4.

4 GOODS AND SERVICES TAX

Module 1: Introduction 08 hours

Introduction to GST – GST Acts, Need and Benefits – Classification of Goods and Services;
Taxable – Exempted – Composition scheme – Rates of GST – Registration: CGST, KGST and
IGST Acts, 2017. GST Network (GSTN) – Goods and Services Tax Suvidha Providers (GSP)
– GSP Eco system (Theory only).

Module 2: Levy and Collection of GST 14 hours

Supply u/s 7 – relevant definitions – supply for further business – supply without consideration,
composite and mixed supplies – place of supply. Time and Value of supply of goods u/s 12,
services u/s 13, forward charge and reverse charge, vouchers for exchangeable goods, residual
goods, interest and late fee for delayed payment u/s 12(6), value of supply u/s 15 – inclusions
u/s 15(2) a,b,c,d – exclusions u/s 15(3), supply where value can’t be determined ad notified
supplier, related person supply. Methods of valuation of goods and services – problems
including composition levy.

Module 3: Input Tax Credit 14 hours

Relevant definitions – eligibility and conditions for claiming credit – apportionment of credits
and blocked credit – credit on capital goods – availability of credit in special circumstances –
transfer of input tax credit – claim of input tax credit – matching, reversal and reclaim of input
tax credit, recovery of input tax credit and interest thereon – taking input tax credit in respect
of inputs sent for job work – problems on claiming input tax credit and assessment of tax
liability.

Module 4: Procedure and Administration under GST 10 hours

All procedures including registration, tax invoice, credit and debit notes, e-way bill, accounts
and records, returns (GSTRs), payment of tax including reverse charge, refund, job work –
provisions relating to electronic commerce – liability to pay in certain cases. Administration of
GST; Assessment and Audit – Inspection – Search – Seizure and Arrest – Demand and
Recovery – Offences and Penalties – Advance Ruling – Appeal and Revision.

Module 5: Customs Act, 1962 14 hours

Introduction to Customs Duty – Customs Procedures – Levy and collection of customs duty –
exemptions from customs duties – Methods of valuation of customs duty (including anti-
dumping and safe guard duty – Baggage – Problems; Detailed procedure in relation to
transportation and warehousing – relevant rules and regulations. Drawbacks of customs duty
paid – preparation and submission of drawback claim forms; Adjudication and appeals before
the customs authorities and the appellate tribunal.
 INTRODUCTION TO GST

Goods and Services Tax (GST) is a comprehensive indirect tax on manufacture, sale, and
consumption of goods and services throughout India. GST would replace respective taxes
levied by the central and state governments.

GST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of
goods and/or services. India adopted a dual GST model, meaning that taxation is administered
by both the Union and State Governments. Transactions made within a single state are levied
with Central GST (CGST) by the Central Government and State GST (SGST) by the State
governments. For inter-state transactions and imported goods or services, an Integrated GST
(IGST) is levied by the Central Government. GST is a consumption-based tax, therefore, taxes
are paid to the state where the goods or services are consumed not the state in which they were
produced.

Genesis of GST
• It is a destination-based taxation system.
• It has been established by the 101st Constitutional Amendment Act.
• It is an indirect tax for the whole country on the lines of “One Nation One Tax” to make
India a unified market.
• It is a single tax on supply of Goods and Services in its entire product cycle or life cycle
i.e. from manufacturer to the consumer.
• It is calculated only in the “Value addition” at any stage of a goods or services.
• The final consumer will pay only his part of the tax and not the entire supply chain which
was the case earlier.
• There is a provision of GST Council to decide upon any matter related to GST whose
chairman in the finance minister of India.

In other words, Goods and Services Tax (GST) is an indirect tax which was introduced in India
on 1 July 2017 and was applicable throughout India which replaced multiple cascading taxes
levied by the central and state governments. It was introduced as The Constitution (One
Hundred and First Amendment) Act 2017, following the passage of Constitution 122 nd
Amendment Bill. The GST is governed by a GST Council and its Chairman is the Finance
Minister of India. Under GST, goods and services are taxed at the following rates, 0%, 5%,
12%, 18% and 28%. There is a special rate of 0.25% on rough precious and semi-precious
stones and 3% on gold. In addition a cess of 15% or other rates on top of 28% GST applies on
few items like aerated drinks, luxury cars and tobacco products. The rate of GST in India is
between double to four times that levied in other countries like Singapore.
In 2014, the NDA government was re-elected into power, this time under the leadership
of Narendra Modi. With the consequential dissolution of the 15th Lok Sabha, the GST Bill –
approved by the standing committee for reintroduction – lapsed. Seven months after the
formation of the Modi government, the new Finance Minister Arun Jaitley introduced the GST
Bill in the Lok Sabha, where the BJP had a majority. In February 2015, Jaitley set another
deadline of 1 April 2016 to implement GST. In May 2016, the Lok Sabha passed the
Constitution Amendment Bill, paving way for GST. However, the Opposition, led by the
Congress demanded that the GST Bill be again sent back to the Select Committee of the Rajya
Sabha due to disagreements on several statements in the Bill relating to taxation. Finally in
August 2016, the Amendment Bill was passed. Over the next 15 to 20 days, 18 states ratified
the GST Bill and the President Pranab Mukherjee gave his assent to it.

