fitting
out, improvement, modification, repair, maintenance,
renovation, alteration
 or commissioning of any immovable
property wherein transfer of property in
goods (whether as goods or in some other
form) is involved in the execution of such
contract.”
 As per Para 6(a) of Schedule II to the CGST Act,
2017, works contracts as defined in section 2(119)
of the CGST Act, 2017 shall be treated as a supply
of services.
 Thus, there is a clear demarcation of a works contract as
a supply of service under GST Act.
 As per Section 2(15) of the Integrated Goods and
Services Tax Act, 2017, the term “location of the
supplier of services” means,—

 (a) where a supply is made from a place of business for

which the registration has been obtained, the location of
such place of business;
 (b) where a supply is made from a place other than the
place of business for which registration has been
obtained (a fixed establishment elsewhere), the
location of such fixed establishment;
 (c)where a supply is made from more than one
establishment, whether the place of business or fixed
establishment, the location of the establishment most
directly concerned with the provisions of the supply;
and
 (d) in absence of such places, the location of the usual
place of residence of the supplier
 The Location of the Works Contractor shall
remain to be the state where his principal
place of business is registered (unless he has
established his office/establishment in the place
where the services are supplied)
 As per section 12(3)(a) of IGST Act, 2017 in case of
Works Contract Services Place of supply shall be
the location at which the immovable property
(construction site) is located.
 Section 22(1) of CGST Act, 2017 defines the liability
for registration as:

 “Every supplier shall be liable to be registered under

this Act in the State or Union territory, other than
special category States, from where he makes a
taxable supply of goods or services or both, if
his aggregate turnover in a financial year exceeds
twenty lakh rupees:
 Provided that where such person makes taxable
supplies of goods or services or both from any of
the special category States,

 he shall be liable to be registered if his aggregate

turnover in a financial year exceeds ten lakh
rupees.”
 HELD
 The location of the works contractor shall remain
to be the State where his principal place of
business is registered (unless he has established
his office/establishment in the place where the
services are supplied).
 As per section 12(3)(a) of IGST Act, 2017 in case of
Works Contract Services Place of supply shall be
the location at which the immovable property
(construction site) is located.
 A supplier of service will have to register at the
location from where he makes taxable supplies or
is supplying taxable services if his aggregate
turnover in a financial year exceeds twenty lakh
rupees (ten lakh rupees in any of special category
States).

 While supplying services if the supplier of services

(i.e. applicant who in the given case is a works
contractor and is registered in State of Gujarat)
 has any place of business/office in the State of
Rajasthan

 i.e. has a fixed establishment for operation

in State of Rajasthan (place where the
services are to be provided) then he is
required to get himself registered in State
of Rajasthan.
 For calculating the Threshold limit, the turnover
shall include all supplies made by the taxable person,
whether on his own account or made on behalf of all
his principals.
 Further, supply of goods by a registered Job-worker,
after completion of job work, shall be treated as the
supply of goods by the “principal” referred to in
section 143 (i.e. Job work procedure) of this Act.
 The value of such goods shall not be included in the
aggregate turnover of the registered job worker.
 Every person who, on the day immediately preceding
the appointed day, is registered or holds a license
under an earlier law, shall be liable to be registered
under this Act with effect from the appointed day. —
 Every person being an Input Service Distributor shall
make a separate application for registration as such
Input Service Distributor. —
 Every person having a unit in a Special Economic
Zone or being a Special Economic Zone developer
shall make a separate application for registration
as a Business vertical distinct from his other units
located outside the Special Economic Zone.

 Where a person who is liable to be registered under

this Act fails to obtain registration, the proper
officer can proceed to register such person in the
manner as may be prescribed —
 The registration shall be effective from the date on
which the person becomes liable to registration
where the application for registration has been
submitted within a period of thirty days from such
date.
 Where an application for registration has been
submitted by the applicant after the expiry of thirty
days from the date of his becoming liable to
registration, the effective date of registration shall
be the date of the grant of registration
 Exemption Limit vs. Registration Limit In the
erstwhile law the facility of SSI/ SSP exemptions
were provided wherein even though assesse have
taken the registration they were not required to
collect and pay tax unless they crossed the
threshold limit.
 However, in GST regime no such exemption is
provided under the law. Once registration is taken
the assesse is mandatorily required to collect and
pay tax to the government irrespective of
threshold.
 As per Section 2(107) of the CGST Act, 2017
“taxable person” means a person who is registered
or liable to be registered under section 22 or
section 24; this means a registered person is a
taxable person.

 It is important to note that Sec 9 of CGST Act, 2017

imposes leviability to taxable person and therefore
once registration is obtained the concept of taxable
person gets triggered.
 Registration on own Volition :- A person, though
not liable to be registered under Section 22, may get
himself registered voluntarily, and once registered all
provisions of this Act, shall apply to such person.
 Transfer of Business and Registration:- If registered
taxable person transfers business on account of
succession or otherwise, to another person as a going
concern, the transferee, or the successor,
 as the case may be, shall be liable to be registered with
effect from the date of such transfer or succession.
 This means that the Registration Certificate issued
under Section 22 of the Act is not transferable to any
other person. In a case of transfer pursuant to sanction
of a scheme or an arrangement for amalgamation or, as
the case may be, de-merger of two or more companies
by an order of a High Court,
 the transferee shall be liable to be registered with effect
from the date on which the Registrar of Companies
issues a certificate of incorporation giving effect to such
order of the High Court.
 Sec 23 :- Persons not liable for registration
 The main criterion to remain out of the purview of
registration is to exclusively engage in the supply
of exempted goods or services or both. The term
exclusive indicates engaging in only those supplies
which are exempted.

 If a supplier is supplying both exempted and non

exempted goods and/or services, then this
provision is not applicable and he is required to
take registration under Section 22.
 As per Section 1(7) agriculturist means an
individual or HUF who undertakes cultivation of
land: (a) By own labour or

 (b) By the labour of family, or

 (c) By servants on wages payable in cash or kind or

by hired labour under personal supervision or the
personal supervision of any member of the family
 Thus, an agriculturist is not liable for registration
only to the extent of supply of produce out of
cultivation of land.
 If an agriculturist undertakes supplies which are
not linked to the cultivation of land, he will fall
within the provisions of Section 22 and may have
to take registration in respect of such supplies.
 It is important to consider the nature of activities
undertaken by the agriculturist.
 If the process deviates from ‘cultivation’ it will
travel outside the scope of this exclusion from
registration.

 The exclusion states – to the extent of supply of

‘produce out of cultivation’ of land – any further
processing of the primary produce from cultivation
will continue not avail this exclusion.
 Cultivation of land does not include pisciculture on
inland water body or cattle rearing that graze the
produce of land.
 The produce from emerge from land for it is be
‘cultivation of land’. For example, harvesting paddy
is cultivation but production of rice is not.
 Please note that the exclusion from the
requirement to be registered does not result in non
collection of tax on agricultural produce.

 Where the supplier is not registered (for any

reason) and the recipient is registered, then tax is
payable by such registered recipient as per section
9(4) of CGST Act
 Further, this section also permits any person
whose ‘entire’ supply consists of ‘exempt supplies’,
then such person is excluded from obtaining
registration.
 Care should be taken to validate the premises
about (a) entire supply (b) exempt.

 Even if small value of supplies is taxable, then even

exempt supplies will be included to determine if
aggregate turnover has exceeded the threshold
limit under section 22 for attracting registration.
 Also, if inward supplies liable to reverse charge
under section 9(3) of CGST Act is attracted, then
notwithstanding the exclusion under section 23,
registration will need to be obtained compulsorily
under section 24,
 If a person remains outside the requirements of
registration due to this section, he would not be
liable to pay tax under 9(4) of CGST Act as it does
not apply to an unregistered-recipient.
 Sec 24 : Compulsory registration in certain
cases Analysis - As per Section 22 there are
certain conditions subject to fulfilment of which
registration must be taken. However, Section 24
enlists 11 types of persons who shall compulsorily
obtain the registration even though these persons
do not trigger the provisions prescribed under
Section 22.
 Thus Section 24 is an overriding section that
makes it mandatory to obtain registration by
certain prescribed persons even though the
conditions prescribed under section 22 are not
met.
 Further, the Government on the recommendations
of the Council may notify such other person or
class of persons who are required to compulsorily
obtain the registration.