A 21-members select committee was formed to look into the proposed GST laws. State and
Union Territory GST laws were passed by all the states and Union Territories of India
(excluding Jammu & Kashmir), paving the way for smooth rollout of the tax from 1 July
2017. There was to be no GST on the sale and purchase of securities. That continues to be
governed by Securities Transaction Tax (STT).

In a short span of time, all the states approved their State GST (SGST) laws. Union territories
with legislature, i.e., Delhi & Pondicherry, have adopted SGST Act and the balance 5 Union
territories without legislatures have adopted UTGST Act. The government has also notified
GST rules, tax rates on goods and services, exemption list and categories of services on which
reverse charge is applicable.

Section 12 of the Act proposed to insert a new Article 279A after Article 279 which deals with
Goods and Services Tax Council. Consequently, Article 279A was inserted by the Constitution
(101st) Amendment Act, 2016 with effect from September 12, 2016.

The newly inserted Article 269A provides for levy and collection of goods and services tax in
course of inter-state trade or commerce. Article 269A (1) provides that goods and services tax
on supplies in the course of inter-State trade or commerce shall be levied and collected by the
Government of India and such tax shall be apportioned between the Union and the States in the
manner as may be provided by Parliament by law on the recommendations of the Goods and
Services Tax Council.

The explanation to this clause provides that supply of goods, or of services, or both in the course
of import into the territory of India shall be deemed to be supply of goods, or of services, or
both in the course of inter-state trade or commerce. Integrated Goods & Services Tax Act, 2017
was passed by Parliament on the basis of Article 269A.
Shortcomings in the current indirect tax laws
1) Cascading Effect – The various indirect taxes being levied are not necessarily mutually
exclusive. To illustrate, when the goods are manufactured and sold both excise duty and
state level VAT are levied. The tax credit of one levy is not available for set-off with another
as excise is a central tax and VAT is State level tax. GST will overcome this issue.
2) Complexity in determining the nature of transaction: Goods vs. Service – Double
taxation of a particular transaction where both Goods and services are provided to the
consumer will be mitigated. For e.g. in case of Restaurant, where food in form of goods and
services are provided to customers, both VAT and Service TAX are levied. Under GST both
the components will be integrated and charged to GST only once.
3) Exemptions & Concessions – In indirect tax, businesses enjoy many kinds of exemptions
& concessions under different levies which break the chain of VAT and thus create
distortion. Also these kinds of benefits are not uniform especially when the same
commodity is taxed at different rates in different state jurisdictions.
4) Narrow Tax Base – Due to different thresholds under different laws as well as numerous
exemptions and concessions, the indirect tax is very narrow and its covers only a small
percentage of population. GST will seek to broaden the Tax base and engulf more and more
business unit.
5) Multiple administrations – Under indirect tax system, businessmen are required to visit
different tax offices, file returns, and keep records according to the applicable laws to their
business. This increases the compliance cost of businesses and creates unnecessary
complexity. GST will lower down the cost of compliance for the business units.

Taxes at center and state level incorporated into GST

At the State Level

State Value Added Tax/Sales Tax
Entertainment Tax (Other than the tax levied by the local bodies)
Octroi and Entry Tax
Purchase Tax
Luxury Tax
Taxes on lottery, betting, and gambling

At the Central level

Central Excise Duty
Additional Excise Duty
Service Tax
Additional Customs Duty (Countervailing Duty)
Special Additional Duty of Customs (SAD)
It will be a dual levy with State/Union territory GST and Central GST. Moreover, inter–state
supplies would attract an Integrated GST, which would be the sum total of CGST and
SGST/UTGST.

Petroleum products, i.e., petroleum crude, high speed diesel, motor spirit, aviation turbine fuel,
natural gas will be brought under the ambit of GST from such date as may be notified by the
Government on recommendation of the Council. Alcohol for human consumption has been kept
outside the purview of GST.

Benefits of GST

For Central and State Governments

• Simple and Easy to administer: Because multiple indirect taxes at the central and state
levels are being replaced by a single tax “GST”. Moreover, backed with a robust end to
end IT system, it would be easier to administer.
• Better control on leakage: Because of better tax compliance, reduction of rent seeking,
transparency in taxation due to IT use, an inbuilt mechanism in the design of GST that
would incentivize tax compliance by traders.
• Higher revenue efficiency: Since the cost of collection will decrease along with an
increase in the ease of compliance, it will lead to higher tax revenue.

For the Consumer

• The single and transparent tax will provide a lowering of inflation.
• Relief in overall tax burden.
• Tax democracy that is luxury items will be taxed more and basic goods will be tax-free.

For the Business Class

• Ease of doing business will increase due to easy tax compliance.
• Uniformity of tax rate and structure, therefore, better future business decision making
and investments by the corporate.
• Removal of cascading effects of taxes.
• Reduction in transactional cost will lead to improved competitiveness.
• Gain to the manufacturer and exporters.
• It is expected to raise the country GDP.

For the implementation of GST, apart from the Constitution Amendment Act, some other
statutes are also necessary. Recently 5 supporting laws to the GST were recommended by the
council. Four of the bills should be passed by the parliament, while the 5th one should be passed
by respective state legislatures. The details are given below.
 • The Central Goods and Services Tax Bill 2017 (The CGST Bill).
• The State Goods and Services Tax Bill 2017 (The SGST Bill).
• The Integrated Goods and Services Tax Bill 2017 (The IGST Bill).
• The Union Territory Goods and Services Tax Bill 2017 (The UTGST Bill).
• The Goods and Services Tax (Compensation to the States) Bill 2017 (The Compensation
Bill).

Tax slabs are decided as 0%, 5%, 12%, 18%, and 28% along with categories of exempted and
zero rated goods for different types of goods and services.
Further, a cess would be levied on certain goods such as luxury cars, aerated drinks, Pan Masala
and tobacco products, over and above the rate of 28% for payment of compensation to the
States. However, which goods and services fall into which bracket is still an enormous task to
be completed by the GST council.
Highest tax slab is pegged at 40%.

The Principle of GST

• The Centre will levy and collect the Central GST.

• States will levy and collect the State GST on the supply of goods and services within a
state.
• The Centre will levy the Integrated GST (IGST) on the inter-state supply of goods and
services, and apportion the state’s share of tax to the state where the good or service is
consumed.
• The 2016 Act requires Parliament to compensate states for any revenue loss owing to
the implementation of GST.

Issues Arisen OR Unresolved

a) Not all items are covered: Taxation for certain items such as Alcohol, Tobacco etc. are still
not under the GST domain. States argue that including them would hamper their revenue and
they would suffer a huge resource. However, some experts say that the real reason is the nexus
of politicians with some business class and high profile lobbying. Further, the Finance minister
of India has said in the parliament that the consensus to include alcohol and tobacco under GST
regime is possible in foreseeable future.

b) Decision criteria for the tax bracket: There are apprehensions that how to decide about the
items and the criteria that which item will fall into which tax bracket. It may lead to lobbying.
To this, the Finance minister has said that the decision will be taken by the GST Council only
and after due diligence and most probably by the consensus.
c) Multiple tax rates and brackets: The philosophical idea that GST means “One Nation one
Tax” is currently diluted due to multiple tax rates and brackets. To this, the Finance minister
has said that since the target consumer of goods and services have different capabilities and
therefore there must be a system similar to the democratic lines where higher value consumer
pays more taxes.

d) Power to impose tax taken away by Central Government from the Parliament: The Central
GST Bill, 2017 allows the central government to notify CGST rates, subject to a cap. This
implies that the government may change rates subject to a cap of 20%, without requiring the
approval of Parliament. Under the Constitution, the power to levy taxes is vested in Parliament
and state legislatures. Though the proposal to set the rates through delegated legislation meets
this requirement, the question is whether it is appropriate to do so without prior parliamentary
scrutiny and approval.

e) Confusion regarding the control over taxation: To avoid dual control, the GST council has
reached a compromised formula. 90 percent of tax assesses with an annual turnover of Rs 1.5
crores or less, will be assessed by states and the rest by the Centre. For those with a turnover of
over Rs 1.5 crores, the states and the Centre will share it equally. However, this ‘solution’ has
its own set of issues. For example, if an entity with a turnover of less than Rs 1.5 crores in one
year, posts a turnover of Rs 1.5 crores in the following financial year, who would be the new
authority to take over the assessment? And, how will the existing investigations, if any, against
the entity be addressed, and by whom? “There are a lot of procedural issues, and if these issues
are not addressed properly, they would lead to litigations.

f) The issue of casual taxable person: If a person registered in one state moves to another state
for a short period for some business transaction – say to participate in a fair or exhibition, then
that person would have to get himself registered in that state for that period.