 Categories of persons who shall be required to be

registered under this Act irrespective of the
threshold
 Notwithstanding anything discussed in the
paragraph above, the following categories of persons
shall get registered compulsorily under this Act: —
 Persons making any inter-State taxable supply; —
 Casual taxable persons making taxable supply; —
 Persons who are required to pay tax under reverse
charge; —
 Persons who are required to pay tax under
sub-section (5) of section 9 (electronic commerce
operator) —
 Non-resident taxable persons making taxable supply;
— Persons who are required to deduct tax under
section 51 (Tax Deduction at Source); — Persons who
supply goods or services or both on behalf of other
registered taxable persons whether as an agent or
otherwise; — input service distributor; —
 persons who supply goods and/or services, other than
supplies specified under sub- section (5) of section 9,
through such electronic commerce operator who is
required to collect tax at source under section 52,
 Every electronic commerce operator; — every
person supplying online information and database
access or retrieval services from a place outside
India to a person in India, other than a registered
taxable person; and —

 Such other person or class of persons as may be

notified by the Central Government or a State
Government on the recommendations of the
Council
 Joint Plant Committee, In re [2018] 92
taxmann.com 208 (AAR-WEST BENGAL)
 The Applicant is a non-profit organisation set up
by the Central Government .

 The Government of India has since modified the

composition and functions of the Applicant from
time to time.
 The Applicant declares that it has not been registered
and wants a ruling on

 whether it is required to be registered under the

CGST / WBGST Act, 2017. Advance ruling can be
sought on this matter under section 97(2) of the GST
Act.
 As Applicant also declares that the question raised
in the application is not pending or decided in any
proceedings under any provisions of the GST Act,
the application is, therefore, admitted.

 The aggregate turnover from these sources exceeds

the threshold of twenty lakh rupees and makes it
liable for registration under Section 22 (1) of the
GST Act, provided it does not make
exclusively supply of goods or services that
are not liable to tax or wholly exempt from
tax under the GST Act.
 The Applicant’s supplies of journals and periodicals
are wholly exempt under Notification No. 2/2017 –
dated 28/06/2017 .
 The Applicant’s case is that its supply of services are
not taxable either.
 In annexure – I to the Application the
Applicant states that its income is also
exempt under section 10(23C) (IV) of the
Income Tax Act, 1961.
 A question, however, arises whether the
applicant will be liable for registration under
any clause of Section 24 of the GST Act even if
it is not making any taxable supply.

 Section 24 of the GST Act requires a person to be

registered under certain circumstances even if his
aggregate turnover does not exceed the
threshold specified under Section 22(1) of the
GST Act.
 It will be apparent from a plain reading of Section
24 that the question is relevant in the context of
the Applicant only with respect to Section 24(iii) of
the GST Act when the person is required to pay tax
under the Reverse Charge.

 Reverse charge is defined under section 2(98) of

the GST Act as “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.”

 Section 24 is not subject to the provisions of

Section 23 of the GST Act.

 If a person, therefore, is not liable to be registered

for making exclusively exempt supplies but is liable
to pay tax under Reverse Charges under Section
9(3) of the GST Act or 5(3) of the IGST Act,

 it is, therefore, held that the Applicant is engaged
exclusively in supplying goods and services that are
wholly exempt from tax, and, therefore, not liable
to be registered in accordance with the provisions
under section 23(1) of the GST Act,

 subject to the condition that the Applicant is not

otherwise liable to pay tax under the Reverse
Charge mechanism under Section 9(3) of the GST
Act or 5(3) of the IGST Act.
 As the applicant is unregistered and not liable to be
registered, the provisions of Reverse Charge under
section 9(4) of the GST Act or 5(4) of the IGST Act will
not apply. In view of the foregoing we rule as under.
 RULING
 The Applicant is not required to be registered under
the GST Act if he is not otherwise liable to pay tax
under reverse charge under section 9(3) of the GST
Act.
 This ruling is valid subject to the provisions under
Section 103(2) until and unless declared void under
Section 104(1) of the GST Act.
 Sec 25 – Procedure for registration
 Every registered person is considered a ‘distinct
person’ for the limited purposes of GST.

 This is a very important fiction supplied by

law so as to overcome the deficiency to
constitute a ‘supply’ within branches of the
same entity or person.
 Section 25 read with Rule 8 to 26 of the CGST
Rules, 2017 related to registration provides a
detailed road map on the procedural aspects of the
registration.

 The time limit for application is within 30 days (for

persons other than casual taxable person or a non-
resident taxable person)
 and casual taxable person or a non-resident
taxable person shall have to obtain the registration
at least 5 days prior to the commencement.

 Single registration will be granted from one State

or Union Territory and in case of persons having
business across different States, then multiple
registrations are granted.
 As per rule 8 of the Central Goods and Service Tax
Rules, 2017 a Special Economic Zone unit or
Special Economic Zone developer

 shall make a separate application for registration

as a business vertical distinct from its other units
located outside the Special Economic Zone.
 It further provides detailed procedure for application
of registration by a person desirous of seeking
registration under GST

 Rule 18 of CGST Rules, 2017 provides for display of

Registration Certificate &

 GSTIN on the name board in a prominent location at

principal place of business and at every additional
place of business
 Sec 26 : Deemed Registration
 Analysis :- These are the linking provisions
between the Central Goods and Services Tax and
State/Union Territory Goods and Services Tax Act.
By enabling these provisions, the burden of taking
registrations under various Acts has been removed.
 Thus, if a supplier takes a registration under one
Act it shall be deemed that the registration has also
been obtained under the other Act and vice-versa.
 Even otherwise the registration must be taken on
the common portal and is based on the PAN hence
the registration will remain common across
various Acts.
 However, if the registration is rejected under the
Central Goods and Services Tax, then such
rejection will be treated
 as if the registration has not been obtained under
the Central Goods and Services Tax even though it
has been obtained in State/Union Territory Goods
and Services Tax Act.
 If an application for registration has been rejected
under State/Union Territory Goods and Services
Tax Act then it shall be deemed that the same has
been rejected under the Central Goods and
Services Tax Act.
 The proper officer shall not reject the application
for registration or the Unique Identification
Number (UID) without giving a notice to show
cause and without giving the person a reasonable
opportunity of being heard.
 This implies that the decision to reject an
application under this section shall be only after
following the principles of Natural justice and after
a due process of law by issuance of an order.
 Sec 28 : Amendment of registration
 Analysis There are various situations in which the
Registration Certificate issued by the competent
authority requires amendment in line with real
time situations.

 Under these circumstances, every registered

taxable person shall inform any changes in the
information furnished at the time of registration.
 The proper officer shall not reject the request for
amendment without affording a reasonable
opportunity of being heard by following the
principles of natural justice.

 Any rejection or, approval of amendments under

the State Goods and Services Tax Act or Union
Territory Goods and Services Act shall be deemed
to be a rejection or approval of amendments under
the Central Goods and Services Tax Act.
 Rule 19 of the CGST Rules 2017 provide for the
detailed process of amendment of registration
under GST.
 Salient features : Any change in registration
particulars has to be informed within 15 days of
change.
 Proper officer may approve / reject amendment No
rejection without giving an opportunity of being
heard Rejection of amendment under CGST will be
a deemed rejection under SGST and vice-a-versa
 Sec 29 :- Cancellation of Registration
 Any Registration granted under this Act may be
cancelled by the Proper Officer; the various
circumstances and the provisions of the law on this
subject have been outlined under this section.
 A registration granted can be cancelled when – —
the business is discontinued, transferred fully
 for any reason including death of proprietor,
amalgamated with other legal entity, demerged or
otherwise disposed of;
 or — there is any change in the constitution of the
business; or — the taxable person is no longer
liable to be registered under Section 22.
 This is possible after the person is afforded an
opportunity of being heard (except no such
opportunity need to be provided
 in case the application is filed by the registered
taxable person or his legal heirs, in the case of
death of such person, for cancellation of
registration) when –
 — the registered taxable person has contravened
such provisions of the Act or the rules made there
under as may be prescribed; or a person paying tax
under Composition Scheme has not furnished
returns for three consecutive tax periods;

 or — any taxable person who has not furnished

returns for a continuous period of six months; or —
 any person who has taken voluntary registration
and has not commenced business within six
months from the date of registration; or — Where
registration has been obtained by means of fraud,
wilful misstatement or suppression of facts
 As such, cancellation of registration, shall not
affect the liability of the taxable person to pay tax
and other dues under the Act
 for any period prior to the date of cancellation
whether or not such tax and other dues are
determined before or after the date of cancellation.
 The cancellation of registration under State Goods
and Services Tax Act or the Union Territory Goods
and Services Tax Act shall be deemed to be a
cancellation of registration under the Central
Goods and Service Tax Act.
 Where the registration is cancelled, the registered
taxable person shall pay an amount equivalent to
the credit of input tax in respect of inputs held in
stock and inputs contained in semi-finished or
finished goods held in stock
 on the day immediately preceding the date of such
cancellation or the output tax payable on such
goods, whichever is higher.
 The payment can be made by way of debit in the
electronic credit or electronic cash ledger.
 Rule 21 of the CGST Rules 2017 provides for cases
of Cancellation of Registration and includes the
following: a) does not conduct any business from
the declared place of business
 or
 b) issues invoice or bill without supply of goods or
services in violation of the provisions of Act or Rules
made there under.
 c) violates the provisions of section 171 of the Act or the
rules made there under.