The salient features of GST are as under:

(i) Supply would be the Taxable event: GST would be applicable on supply of goods or services
as against the present concept of tax on the manufacture of goods or on sale of goods or on
provision of services (Refer Section 7 of CGST Act, 2017)
(ii) Destination Based Taxation: Consuming state will gain due to this shift from origin based
taxation to destination based taxation; Parliament shall by law, on recommendation of GST
council, provide for compensation to states for loss of revenue arising on account of
implementation of GST upto 5 years as per clause 18 of the constitutional (One hundred and
First) amendment Act, 2016
(iii) Dual Taxing Structure: The new Article 246A intends to grant concurrent powers to the
Union and state legislatures to make laws with respect to GST. The power to make laws in
respect of supplies in the course of inter-state trade or commerce will be vested only in the
Union Government. States will have the right to levy GST on intra-state transactions including
services. It would be a dual GST with the Centre and the States simultaneously levying it on a
common base. The GST to be levied by the Centre would be called Central GST (CGST) and
that to be levied by the States would be called State GST (SGST).
(iv) Integrated GST (IGST): It would be levied on inter-State supply (including stock transfers)
of goods or services. This would be collected by the Centre so that the credit chain is not
disrupted.
(v) BCD + IGST on Imports of Goods: It would be treated as inter-State supplies and would be
subject to IGST in addition to the applicable customs duties (BCD)
(vi) IGST on Import of Services: Import of services would be treated as inter-State supplies and
would be subject to IGST.
(vii) Central taxes that would be subsumed within the GST
- Central Excise duty (Entry 84)
- Duties of Excise (Medicinal and Toilet Preparations) (Entry 84)
- Additional Duties of Excise (Goods of Special Importance) (Entry 84)
- Additional Duties of Excise (Textiles and Textile Products) (Entry 84)
- Additional Duties of Customs (commonly known as CVD) (Entry 83)
- Special Additional Duty of Customs (SAD) (Entry 83)
- Service Tax (Entry 92C)
- Cesses and surcharges insofar as far as they relate to supply of goods or services (Article 271)
(viii) State taxes that would be subsumed within the GST
- State VAT (Entry 54)
- Central Sales Tax (Entry 54)
- Purchase Tax (Entry 54)
- Luxury Tax (Entry 62)
- Entry Tax (All forms) (Entry 52)
- Entertainment Tax (not levied by the local bodies) (Entry 62)
- Taxes on advertisements (Entry 55)
- Taxes on lotteries, betting and gambling (Entry 62)
- State Cesses and surcharges insofar as far as they relate to supply of goods or services
(ix) Potable Alcohol Excluded: GST would apply to all goods and services except Alcohol for
human consumption (Constitutional Exclusion)
(x) Petroleum products also excluded for the time being: GST on petroleum products would be
applicable from a date to be recommended by the Goods & Services Tax Council in terms of
clause 5 of Article 279A
(xi) Tobacco and tobacco products: They would be subject to GST. In addition, the Centre
could continue to levy Central Excise duty (Excise duty + GST)
(xii) Stamp Duties will continue: Stamp duties, typically imposed on legal agreements by the
state, will continue to be levied by the states
(xiii) Administration of GST will be the responsibility of the GST Council, which will be the
apex policy-making body for GST: It will recommend Rates, rate bands, base, thresholds, taxes
to be subsumed; Special provisions for Arunachal Pradesh, Assam, J&K, Manipur, Meghalaya,
Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; Date for application
of GST to petroleum products etc.
(xiv) Members of the GST Council are Central and State ministers in charge of the finance
portfolio: In the GST Council, the Centre will have a one-third vote and all states combined
will have two-third vote. Quorum for GST Council is 50% of total members and for majority
of Council decisions 75% of the weighted votes of the members present and voting.
(xv) GST Council (GSTC): Newly inserted Article 279A in the constitution of India provides
for the constitution of GST Council (GSTC) by the president within 60 days from the date of
the passing of the Bill and also provides for the appointment of members of the GST Council
and its composition and powers to make recommendations.
The GSTC has been notified with effect from 12th September, 2016. GSTC is being assisted
by a Secretariat. Fourteen meetings of the GSTC have been held so far.
The following major decisions have been taken by the GSTC:
- The threshold exemption limit would be `20 Lakh. For special category States enumerated in
Article 279A of the Constitution, threshold exemption limit has been fixed at `10 Lakh.
- Composition threshold shall be `50 lakhs. Composition scheme shall not be available to inter-
State suppliers, service providers (except restaurant service) and specified category of
manufacturers.
- Existing tax incentive schemes of Central or State governments may be continued by
respective government by way of reimbursement through budgetary route. The schemes, in the
present form, would not continue in GST.
- There would be four tax rates namely 5%, 12%, 18% and 28%. Besides, some goods and
services would be under the list of exempt items. Rate for precious metals is yet to be fixed. A
cess over the peak rate of 28% on certain specified luxury and demerit goods would be imposed
for a period of five years to compensate States for any revenue loss on account of
implementation of GST. The Council has released rates of various goods and services fitted in
these four slabs keeping in view the present incidence of tax in its 14th meeting.
- The five laws namely CGST Law, UTGST Law, IGST Law, SGST Law and GST
Compensation Law have been recommended.
- In order to ensure single interface, all administrative control over 90% of taxpayers having
turnover below `1.5 Crore would vest with State tax administration and over 10% with the
Central tax administration. Further all administrative control over taxpayers having turnover
above `1.5 Crore shall be divided equally in the ratio of 50% each for the Central and State tax
administration.
- Powers under the IGST Act shall also be cross-empowered on the same basis as under CGST
and SGST Acts with few exceptions.
- Power to collect GST in territorial waters shall be delegated by Central Government to the
States.
- Formula and mechanism for GST Compensation Cess has been finalized.
- Four rules on input tax credit, composition levy, transitional provisions and valuation have
been recommended. Further five Rules on registration, invoice, payments, returns and refund,
finalized in September, 2016 and as amended in light of the GST bills introduced in the
Parliament, have also been recommended.
(xvi) Threshold exemption: A common threshold exemption would apply to both CGST and
SGST. Taxpayers with a turnover below it would be exempt from GST. A compounding option
(i.e. to pay tax at a flat rate without credits) would be available to small taxpayers below a
certain threshold.
The threshold exemption limit would be `20 lakhs. For special category States enumerated in
Article 279A of the Constitution, threshold exemption limit has been fixed at `10 lakhs (such
as Arunachal Pradesh, Sikkim, Uttarakhand, Himachal Pradesh, Assam and the other States of
the North-East)
Composition threshold shall be `100 lakhs (previously 50 lakhs). Composition scheme shall not
be available to inter-state suppliers, service providers (except restaurant service) and specified
category of manufacturers.)
(xvii) Exports would be zero-rated (Refer Section 16 of IGST Act, 2017)
(xviii) Input Credit: Credit of CGST paid on inputs may be used only for paying CGST on the
output and the credit of SGST paid on inputs may be used only for paying SGST. In other
words, the two streams of input tax credit (ITC) cannot be cross utilized, except in specified
circumstances of inter-State supplies, for payment of IGST.
The credit would be permitted to be utilized in the following manner:
a) ITC of CGST allowed for payment of CGST;
b) ITC of SGST allowed for payment of SGST;
c) ITC of CGST allowed for payment of CGST & IGST in that order;
d) ITC of SGST allowed for payment of SGST & IGST in that order;
e) ITC of IGST allowed for payment of IGST, CGST & SGST in that order.
(xix) Input Tax Credit (ITC) to be broad based by making it available in respect of taxes paid
on any supply of goods or services or both used or intended to be used in the course or
furtherance of business.
(xx) Electronic filing of returns by different class of persons at different cut-off dates.
(xxi) Various modes of payment of tax available to the taxpayer including internet banking,
debit/ credit card and National Electronic Funds Transfer (NEFT) / Real Time Gross Settlement
(RTGS).
(xxii) TDS under GST: Obligation on certain persons including government departments, local
authorities and government agencies, who are recipients of supply, to deduct tax at the rate of
1% from the payment made or credited to the supplier where total value of supply, under a
contract, exceeds two lakhs and fifty thousand rupees (`2.5 lakhs).
(xxiii) Refund of tax to be sought by taxpayer or by any other person who has borne the
incidence of tax within two years from the relevant date
(xxiv) Obligation on electronic commerce operators (Flipkart/Amazon etc.) to collect ‘tax at
source’, at such rate not exceeding two per cent (2%) of net value of taxable supplies, out of
payments to suppliers supplying goods or services through their portals.
(xxv) System of self-assessment of the taxes payable by the registered person.
(xxvi) Audit of registered persons to be conducted in order to verify compliance with the
provisions of Act.
(xxvii) Arrears of tax to be recovered using various modes including detaining and sale of
goods, movable and immovable property of defaulting taxable person.
(xxviii) Officers would have restrictive powers of inspection, search, seizure and arrest.
(xxix) Goods and Services Tax Appellate Tribunal would be constituted by the Central
Government for hearing appeals against the orders passed by the Appellate Authority or the
Revisional Authority. States would adopt the provisions relating to Tribunal in respective SGST
Act.
(xxx) Advance Ruling Authority would be constituted by States in order to enable the taxpayer
to seek a binding clarity on taxation matters from the department. Centre would adopt such
authority under CGST Act.