 Reasons for Cancellation

 Transfer of business or discontinuation of business
 Change in the constitution of business.
(Partnership Firm may be changed to Sole
Proprietorship due to death of one of the two
partners, leading to change in PAN )

 Persons no longer liable to be registered under

Section 22 and 24 (Except when he is voluntarily
registered)
 Where registered taxable person has contravened
provisions of the Act as may be prescribed

 A composition supplier has not furnished

returns for 3 consecutive tax periods/ any other
person has not furnished returns for a continuous
period of 6 months
 Non-commencement of business within 6
months from date of registration by a person who
has registered voluntarily.
 Where registration has been obtained by means of
fraud, wilful statement or suppression of facts, the
registration may be cancelled with retrospective
effect .
 Rule 22 of the CGST Rules 2017 provides for
process of Cancellation of Registration and
includes the following:
 Cancellation can be done by Proper Officer suo
moto or on application made by the registered
taxable person;
 Retrospective cancellation in case of fraud,
wilful misstatement or suppression of fact;
 Liability to pay tax before the date of
cancellation will not be affected;
 Cancellation under CGST Act will be deemed
cancellation under SGST Act and viceversa;
Substantial penalty in case registration obtained
with fraudulent intentions;
 Notice of hearing and opportunity of being
heard is a MUST before cancellation
 Sec 30 :- Revocation of cancellation :-
Analysis:- Any registered taxable person, whose
registration is cancelled, subject to prescribed
conditions and circumstances,

 may apply to proper officer for revocation of

cancellation of the registration within 30
days from the date of service of the
cancellation order.
 The proper officer may in prescribed manner and
within prescribed period,
 by an order, either revoke cancellation of the
registration, or reject the application for
revocation for good and sufficient reasons.

 The proper officer shall not reject the application

for revocation of cancellation of registration
without giving a show cause notice and
without giving the person a reasonable
opportunity of being heard
 Revocation of cancellation of registration under State
Goods and Services Tax Act or the Union Territory
Goods and Services Tax Act shall be deemed to be a
revocation of cancellation of registration
under the Central Goods and Services Tax Act
 Rule 23 of the CGST Rules 2017 provides for process of
Cancellation of Registration and includes the
following:
 Application for revocation or cancellation of
registration shall be made within 30 days of date of
service of cancellation order;
 No application for revocation shall be filed,
 if the registration has been cancelled for the failure
to furnish returns,
 unless such returns are furnished and any
amount due as tax, in terms of such
returns, has been paid along with any
amount payable towards interest, penalty
and late fee in respect of the said returns
 Revocation of cancellation under CGST will be a
deemed revocation under SGST and vice-a-versa

 Upon receipt of the information or clarification,

the proper officer
 shall proceed to dispose of the application within
a period of thirty days from the date of the
receipt of such information of clarification
from the applicant.
 ‘

 ASSESSMENTS
In terms of Section 2(11) of the Act, “assessment”
means determination of tax liability under this Act
and includes
self-assessment,
re-assessment,
provisional assessment,
summary assessment and
best judgement assessment.
 The CGST Act, 2017 contemplates the following types of
Assessments:
 Self-assessment (Section 59)
 Provisional Assessment (Section 60)
 Scrutiny of returns filed by registered taxable
persons (Section 61 )

 Assessment of non-filers of returns (Section 62)

 Assessment of unregistered persons (Section 63)
 Summary Assessment in certain special cases
(Section 64)
 Section 59 refers to the assessment made by
registered person himself/ itself
 while all other assessments are undertaken by tax
authorities.

 Provisional Assessment under Section 60 is an

Assessment undertaken at the instance of the
assessee. Provisional Assessment is followed by a
final Assessment.
 Scrutiny Assessment under section 61 is a form of
re-assessment
 since the self-assessment made by the assessee, which is
intimated through returns is scrutinised by the proper
officer.
 Assessment of non-filers u/s 62 and Assessment of
un-registered person u/s 63 are in the nature of best
judgement assessments.
 Scrutiny Assessment under Section 64 is a form of
protective assessment based on information gathered
from intelligence wing of the tax authorities in a
particular case.
 Sec 59 :- Self-assessment
 Analysis: It means an assessment by the registered
person himself and not an assessment by the Proper
Officer. The GST regime continues to promote the
scheme of self assessment.

 Hence, every registered person would be required to

assess his tax dues in accordance with the provisions
of GST Act and report the basis of calculation of tax
dues to the tax administrations, by filing periodic tax
returns
 Sec 60 – Provisional assessment
 Analysis – it can be resorted to in the following
situations:
 (i) Value of supply cannot be determined by the
taxable person, viz, there is a difficulty in
ascertaining:
 transaction value to be adopted for determination of
tax payable;
 Inclusion or exclusion of any amounts in the value
of supply
 Existence of any circumstance causing failure of
transaction value declared
 (ii) Rate of tax applicable on the supply
cannot be determined by the taxable
person, viz there is difficulty in
ascertaining:
 Classification of the goods and / or services
under the relevant Schedule;

 Eligibility to any exemption notification or

compliance with conditions associated with such
exemption.
 The facility of provisional assessment is
available only in the cases of valuation and
classification. It is not available for
determination of any other subject matter.
 For example, there may be uncertainty about the kind
of tax (IGST or CGST-SGST) applicable,
 time of supply,
 supplies to be treated as “supply of goods” or “supply
of services”,
 whether the supply is to be treated as composite supply
or mixed supply etc.
 In the aforesaid kind of cases, recourse is not
available to provisional assessment.
 Once it is determined that this section is
applicable, then the following conditions
are to be fulfilled:
 Taxable person must initiate a request to the
proper officer in writing giving reasons seeking
provisional assessment as per para 5 of Form GST
ASMT 01;
 Proper officer is to pass Provisional Assessment
order within 90 days of receipt of request allowing
payment of taxes on

 provisional basis subject to execution of bond by

the registered person with surety or security for
any differential tax that may be eventually
assessed.
 As per Rule 98(1), provisional assessment can be
made by furnishing an application, along with
supporting documents by the registered person in
FORM GST ASMT-01, electronically through
common portal.

 The provisional assessment cannot be resorted to

by the proper officer on suo-motu basis.
 The proper officer may, as per rule 98(2), issue a
notice in FORM GST ASMT-02

 requiring the registered person to furnish

additional information or documents in
support of his request for provisional
assessment.
 After considering the reply filed, the proper officer as
per Rule 98(3), shall issue an order in FORM GST
ASMT-04, allowing payment of tax on
provisional basis, indicating the value or rate
or both on the basis of which assessment is
allowed on a provisional basis .
 The proper officer cannot pass an order rejecting the
application of provisional assessment. Since section
60(1) employs the term ‘shall’ pass order ‘allowing’
payment of tax provisionally.
 Since “shall” is used, officer has to compulsorily
allow provisional assessment.
 The proper officer shall issue a notice in FORM
GST ASMT-06, calling for information and records
required for finalization of assessment, under Rule
98(5).
 Thereafter a final assessment order shall be passed
by the proper officer in FORM GST ASMT-07, shall
be passed specifying the amount payable or
refundable to the registered person.
 The final assessment order has to be passed, within a
period of 6 months from the date of communication
of provisional assessment order.

 However, on sufficient cause being shown and for

reasons to be recorded in writing, this period can be
extended by Joint / Additional Commissioner or by
the Commissioner for a minimum period of 4
months to a maximum period of 4 years.
 If the amount of tax determined to be payable under
final assessment order, is more than tax which is
already paid along with return under section 39,
 the registered person shall be liable to pay interest
on the shortfall, at the rates specified in Section
50(1) of the Act, from the first day after due date of
payment of tax in respect of the said goods and /or
services or both,
 till the date of actual payment, irrespective of
whether such shortfall is paid before or after the
issuance of order for final assessment
 Likewise, when the registered person is entitled to
refund consequent upon the order for final
assessment, interest shall be paid on such refund
at the rates specified in Section 56.
 As such, the registered person must avail this
opportunity of provisional assessment after much
thought and careful consideration.
 Any claim for refund of taxes paid in excess under
this section would be processed in accordance with
Section 54 (refund provision), and is subject to
unjust enrichment.