Objectives of GST

1) One Country – One Tax

2) Consumption based tax instead of Manufacturing
3) Uniform GST Registration, payment and Input tax Credit
4) To eliminate the cascading effect of Indirect taxes on single transaction
5) Subsume all indirect taxes at Centre and State Level under
6) Reduce tax evasion and corruption
7) Increase productivity
8) Increase Tax to GDP Ratio and revenue surplus
9) Increase Compliance
10) Reducing economic distortions
11) Decreasing the unhealthy competition among the states due to taxes and revenues.
12) Ensuring the availability of input credit across the value chain.

1. One Country – One Tax: Implementation of goods and services tax aims at creating one
tax rate one market across the country by removing different rates of taxes applicable. By
the implementation of GST only one rate of tax is applicable on a particular product across
the country.
2. Consumption based tax instead of Manufacturing: Goods & services tax on
consumption. It is a destination based tax i.e., the tax will be paid to the state where the
final product is purchased / consumed by the final consumer rather than where the product
is produced or manufactured.
3. Uniform GST Registration, payment and Input Tax Credit: To create simple
administrative procedure this GST system needs only a Single Uniform GST registration
across the states. The manufacturer, wholesaler, trader will be eligible for input tax credit
on the inputs used for the final product being sold.
4. To eliminate the cascading effect of Indirect taxes on single transaction: The key
objective of implementation of goods and services tax is to remove cascading effect of tax
i.e., tax on taxes. In the earlier system where the value added tax / sales tax was levied on
excise duty, customs duty included in the purchase price of the inputs which was lead to
cascading of taxes and thereby the selling prices will be increased, it was burden to the
final consumers. Under GST the tax paid on inputs in earlier stages will be allowed as
input tax credit hence the tax will be levied only on value addition in each stage of
consumption. Hence, the cascading of taxes will be removed to a maximum extent.
5. Subsume all indirect taxes at Centre and State Level: The pre-GST implementation
taxes like central excise duty, special additional duty, value added tax, service tax etc, will
be subsumed under dual system i.e., Central Goods and Services Tax and State Goods and
Services Tax.
6. Reduce tax evasion and corruption: Implementation of GST aims at reducing the tax
evasion by the businessmen, public and entities.
7. Increase Productivity: By allowing taxes paid in the earlier stages as inputs the cost of
the products will be reduced and thereby the consumption will be increased which will in
turn lead for increase in production.

8. Increase Tax to GDP ratio and revenue surplus: The implementation of GST assists all
the sectors to contribute to the higher extent than at present contribution.
9. Increase Compliance: Under GST only single registration, single return is required to be
submitted compared to old indirect tax system. It can be expected that the compliance
level will be enhanced.
10. Reducing economic distortions: Implementation of GST tries to solve the economic
problems by making the necessity products cheaper to all categories of people.
11. Decreasing the unhealthy competition among the states due to taxes and revenues:
The intention of introducing GST as one nation – one tax is to avoid any unhealthy
competition among the states and the tax structure is made uniform across all the states so
that goods can be bought or supplied to any where at the same rate. The centre shares the
revenues with the states.
12. Ensuring the availability of input credit across the value chain: GST allows the set-
off of input tax to output tax. This input credit is available through out the stages of
manufacture of across the value chain. It is only the difference in tax between output tax
and input tax that is payable.

Taxable Person under GST

Taxable person under GST is anyone who is registered under GST or required to be registered
under GST. Various criteria’s like turnover, business activity or transaction have been specified
in GST Act, which details persons liable to be registered under GST. Further, any person having
registration under Service Tax, VAT or Central Excise on the date of GST coming into force
will automatically be considered a taxable person under GST.

GST Definition of Taxable Person:

The term “person” has been defined in Section 2(73) of the GST Act as follows:
An Individual, A Hindu Undivided Family, A Company, A Partnership Firm, A Limited
Liability Partnership, An Association of Persons or a Body of Individuals, whether incorporated
or not, in India or outside India, Government Company, Any body corporate incorporated by
or under the laws of a country outside India, A co-operative society registered under any law
relating to cooperative societies, A local authority Government

Who needs GST Registration?