 Except for authorizing refund, this section does not

by itself permit grant of refund.
 Scrutiny of returns filed by registered
taxable persons (Section 61 )
 Analysis Section 61 deals with a discretionary
power to a proper officer to scrutinize returns filed
by registered persons to verify the correctness of
the return.
 It is a pre-adjudication process. The process of
adjudication is provided in Sections 73 to 75 of the
Act.
 When a return furnished by a registered person is
selected for scrutiny, then the proper officer
scrutinizes the same with reference to the
information available with him, and in case of any
discrepancy,

 he shall issue a notice to the said person in FORM

GST ASMT-10, under Rule 99(1), informing him of
such discrepancy and seeking his explanation
thereto.
 The proper officer shall quantify the amount of tax,
interest and any other amount payable in relation
to such discrepancy, wherever possible.
 The registered person may accept the discrepancy
mentioned in the notice issued under Rule 99(1), and
pay the tax, interest and any other amount arising
from such discrepancy and inform the same OR
furnish an explanation for the discrepancy in FORM
GST ASMT- 11 to the proper officer.
 Where the explanation furnished by the registered
person or the information submitted under Rule 99(2) is
found to be acceptable, the proper officer shall inform
the registered period in FORM GST ASMT-12.
 In case, explanation is not furnished OR explanation
furnished is not satisfactory, OR after accepting
discrepancies,
 the registered person fails to take corrective measures, in
his return for the month in which the discrepancy is
accepted by him, the proper officer, may, take recourse to
any of the following provisions:
 Initiate departmental audit as per section 65 of
the Act; or
 Initiate Special Audit as per section 66
 Initiate inspection, search and seizure as per
section 67 of the Act
 Issue show cause notice u/s 73 & 74 of the CGST
Act.
 The first stage in return scrutiny denotes a prima
facie scrutiny, in order to ascertain whether the
information furnished by the assessee in returns is
prima facie valid and not inadequate or internally
inconsistent.

 The second stage appears to be a detailed assessment

calling for records and determination of tax liability
under sections 73 to 75.
 In doing so, the proper officer, is also entitled to
exercise his power under section 67 of the Act,
which deals with power of inspection, search and
seizure.
 From the language employed in section 67, it
appears that, these powers are required to be
exercised not in routine manner
 but only under circumstances when there is
reasonable belief regarding probable suppression
or intention to evade tax.
 It’s important to note that, section 61(3)
empathetically provides that, in case the
explanation given by the tax payer in response to
discrepancies informed by the proper officer,

 is found acceptable, the registered person shall be

informed accordingly in FORM GST ASMT-12 and
no further action shall be taken in this regard.
 Section 62. Assessment of non-filers of
returns.
 Introduction Section 62 of the Act can be invoked
only in case of registered taxable persons who
have failed to file returns, as required, under
section 39 or as the case may be, or final return
on cancellation of registration under section 45 of
the Act.
 Issuing notice under section 46 appears to be a
pre-condition for initiating proceedings under
Section 62 of the Act.
 Analysis:-
Non-compliance with the notice
under Section 46 paves the way for initiating
the proceedings under this section.

 If the assessee fails to furnish the return within 15 days

of issue of notice under section 46 then the Proper
Officer
 may assess the tax liability in accordance with
the provisions of Rule 100 to the best of his
judgment, taking into account all the relevant material
available on record, and issue an assessment order.
 This is also known as ‘best judgment
assessment’. It can be completed without
giving notice of hearing to the assessee.
 The order under section 62 must be issued within a
period of five years from the date specified
under section 44 for furnishing annual return
for the financial year to which the tax not
paid relates.
 Section 63. Assessment of unregistered
persons.
 Introduction
 This Section is applicable to unregistered persons
i.e., persons who are liable to obtain registration
under Section 22 and have failed to obtain
registration will come within scope of
operation of this Section.
 This provision also covers cases where
registration was cancelled as under section 29 (2) for
the following reasons:
 (a) A person who contravenes the provisions of this Act
or Rules made there under;
 (b) A composition person who fails to furnish returns
for 3 consecutive tax periods.
 (c) A person other than composition person who fails
to furnish returns for 6 consecutive months.
 (d) A person who has sought voluntary registration but
has failed to commence business within 6 months.
 (e) Where registration has been obtained by way of
fraud, willful misstatement or suppression of facts
 Analysis :- This Section is applicable to
unregistered taxable persons.

 In such cases, the proper officer is required to give

a reasonable opportunity of being heard to such
persons before proceeding to assess such person.
 Even though no return would have actually been
filed in such cases, the authority to pass such
assessment order is extinguished on the expiry of
5 years from due date applicable for filing annual
return for the year to which tax not paid relates.
 For assessment under this section, notice has to be
issued as per Rule 100(2) in FORM GST ASMT-14
by the proper officer.
 The notice would contain the grounds on which the
assessment is proposed to be made on best
judgment basis.
 The registered person is allowed a time of 15 days
to furnish his reply, if any. After considering the
said explanation, the order has to be passed in
FORM GST ASMT- 15.
 Section 64. Summary assessment in certain
special cases
 Analysis
 The word “summary assessment” is generally used in
a tax legislation to denote ‘fast track assessment’
based on return filed by the assessee.
 It allows the Tax Officer to make prima facie
adjustments based on errors or factors based on the
available information without an occasion for calling
for further information from an assessee or
inspecting his records.
 In the GST Act, it is used to denote those
assessments which are completed ex-parte and on
priority basis when there is reason to believe that
there will be loss of tax revenue, if such assessment
is delayed.
 This provision is only the first step in invoking the
machinery provided to enforce recovery of dues
from potential defaulters, and this requires an
assessment of the tax liability.
 Such amounts are commonly known as protective
assessments which is in a sense protects
Government revenue.

 This section pre supposes the fact that the proper

officer be in possession of sufficient grounds to
believe that any delay will adversely affect revenue.
 The summary assessment can be undertaken in
case all of the following conditions are
satisfied:
 The Proper Officer must have evidence that there
may be a tax liability.
 The Proper Officer has obtained prior permission of
Additional / Joint Commissioner to assess the tax
liability summarily.
 The proper officer must have sufficient ground to
believe that any delay in passing assessment order
would result in loss of revenue.
 Summary assessment under this Section of the CGST
Act can therefore be construed in some sense as a
‘protective assessment’ carried out in special
circumstances,
 where there are sufficient grounds to believe that
taxable person will fail to make payment of any tax,
penalty or interest, if the assessment is not
completed immediately.
 Such failure to pay tax, penalty or interest must be
due to reasons attributable to the tax payer (ex:
insolvency, instances of defaulting, absconding etc).
 Hence, summary assessment under this Section is
not a substitute for assessment getting time barred.

 Further, mere possibility of non-payment cannot

be a grounds for resorting to summary assessment,
unless there are factors indicating that such non-
payment pertains to admitted or undisputed tax
liability.
 However, it is important to note that upon grant of
permission by the Additional / Joint
Commissioner, it appears that the evidence
available with the proper officer or his
apprehension of possible loss of revenue, cannot be
called into question.

 As per the provision of Rule 100(3) The summary

assessment order should be in FORM GST ASMT-
16.
 Many times, summary assessments are
undertaken in circumstances, when a taxable
person to whom liability pertains is not
ascertainable.
 In such cases, the law provides that, if the liability
pertains to supply of goods, then person in charge of
such goods shall be deemed to be the taxable person
liable to be assessed and pay tax and amount due on
completion of summary assessment.
 There is no deeming provision when unpaid tax
liability relates to supply of services.
  Inspection Search Seizure and Arrest
 Sec 67 – Power of inspection search and seizure.
 Analysis :-(i) When the proper officer not below
the rank of Joint Commissioner ‘has reasons to
believe’ that the taxable person has
 suppressed any transaction of supply of goods or
services or both
 or information relating to stock in hand or claimed
excess input tax credit
 or has contravened any of the statutory provisions
of this Act,
 with an intent to evade taxes he shall issue an
authorisation in FORM GST INS-01 authorising
any other officer subordinate to him to conduct the
inspection or search.

 The phrase ‘reasons to believe’ has been

interpreted by various courts distinguishing it from
‘reason to suspect’.
 In the case of Crompton Greaves Ltd. vs. State of
Gujarat, 120 STC 510 the Court observed that,
“these words suggest that belief must be that of
honest and reasonable person based upon
reasonable grounds, and

 that the Commissioner may act under this

section on direct or circumstantial evidence
not on mere suspicion, gossip or rumor.
 (ii) The power can also be exercised when there is
a reason to believe that any person engaged
in the business of transportation of goods or
an owner or operator of a warehouse or
godown or any other place is storing goods,

 which have escaped tax payment or has kept his

accounts or goods in a manner likely to cause tax
evasion
 (iii) Under such circumstances, he may authorize
another officer in writing to:
 (a) Inspect any place of business of the taxable
person who has evaded tax or of the transporter
who transported such tax evading goods or
godown/warehouse in which such tax evaded
goods or accounts relating thereto have been
stored.
 (c) Seal or break open the door of any premises,
storage, box, electronic device or receptacle where
goods, books of accounts etc. are suspected to be
concealed and when access to the same is denied to
the officer.
 (d) If it is not practicable to seize the goods, then
the Officer may serve an order on owner or
custodian of the goods for not removing,
part or deal with the goods without his
prior permission
 Sec 69. Power to arrest
 This section deals with power of arrest when one
commits any of the following offences which is
punishable under clause (i) or (ii) of sub-section (1),
or under sub-section (2) of sec 132 of CGST Act.
 (a) Supplies any goods or services or both without
issue of invoice with the intention to evade tax
 (b) Issues any invoice or bill without supplies
leading to wrongful availment or utilisation of input
tax credit or refund of tax
 (c) Avails input tax credit using invoice or bill
referred to in b) above
 (d) Collects any amount as tax but fails to pay the
same
 Analysis:- The Commissioner is vested with the
power to authorise, by an order, any Officer to
arrest a person, where there is a reason to believe
that such person has committed the specified
offences.

 The person committing any offence under clauses

(a) or (b) or (c) or (d) u/s 132(1) and punishable
under Section 132(1)(i) or 132(1)(ii) or 132(2) can
be arrested by the authorised officer.
 Section 132(1) clause (i) tax evasion above Rs 500
Lakhs attracting imprisonment for a term upto 5
years and fine, or clause
 (ii) tax evasion above Rs 200 Lakhs attracting
imprisonment upto 3 years and fine or offence or
section 132(2)
 [repeated offence – second and subsequent offence
attracting imprisonment upto 5 years with fine]
 Such person is required to be informed about the
grounds of arrest and be produced before the
Magistrate within 24 hours in case of cognizable
offences and in case of non-cognizable and bailable
offences the Assistant/Deputy Commissioner can
grant the bail and
 is conferred powers of an officer-in-charge of a
police station subject to the provisions of Code of
Criminal Procedure, 1973. All arrests should be
made as per the provisions of Code of Criminal
Procedure, 1973
 Sec 70 :- Power to summon persons to give
evidence and produce documents
 Introduction:- This provision deals with exercise of
powers to issue summons for giving evidence and for
production of documents .
 Analysis :- In any inquiry which such officer is
making for any of the purposes of this Act, the
Proper officer shall have power to summon any
person, whose attendance is considered necessary,
either to give evidence or to produce a document or
any other thing.
 Every such inquiry referred to in sub-section (1)
shall be deemed to be a “judicial proceeding”
within the meaning of section 193 and section 228
of the Indian Penal Code.

 At the same time, Article 20(3) of our Constitution

prohibits from a person being made to witness
against himself.
 Therefore, avoidance of service of summons is
unlawful but abstinence from making statements is
not.

 Understanding the legality of these matters will

assume significance in attending to such matters of
inquiry before a judicial officer.
 Scope of word “Summon” under Sec 70 is for “Any
Inquiry”. Authorised Officer is not empowered under
Sec 70 to retain the documents for which summon
were issued.

 It has been held by in T.T.V Dinkaran v.

Enforcement Officer 1995 (80) E.L.T. 745 that where
summon did not mention the nature of investigation
therein, it will be valid since mentioning the details
about investigation may alter the person concerned
to manipulate his record.
 Bhumika Enterprises v. State of U.P. [2018]
92 taxmann.com 343 (Allahabad)
 The brief facts of the case are that the petitioner is
a registered dealer and has been allotted TIN by
the Assessing Authority for carrying on the
business for purchase and sale of Iron and Steel.
 The petitioner has affected the sale of Iron and
Steel weighing 20 M. Ton for a sum of Rs.
6,00,000/- to one M/s. Ram Naresh Ramakant,
Bindiki, Fatehpur.
 The purchaser is situated at Bindiki, Fatehpur is
also a registered dealer to whom the petitioner has
raised tax invoice No.60 dated 25.3.2018.
 The invoice aforesaid indicates that the goods
worth of Rs. 6,00,000/- are sold on which the
petitioner has charged the Central G.S.T. @ 9% to
the tune of Rs. 54,000/- as also the State G.S.T. @
9% to the tune of Rs. 54,000/- and the grand total
therefore has been charged to the tune of Rs.
7,08,000/-.
 The said goods were being transported from
Varanasi to Bindiki, Fatehpur.
 Respondent no. 4 has intercepted the vehicle on
26.3.2018 at 9 a.m. and has detained the vehicle
for verification of the goods and documents
accompanying the goods.
 The contention of the petitioner is that no
opportunity of being heard has been afforded to
him before passing the seizure order dated
27.3.2018 under Section 129(1) of the Act
 by which the respondent no. 4/seizing authority
has seized the goods on the ground that the tax
invoice was kept in a sealed envelope, the goods
was being transported without E-way bill-02,

 the GSTIN number written on the tax invoice

belongs to another dealer situates at Allahabad
and not the consignee situated at Bindiki, Fatehpur
as also the mobile number.
 The submission of the petitioner is that while issuing
the show cause notice dated 27.3.2018 the Mobile
Squad Authority had indicated for submission of the
defence reply before him on 2.4.2018 and to explain
as to why tax being not realized as also the penalty be
imposed.
 The contention of the petitioner is that that
due to technical fault of the State Web-site
E-way bill-02 could not be generated on
25.3.2018 before the movement of the goods
from Varanasi to Fatehpur.
 However, the same was generated on
26.3.2018 in the morning which was much
before the date of seizure order which has
been admittedly passed on 27.3.2018 at 6
p.m.
 The petitioner has also submitted that since both the
consignor and consignee are registered with the
respective Assessing Authority and are allotted
requisite GSTIN number
 there was no reason to disbelieve the contention of
the petitioner
 So far as the ground no. 3 related to mentioning of
the GSTIN number of dealer of Allahabad instead of
Fatehpur,
 the petitioner has submitted that the said mistake
was a bona fide mistake as such in fact a clerical
error and
 the same was rectified while downloading
E-way bill-02 in which the correct registration
number of consignor M/s. Ram Naresh Ramakant,
Bindki, Fatehpur was mentioned.
 He has further submitted that there was no
occasion to evade the payment of tax as the tax
amounting to the tune of Rs. 1,08,000/- as
C.G.S.T. and S.G.S.T. was charged by the petitioner
himself and the same was duly mentioned in the
tax invoice separately.

 On the other hand, learned counsel for the State

has submitted that there was no occasion to
mention the G.S.T in number of different dealer in
the invoice, though he has accepted that the same
has been correctly mentioned in the E-way bill.
 The learned counsel for the State has further
submitted that admittedly at the time of
inspection/detention of the vehicle there was no
E-way bill available with the driver of the vehicle.

 Held :
 From perusal of the record it is noticed that the
vehicle has been detained and the goods/vehicle
was seized by the respondent no.4 on 27.3.2018
 whereas the time has been granted for submission
of reply and appearance of the person concerned
before the respondent no. 4 on the later date.

 There is no dispute with regard to quality and

quantity of the goods and further that the invoice
issued clearly indicates of charge of C.G.S.T. and
S.G.S.T by the petitioner.
 It further noticed that there is no dispute with
regard to registration of the seller (the petitioner)
and
the purchaser as also that the goods were being
transported from Varanasi to Fatehpur which are
detained in between the aforesaid two places.
 From perusal of the record we noticed that the
E-way bill-02 has been downloaded/issued in
favour of the petitioner on 26.3.2018 at 11.50 a.m.
and
 admittedly seizure order has been passed on
27.3.2018 at 6 p.m. before which the E-way bill-02
has been produced by the petitioner.

 The submission of the learned counsel for the State

is that the transaction has been made with one
unknown person therefore there were some lacuna
noticed by the seizing authority.

 We find no substance in the submission of the

learned counsel for the State.
 The tax invoice was raised in favour of the
consignee namely M/s. Ram Narsh Ramakant,
Bindki, Fatehpur and the same was available with
the seizing authority and

 we see no reason as to why the seizing authority

has not made any effort to make inquiry from the
said dealer/consignee whose TIN number was
mentioned in the tax invoice.
 We see that the seizing authority though has
mentioned the GSTIN number of some dealer
situates at Allahabad but no details of the said
dealer has been given in the impugned seizure
order nor the details of the mobile number holder.

 Since the tax invoice indicating the tax charged and

the same admittedly found during the course of
inspection/detention and
 E-way bill-02 has been downloaded much before
the seizure order, we see no justification in the
impugned seizure order and therefore,
 we have no option but to allow the present writ
petition and to set aside the seizure order dated
27.3.2018 as well as the show cause notice issued
under Section 129(3) of the Act for imposition of
penalty.
 In view of the aforesaid facts, the present writ
petition is allowed.
 The seizure order dated 27.3.2018 (Annexure-2 to
the writ petition) is quashed as well as the show
cause notice dated 27.3.2018 issued under Section
129(3) of the Act is also quashed.

 The respondent no.4 is hereby directed to release

the goods immediately in favour of the petitioner
permitting the petitioner to deliver the same to the
consignee.