The criteria for persons who should be registered under GST are provided under Chapter 6 of
the CGST Act. As per the CGST Act, the following persons are required to obtain GST
registration:

Aggregate Turnover Criteria

Any supplier of goods and/or services who makes a taxable supply with an aggregate turnover
of over `20 lakhs in a financial year is required to obtain GST registration. In special category
states, the aggregate turnover criteria are set at `10 lakhs.
Special Category States under GST:

Currently, Assam, Nagaland, Jammu & Kashmir, Arunachal Pradesh, Manipur, Meghalaya,
Mizoram, Uttarakhand, Tripura, Himachal Pradesh, and Sikkim are considered special category
states. The National Development Council composed of the Prime Minister, Union Ministers,
Chief Ministers and members of the Planning Commission determines the list of special
category states in India. Also, the decision to accord special status to a State is based on factors
like: hilly and difficult terrain; low population density and or sizeable share of tribal population;
strategic location along borders with neighboring countries; economic and infrastructure
backwardness and non-viable nature of state finances.

Mandatory GST Registration Criteria:

Some taxable persons who do not qualify for GST registration under the aggregate turnover
criteria are required to mandatorily obtain GST registration, if they satisfy any of the following
criteria: (u/s 24 of CGST Act)

Persons making any inter-state taxable supply – Inter-state supply is supplying goods or
services from one state to another. Hence, any taxable person who is involved in supplying
goods or services to persons outside of the State is required to mandatorily obtain GST
registration.

i) Casual taxable persons making taxable supply:

Casual taxable person is a person who occasionally undertakes supply of goods and/or services
and has no fixed place of business. An example of a casual taxable person would be a fireworks
shops setup during Diwali festival time, selling fireworks temporarily.

ii) Persons who are required to pay tax under reverse charge:
Under GST, for most goods and/or services, the liability for payment of tax rests with the
supplier. However, in some cases, the liability to pay tax (GST) would rests with the recipient
of the goods or services, instead of the supplier. Such transactions are called reverse charge.
Hence, any person (recipient of goods or service) who is required to pay tax under reverse
charge must mandatorily obtain GST registration.

iii) Non-resident taxable persons making taxable supply:

Non-resident taxable person is any person who occasionally supplies goods or services to
recipients in India, but who has no fixed place of business or residence in India. All non-resident
taxable persons are mandatorily required to obtain GST registration, irrespective of aggregate
turnover criteria.

iv) Persons who are required to deduct tax under GST:

According to Section 51 of the GST Act, the Government may mandate a department or
establishment of the Central Government or State Government or local authority or
Governmental agencies or a category of persons to deduct tax at the rate of 1% from the
payment made or credited to the supplier, where the total value under a contract, exceeds `2.5
lakhs. Such persons are required to mandatorily obtain GST registration and are referred to as
“deductor”.

v) Persons who make taxable supply of goods or services on behalf of other persons:
Any person who makes a taxable supply of goods or services on behalf of other persons would
include agents, brokers, dealers, etc., Such persons are required to mandatorily obtain GST
registration.

vi) Input Service Distributor:

Input Service Distributor means a supplier of goods or services which receives tax invoices for
the receipt of input services and issues a prescribed document for the purposes of distributing
the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services
to a supplier of taxable goods or services.

vii) Electronic Commerce Operator:

Electronic commerce is the supply of goods or service, including digital products over digital
or electronic network. An electronic commerce operator is any person who owns, operates or
manages digital or electronic facility or platform for electronic commerce. All electronic
commerce operators are mandatorily required to obtain GST registration, irrespective of
turnover.

viii) Person supplying online information and database access or retrieval services (OIDAR):
Any person supplying online information and database access or retrieval services from a place
outside India to a person in India is required to obtain GST registration. Online information and
database access or retrieval means providing data or information, retrievable or otherwise, to
any person, in electric form through a computer network.

ix) Persons Having Service Tax or VAT or Central Excise Registration:

All people who, on the day immediately preceding the appointed day is having a service tax or
VAT or central excise license under an existing law is required to be registered under GST.
Hence, migration to GST is mandatory for all taxable persons having an existing registration.

x) Transferee or Successor of a Business

Any person who is a transferee or a successor of a business, that was carried on by a persons
registered under GST is required to be registered under GST with effect from the date of such
transfer or succession.

Who is NOT Required to Obtain GST Registration?

Any person who is engaged exclusively in the business of supplying goods or services that are
not liable to tax under GST or wholly exempt from tax under GST is exempt from obtaining
GST registration.