 Union of India v. Mohit Mineral (P.) Ltd.
[2018] 98 taxmann.com 45 (SC)
 FACTS

 Writ petitioner was a trader of imported and

Indian coal importing coal from Indonesia, South
Africa and also purchased coal from Indian mines.
The Finance Act, 2010 with effect from 1-7-2010
levied Clean Energy Cess
 which was in the nature of a duty of excise on the
production of coal and was being collected at the time
of removal of raw coal, raw lignite and raw peat from
the mine to the factory.

 The Constitution (One Hundred and First Amendment)

Act, 2016 was passed to levy goods and services tax.
Section 18 of the Amendment Act enabled the
Parliament to levy a cess for five years to compensate
the States for the loss of revenue on account of GST.
 On 12-4-2017, Parliament also enacted the Parliament
also enacted The Goods and Services Tax
(Compensation to States) Act, 2017
 On 4-5-2017, the writ petitioner submitted a
representation to the GST Council seeking set off of
Clean Energy Cess against GST Compensation Cess.
 The Division Bench of the Delhi High Court passed ad
interim order observing that there was a prima facie
case made out by the writ petitioner regarding lack of
legislative competence of Parliament to enact
Compensation to States Act, 2017.
 Presently the The Goods and Services Tax
(Compensation to States) Act, 2017 and the The
Constitution (One Hundred and First Amendment) Act,
2016 are under challenge for lacking legislative
competence and as being a colourable legislation.
 Whether 2017 Act is beyond the legislative competence
of Parliament?
 The petitioners have challenged the legislative
competence of Parliament to enact Compensation to
States Act, 2017.
 The petitioners submits that impugned legislation has
transgressed the limits of its power granted under the
Constitution.
 It is contended that although the impugned legislation is
described as for purpose of giving compensation to
States by Centres to States for loss of revenue but in fact
it impose tax (termed as cess),
 hence in pith and substance the legislation does not
belong to the subject falling within the limits of its
power but is outside it. Part XI of the Constitution deals
with the relation between the Union and the States,
Chapter I of which deals with Legislative Relations.
Article 245 deals with Distribution of Legislative
Powers.

 The Parliament has exclusive power to make laws with

respect to any of the matters enumerated in List I in
Seventh Schedule of the Constitution.
 The Parliament, and subject to clause (1) of article 246,
the Legislature of a State also have power to make laws
with respect to any of the matters enumerated in List III
of the Seventh Schedule. Article 248 deals with
residuary power of legislation.

 Article 246A provides that notwithstanding anything

contained in articles 246 and 254, Parliament, and,
subject to clause (2), the Legislature of every State,
have power to make laws with respect to goods and
services tax imposed by the Union or by such State.
 In the present case, the issues are concerned with a cess
imposed by Compensation to States Act, 2017. The Act
by Section 8 levies and authorizes collection of cess.
 The nature of cess is to be examined first. Cess has been
defined in Black’s Law Dictionary, Tenth Edition as ‘An
assessment or tax’.
 Meaning and scope of expression ‘Cess’
 The expression ‘cess’ as held above means a tax
levied for some special purpose, which may be
levied as an increment to an existing tax.
 The Scheme of Compensation to States Act, 2017
indicate that the cess is with respect to goods and
services tax. There are more than one reason to uphold
the legislative competence of Parliament to enact the
Compensation to States Act, 2017.
 There is no entry in List II or List III of Seventh
Schedule, which may refer to levying of cess in
question. Article 248 read with articles 246 and 246A
clearly indicate that residuary power of legislation is
with the Parliament.]
 In the instant case, no contention has been raised that
the subject matter of legislation was within the
competence of State Legislature, and that the Parliament
had no competence to legislate.

 Applying the Union of India v. Harbhajan Singh

Dhillon [1971] 2 SCC 779, there is no lack of legislative
competence in the Parliament.
 Article 270 of the Constitution, both as it existed
prior to Constitution (One Hundred and First
Amendment) Act, 2016 and subsequent to
Constitution (One Hundred and First Amendment)
Act, 2016

 uses the expression any cess levied for specific

purposes under any law made by Parliament.
 After Constitution (One Hundred and First
Amendment) Act, 2016, as per article 270, Parliament
can levy cess for a specific purpose under a law made
by it. Article 270, thus, specifically empowers
Parliament to levy any cess by law.

 Lastly, section 18 of the Constitution (One Hundred

and First Amendment) Act, 2016 expressly empowers
Parliament shall, ‘by law’ on the recommendation of
the Goods and Services Tax Council,
 provide for compensation to the states for loss of
revenue arising on account of implementation of
the goods and services tax….’

 When Constitution provision empowers the

Parliament to provide for Compensation to the
States for loss of revenue by law, the expression
‘law’ used therein is of wide import which includes
levy of any cess for the above purpose.
 Thus, there is no merit in the submission of the
counsel for the petitioner that Parliament has no
legislative competence to enact the Compensation
to States Act, 2017.

 Thus, the Compensation to States Act, 2017 is not

beyond the legislative competence of the
Parliament
 Whether 2017 Act violates Constitution
(One Hundred and First Amendment) Act,
2016 and is against its objective and, thus,
is a colourable legislation?
 One of the objectives as noticed in Statements of
Objects and Reasons was conferring concurrent
taxing powers upon Parliament and the State
Legislature to make laws for levying goods and
services tax.
 State compensation cess is ‘with respect to’ goods
and services tax, it is a tax.

 The levy of cess, in the present case, not even

claimed as fee.

 The expression used in article 246A is power to

make laws with respect to goods and services tax.
The power to make law, thus, is not general power
related to a general entry rather it specifically
relates to goods and services tax.
 When express power is there to make law
regarding goods and services tax, such power shall
include power to levy cess on goods and services
tax.
 True, that Constitution (One Hundred and First
Amendment) Act, 2016 was passed to subsume
various taxes, surcharges and cesses into one tax
but the constitutional provision does not indicate
that henceforth no surcharge or cess shall be
levied.
 Additional tax, which was contemplated by clause
18 of the Bill did not find place in Constitution
Amendment Act. Further, clause 19 of the Bill find
place as section 18 of the Constitution (One
Hundred and First Amendment) Act, 2016.

 Thus, power of Parliament to make law providing

for compensation to the States for loss of revenue
was expressly included by constitutional provision
 Further, the Preamble of Compensation to States
Act, 2017 expressly mentions the Act to provide for
compensation to the States for the loss of revenue
arising

 on account of implementation of the goods and

services Tax in pursuance of the provisions of the
Constitution (One Hundred and First Amendment)
Act, 2016.
 Thus, the Compensation to States Act, 2017 has
been enacted under the express Constitution (One
Hundred and First Amendment) Act, 2016.

 Thus, also do not find any force in the submission

of the petitioner that Compensation to States Act,
2017 transgresses the Constitution (One Hundred
and First Amendment) Act, 2016.
 Due to above reasons, there is no substance in the
submission of the petitioner that Compensation to
States Act, 2017 is a colourable legislation.

 Having held that Parliament has full legislative

competence to enact the Act and the Act having
been enacted to implement the Constitution (One
Hundred and First Amendment) Act
 and the object being clearly to fulfil the
Constitution (One Hundred and First Amendment)
Act’s objective, the submission of the petitioner
that Compensation to States Act, 2017 is a
colourable legislation is to be rejected.
 Thus the GST Compensation to States Act, 2017
does not violate Constitution (One Hundred and
First Amendment) Act, 2016 nor is against the
objective of Constitution (One Hundred and First
Amendment) Act, 2016 and the compensation to
States Act is not a colourable legislation.
  Offences and Penalties
 Introduction:-
 For effective implementation of any tax-law
and to do justice to tax abiding society,
provisions to take strict action against offenders
are required.

 Hence punitive provisions are incorporated

in GST law.
 At the outset, the section declares the offences that
attract penalty as a consequence,

 apart from the requirement to pay the tax and

applicable interest.

 Some of the offences listed under this section

may also attract prosecution under section
132 but that depend on the gravity of the
offence defined in that section.
 Sec 129. Detention, seizure and release of
goods and conveyances in transit.

 Introduction:
 This section provides for the provision relating
to detention of goods or conveyances or both in
case of certain defaults under the law.
 Analysis : (a) If a person contravenes any provision
of the Act while transporting or storing goods,

 then such goods and the conveyance in which such

goods are carried and all the documents relating to
such goods and conveyance can be detained or
seized.
 The proper officer detaining and seizing the goods
and/or conveyance has to give proper opportunity
to the transporter to explain his case by issuing a
proper notice to him.

 After hearing the transporter the officer shall pass

an appropriate order.
 (b) In case of default, where the owner of the goods
comes forward for the payment of tax, penalty will be
levied equal to 100% of the amount of tax and in case
of exempted goods 2% of the value of goods or
Rs.25000/- whichever is less.
 (c) In case where owner of the goods does not come
forward for payment of tax, then an order shall be
passed for payment of amount of tax and
 penalty equal to 50% of the value of goods reduced
by tax amount paid (to be paid by any other person
other than owner) and in case of exempted goods 5%
of the value of goods or Rs.25000/- whichever is
less.

 The proper officer shall release the goods upon the

payment of tax and amount of penalty in the above
manner or
 upon furnishing a security equivalent of the amount
payable and all the proceedings under this particular
section shall deemed to be concluded.
 However, if the person (either owner of the goods or
any other person) fails to discharge the amount of
tax and penalty under this section within 7 days,
than the goods and/or conveyance shall be liable for
confiscation.
 The period of 7 days can be reduced by proper officer if
goods are of perishable or hazardous nature. Further,
such goods can be released on provisional basis under
bond as per the provisions of section 67.
 Sec 134 – Cognizance of offences:
 Introduction This provision sets out the manner of taking
cognizance of offences.
 Analysis : Any offence under the Act or Rules can be tried
only before a Court not lower than the Court of Judicial
Magistrate First Class. Further, previous sanctions of the
Commissioner is mandatory in every such case.
 Sec 135 :- Presumption of Culpable Mental
State.
 Introduction:
 In this section, the framers of law have cast the
responsibility upon the shoulders of the one who is
alleged of culpable mental state to prove otherwise.
 Analysis :- Now, once the law has stated that in case
of any prosecution which requires the existence of a
culpable mental state, the Court would presume the
existence of it.
 Under the old revenue laws, the burden to prove was
on the one who alleges it. The Hon’ble Supreme Court
in the case of Uniworth Textiles Limited vs.
Commissioner of Central Excise, Raipur [(2013) 31
taxmann.com 67 (SC)] stated that
 “Burden to prove invocation of extended period on
Department. The assessee cannot be asked to bring
evidence to prove his bona fide. Similarly it is a
cardinal postulate of law that the burden of proving
any form of mala fide lies on the shoulders of the one
alleging it.”
 The accused can prove that he had no such mental
state in respect of a particular act for which he is
charged. The expression “Culpable Mental State” is
defined inclusively to cover “intent, motive,
knowledge of fact, belief in or reason to believe”.
 It also covers facts which exist beyond a reasonable
doubt and not based on probabilities. Hence, a very
landmark judgement of the Hon’ble Supreme Court
would lose its relevance in the cases covered by this
section.
 Section 137 - Offences by Companies.
 Introduction:- This section comes down heavily
on the persons who take shelter on the principle of
separate legal status of artificial judicial persons
and back out of their responsibility of payment of
dues of the Government.
 Analysis :- This section states that where an
offence is committed by companies, every
person/director/ manager/secretary or
 any other officer who at the time of commitment of
the offence, was in charge of and was responsible
to the company for the conduct of business of the
company, as well as the company shall be deemed
to be guilty of such offence and shall be liable to
proceeded against and punished accordingly.
 Where such offences are committed by the person
being Partnership Firm, LLP, HUF or trust, then
the partner or Karta or Managing Trustee (as the
case may be) shall be deemed to be guilty
 and liable to be proceeded against and punished.

 Further, if the accused person proves that he was

in no way related to the offence being committed
or

 he had exercised all possible measures to prevent

commission of such offences, then he is not
punishable under this section.
  Sec 138 :- Compounding of offences
 Introduction:- This provision deals with compounding
of offences by payment of the prescribed compounding
fees.
 Analysis:- (a) Compounding of an offence means
payment of a sum of money in monetary terms instead
of undergoing prosecution. Application for
compounding of an offence can be either before or
after institution of the prosecution proceedings.
 (b) Compounding of an offence is understood as a
compromise between the offender and the tax
department and is not an agreement or contract.
 (c) Specified offences can be compounded only once.
 (d) As per Rule 162 of the GST Law, the application
of compounding shall be filed in FORM GST-CPD-
01.

 (e) On receipt of the application, the commissioner

shall call for a report from the concerned officer with
reference to the particulars furnished in the
application or any other relevant information for the
examination of such application.
 After providing opportunity of being heard to the
applicant and taking into account the contents of the
application, if satisfied that the applicant has co-operated
in the proceedings before him and has made full and true
disclosure of facts relating to the case.
 Commissioner may by order in FORM GST-CPD-02
allow the application indicating the compounding
amount and grant him immunity from prosecution or
reject such application within 90 days of the receipt of
the application stating the grounds of rejection.
 However, the application shall not be allowed
unless the tax, interest and penalty liable to be paid
in case for which the application has been made.
 (f) Immunity granted to applicant may , at any
time be withdrawn by Commissioner , if he is
satisfied that such person had, in the course of
compounding proceedings , concealed any material
particulars or had given false evidence .
 Thereupon such person may be tried of the offence
with respect to which immunity was granted or for
any other offence that appears to have been
committed by him in connection with the
compounding proceedings and the provision of the
act shall apply as if no such immunity has been
granted.
 (g) The applicant, within a period of 30 days from
the date of receipt of order allowing compounding,
shall pay the compounding amount as ordered by the
commissioner and
 shall furnish the proof of such payment to him.
However, if the applicant fails to pay the
compounding amount with in the time specified then
the order of commissioner shall be vitiated and be
void.

 (h) On payment, the proceedings indicated will abate

and no criminal proceedings can be launched.
 The amount of compounding of offences under this
section shall be such as may be prescribed , subject
to
 The minimum amount not being less than
Rs. 1000 or 50% of tax whichever is higher and

 The maximum amount not being less than

Rs. 30000 or 150% of tax whichever is higher.
 Compounding of offences is not permissible
to the following offences: (i) A person who has
compounded once in respect of supply value
exceeding Rs. One Crore.
 (ii) A person who is convicted by a Court under this
Act.
 (iii) Prescribed class of persons,
 (iv) A person permitted to compound offences in
terms of section 132.
 (v) A person who has been accused of committing
an offence under this Act which is also an offence
under any other law for the time being in force ..
 (vi) A person who has been accused of committing
an offence in section 132(1) (g).
 Appeals and Revisions
 Sec 121 : Non-appealable decisions and
orders
 Introduction
 (i) This section prescribes decisions or orders which
are non-appealable.
 Analysis (i) No appeal shall lie against any decision /
order taken / passed by Officer of central tax if such
decision / order relates to any one or more of
following matters – —
 Transfer of proceeding from one officer to another
officer; — Seizure or retention of books of account,
register and other documents; —
 Order sanctioning prosecution under the Act Order
passed U/s.80 related to payment of tax & other
amount in instalments.
  GST on online Transactions
 E-Commerce has grown tremendously in India as
more users are buying and selling items online, due
to the usage of smart phones and internet
connectivity.

 Under earlier tax laws, there was no clear treatment

of online sales. GST has now proper rules in place for
e-commerce portals like Amazon and its sellers.
 GST - Benefit or barrier for e-commerce sector
 Key areas of GST that impact the e-commerce sector:
 1) No trade barriers—one nation one tax
 In the present regime, there is no uniformity in the tax
rates among the different states and therefore every state
determines its own tax rates specific to the products. For
example, a mobile phone in state 1 is taxed under VAT at
five percent and in state 2 at 14.50 percent.
 As a result, the sellers in state 2 would not want to sell
locally but would prefer to sell from state 1, resulting in
loss of revenue for state.
 E-commerce operators have set up distribution
centres only in certain locations and collect the VAT
applicable on sales made from such centres.
 In order to compensate for the loss of VAT revenue,
many states have recently imposed entry tax on
goods coming from other states, which discourages
sales made from other states.
 The entry tax acts as a trade barrier, restricts free
movement of goods from one state to another and
increases the cost for traders.
 However, such trade barriers will cease to exist as
GST is inclusive of entry tax. The destination state
earns the revenue from GST on sales regardless of
where the sale was made.

 Further, there is no rate arbitrage under GST

because the classification of goods and rate of GST
is common across states.
 (2)Tax collection at source (TCS)
 It is mandatory for all e-commerce operators to
collect tax at the rate of two percent as TCS on the
net value of sales made by suppliers through e-
commerce operators. Such TCS has to be deducted
in each state and deposited accordingly.
 This brings in significant compliance challenges to
sellers and may discourage sales through
marketplace model.
 However, this may not be applicable for inventory
based models, where the e-commerce operator
makes the sale from its own inventory.

 The key purpose of this provision is to encourage

compliances under GST and provide a mechanism
for the government to track suppliers who sell
through e-commerce operators.
 (3)Increase in compliances for e-commerce
operators
 The e-commerce operators should report all supplies
made by the seller and the TCS collected thereof on a
monthly basis.
 The sales reported by the e-commerce operator will
have to match with the sales declared by the supplier
himself at the end of every month,
 and any difference will be added to the turnover of
the supplier and consequently be liable to discharge
GST on such additional turnover
 The e-commerce operator has to report the
product/service code and the applicable rates for
each item level individually.

 This requires them to map every sale done by the

dealer and ensure TCS is deducted at the right
value. The implementation of compliance is
cumbersome for both e-commerce operator and
the supplier.
 Additionally, the e-commerce operators will have
to register in each state and file the reports
separately on a monthly basis. This process
increases the challenges in compliance and costs of
running the business.
 Mandatory registration of sellers and
unavailability of composition scheme
 GST mandates that all sellers supplying through an
e-commerce operator need to be registered under
GST irrespective of the threshold limit of Rs 20
lakh.
 These sellers cannot opt for composition scheme,
where they pay a flat tax at the rate of two percent
and do not maintain details of each product sold.

 In this scenario, it is not feasible for small

businesses to maintain a detailed record of
purchases and sales and pay higher rate of tax.
Because of this, many small retailers may not
prefer to work with an e-commerce company,
which impacts the business for e-commerce
operators
 (4)Increase in credits
 The GST law has extended the meaning of ‘input
tax’ to cover any goods/services used by the
company in the course of business, which has
widened the ambit of input GST credits.

 This has removed the requirement to establish the

direct nexus of inputs/input services with the final
product/service provided by companies.
 For e-commerce operators and sellers, the
unavailability of credit towards excise duty and
VAT on goods and service tax on certain services

 adds to the cost of running the business, which

would be avoided under GST on account of
increase in credits
 Conclusion
 As we can be seen, the GST law may have a
negative impact on the e-commerce sector. Given
that e-commerce sector in India is one of the most
rapidly advancing sectors and

 the government is vigorously promoting digitised

economy, the introduction of such cumbersome
compliances cringes the growth of this sector.
 Statutory framework introduced by the
government should be towards the advancement of
business rather than creating obstacles.

 The GST law should provide an enabling

environment that encourages e-commerce
operators and suppliers
 Implication of GST on E-commerce sellers
 What is E–Commerce & Who is E – Commerce
Operator :
 As per Sec 2(44) of CGST Act, “electronic commerce”
means the supply of goods or services or both,
including digital products over digital or electronic
network;
 Sec 2(45) of CGST defines “electronic commerce
operator” as any person who owns, operates or
manages digital or electronic facility or platform for
electronic commerce;
 Therefore as per the above definitions, in case
Amazon and Flipkart like operators are facilitating
actual suppliers to supply goods through their
platform (Market place model or Fulfillment
Model) to customers, they are called
e-commerce Operators,
 where as if Amazon and Flipkart supplies which
they supply on their own account by buying &
stocking and then supplying to customers
(inventory Model), then they will not be treated
as e-commerce operators.
 Offences & Penalties :
 Provisions for serving notices, seeking information,
penalties for fail to furnish the information are
provided in Sec 52(12), (13) & (14) of CGST Act
 The E– Commerce operator shall be liable to pay a
penalty of ten thousand rupees or an amount
equivalent to the tax evaded for offenses like tax not
collected under section 52 or short collected or
collected but not paid to the Government – Sec 122.
(1) (vi) of CGST Act
 Conclusion :
 Present laws of different kind and nature unable to
properly recognize, assess and levy tax resulting in
leakage of revenue.

 At the same time the E– Commerce operators were

also feeling absence of proper provisions in the law
leading to lot of confusion, litigation, and
harassment and suffering costs of non-set off
multiple taxes.
 Recognizing the needs of modern day business
operations and to remove confusions special
provisions are made in the GST law.

 However, the operators are dissatisfied with some

of the stringent provisions in the law and
vehemently opposing provisions of TCS which they
feel blockage of huge funds, resulting in difficulties
in working capital.
 GST from International perspective
 INTRODUCTION:
 Internationally, countries are moving towards
simplification of tax structures. The adoption of
Goods and Services Tax has been the most
important development in several countries over
the last half-century.
 Today, it is one of the widely accepted indirect
taxation system prevalent in more than 150
countries across the globe.
 Globally, GST has been structured as a destination
based comprehensive tax levied at a specified rate
on sale and consumption of goods and services
within a country.

 It facilitates creation of national tax standards with

consumers paying uniform rates of GST, thereby
enabling flow of seamless credit across the supply
chain.
 Need to incorporate International
Perspective in India’s GST Design,
Administration and Impact Evaluation

 The focus of the policymakers and other

stakeholders has understandably been on domestic
aspects of the GST, with the objective of its
becoming an accepted routine component of
India’s modern tax system as rapidly as possible.
 There is however a strong case for initiating a
process of incorporating international perspective
in the design, administration and compliance
features.

 Such a perspective is also needed in evaluating its

impact on various dimensions of India’s
international competitiveness at macroeconomic
and at sectoral and sub-sectoral levels.
 GST from Global perspective:
 GLOBAL EXPERIENCES IN GOODS AND
SERVICES TAX
 The Goods and Services Tax (GST) has been
introduced in more than 150 countries. Most of the
countries have a unified GST system. France was the
first country to introduce GST system in 1954.
 Most of the sectors are taxed except for few
exemptions.
 It has been a part of the tax system in Europe for the
past 50 years and is the preferred form of the indirect
tax in the Asia-Pacific region.
 There are different models of GST currently in force,
each with its own peculiarities. While country such as
Singapore virtually taxes everything at a single rate,
some countries have more than one rate (a zero rate,
certain exemptions and higher and lower rates).
 In some countries it is recoverable only on goods used
in the production process and specified service
 Models of GST
 Although most countries have adopted similar
principles of GST, there remain significant
differences in the way it is implemented.

 These differences result not only from the

continued existence of exemptions and special
arrangements to meet specific policy objectives,
but also from differences of approaches in the
definition of the jurisdiction of consumption and
therefore of taxation.
 In addition, there are a number of variations in the
application of GST, and other consumption taxes,
including different interpretation of the same or
similar concepts;

 different approaches to time of supply and its

interaction with place of supply; different
definitions of services and intangibles and
inconsistent treatment of mixed supplies.
 AUSTRALIA
 The GST (Goods and Services Tax) is a value added
tax on the supply of goods and services in Australia,
including items that are imported. In most cases,
GST does not apply to exports of goods or services,
or other items consumed outside Australia.
 It was introduced by the Howard Government on
1st July 2000
 The basic premise of the new tax was to broaden the
tax base, which was heavily biased toward the
provision of services.
 Over the years however, Australia's economy evolved
to be more services based, and the GST served to
strip the unfair tax advantage that service providing
businesses had over suppliers of goods.

 The GST is levied at a flat rate of 10% on most goods and
services, apart from GST exempt items, and input taxed
goods and services. GST is administered by the Tax
Office on behalf of the Australian Government, and is
appropriated to the States and territories.
 NEW ZEALAND
 Goods and Services Tax (GST) is a Value Added Tax
introduced in New Zealand on October 1, 1986 at 10%,
and later increased to 12.5% on June 30, 1989. End users
pay this tax on all liable goods and services directly, in
that it is included in the purchase price of goods and
services.
 GST registered organisations only pay GST on the
difference between GST-liable sales and GST-liable
supplies (i.e. pay GST on the difference between
what they sell and what they buy: income less
expenditure).

 This is accomplished by reconciling GST received

(through sales) and GST paid (through purchases)
at regular periods (typically every 2 months, with
some qualifying companies opting for 1 month or 6
month periods),

 then either paying the difference to Inland Revenue
Department (IRD) if the GST collected on sales is
higher, or receiving are funded from IRD if the GST
paid on purchases is higher.

 Unlike most similar taxation regimes, there are few

exemptions - all types of food are taxed at the same
rate, for example.
 Exceptions that are present include rents collected
on residential rental properties, donations and
financial services. The headline price must always be
GST-inclusive in advertising and stores.
 The only exceptions are for businesses which claim a
mainly wholesale client-base. Otherwise, displaying
a prominent GST-exclusive price (i.e. larger and
more obvious than the GST-inclusive price), is
illegal.
 SINGAPORE
 Goods and Services Tax was introduced in Singapore
on April 1, 1994, at 3%, but later increased to 4% on 1
January 2003, and 5% on 1 January 2004.
 It was raised again to 7% on 1 July 2007. Singapore’s
GST is a broad-based consumption tax levied on
import of goods, as well as nearly all supplies of
goods and services.
 The only exemptions are for the sales and leases of
residential properties and most financial services.
Export of goods and international services are
zero-rated.
 With an ageing population, Singapore’s income tax
base is expected to decline. With a broadbased
GST, the taxation burden will be more evenly
spread among the population.
 Thus, the GST was introduced as part of a larger
exercise to put in place a tax structure to see the
country into the future.

 In Singapore, the tax is broad based which include

all essential goods like water, electricity, rice, etc.
Hence, a low income worker who would not pay
income taxes would have to pay GST on his daily
living expenses.
 This can be a burden especially during times of
high inflation when the 7% tax is paid on the
increasing price of daily essentials. GST is a
self-assessed tax.

 Businesses are required to continually assess the

need to be registered for GST.