Also, an agriculturist, to the extent of supply of produce out of cultivation of land is exempt
from obtaining GST registration. Under GST, agriculturist means an individual or a Hindu
Undivided Family who undertakes cultivation of land:
By own labour, or
By the labour of family, or
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;

Rates Schedule Released by GST Council: In the 14th Meeting of GST Council held in
Srinagar on 18 and 19th May 2017, Council has released the consolidated rates of GST for
1211 Goods and 568 Services Classified under 124 Groups of 32 Headings under 5 Sections (5
to 9)

Goods Services
6 Slab Rates will be applicable on Taxation 4 Slab Rates will be applicable on Taxation
of Goods under GST i.e. 0%, 5%, 12%, 18%, of Services under GST i.e. 5%, 12%, 18%
and 28% + Compensation Cess on 28% and 28%

Nothing recommended under Reverse charge 13 Services are placed under Reverse charge
yet for Goods Mechanism
Exemption List yet to be released for Goods 83 Services are placed under Exemption List
(Broadly Negative List and Exemption List
of Service Tax merged with few changes)
 HSN Codes will be used to classify the goods SAC will be used to classify the Services
(Harmonized System of Nomenclature Codes (Service Accounting Codes released)
released)

Difference between Nil Rated, Exempt, Zero Rated and Non-GST supplies
Supply Name Description
Zero Rated Exports and Supplies made to SEZ or SEZ Developers.
Nil Rated Supplies that have a declared rate of 0% GST.
Example: Salt, grains, jaggery etc.
Exempt Supplies are taxable but do not attract GST and for which ITC
cannot be claimed.
Example: Fresh milk, Fresh fruits, Curd, Bread etc.
Non-GST These supplies do not come under the purview of GST law.
Example: Alcohol for human consumption, Petrol etc.

Why is it necessary to follow HSN Codes and SAC Codes?

HSN codes are internationally recognized system of codifying and classifying all the products
in the World. It will make GST compliant with the international standards and ensure proper
levy of taxes. HSN gives a systematic and logical way of classification, thereby reducing the
chances of any misinterpretations. Further, a common structure enables the government of
countries to collaborate data of purchases and sales of commodities and analyze the same.
Similar to the International HSN Codes, India has adopted a Service Accounting Code (SAC)
for all its services. GST will subsume the service tax, which covers all kinds of services.
Government has imposed GST on Services with the same 4-tier tax structure as of goods. So,
GST rates on services comprises of 5%, 12%, 18% and 28%. However, government has
exempted healthcare and educational services from the purview of the GST. Since GST is a
combination of goods and services both, an equable classification for services is also required.

An important update on HSN/SAC under Indian GST Regime

(On Every Invoice under GST Regime – These codes needs to be provided, further while
registering for GST we need to register for these codes)

The HS code consists of 6-digits. The first two digits designate the HS Chapter. The second
two digits designate the HS heading. The third two digits designate the HS subheading. HS
Nomenclature beyond 6 digits is also allowed and some countries have extended Six Digit Code
to Eight Digit Code and India is also one such country which use Eight Digit Code
In Indian Context, a taxpayer having a turnover exceeding Rs 5 Crore is required to follow the
HSN code of 4 digits. In return form, rate of tax shall be auto populated based on the HSN
codes used in furnishing invoice level purchase or sale information. After completing first year
under GST, the turnover for previous year will be considered as baseline for using HSN codes
of 4 digits.

Indian authorities have further categorized six digits HSN into another two digit sub chapter,
thus making total number of digit to be eight. This eight digits code will be mandatory in case
of export and imports under the GST regime

COMPOSITION RULES

I. Intimation for composition levy

(1) Any person who has been granted registration on a provisional basis under sub-rule (1) of
rule Registration 16 (registered under VAT Act, Service Tax etc.) and who opts to pay tax under
section 10, shall electronically file an intimation in FORM GST CMP-01, duly signed, on the
Common Portal, either directly or through a Facilitation Centre notified by the Commissioner,
prior to the appointed day, but not later than thirty days after the said day, or such further period
as may be extended by the Commissioner in this behalf:
Provided that where the intimation in FORM GST CMP-01 is filed after the appointed day, the
registered person shall not collect any tax from the appointed day but shall issue bill of supply
for supplies made after the said day.

(2) Any person who applies for registration under rule Registration.1 may give an option to pay
tax under section 10 in Part B of FORM GST REG-01, which shall be considered as an
intimation to pay tax under the said section.

(3) Any registered person who opts to pay tax under section 10 (i.e. composition levy by
switching over) shall electronically file an intimation in FORM GST CMP-02, duly signed, on
the Common Portal, either directly or through a Facilitation Centre notified by the
Commissioner prior to the commencement of the financial year for which the option to pay tax
under the aforesaid section is exercised and shall furnish the statement in FORM GST ITC-3
(stock related) in accordance with the provisions of sub-rule (4) of rule ITC-9 within sixty days
from the commencement of the relevant financial year.

(4) Any person who files an intimation under sub-rule (1) to pay tax under section 10 shall
furnish the details of stock, including the inward supply of goods received from unregistered
persons, held by him on the day preceding the date from which he opts to pay tax under the
said section, electronically, in FORM GST CMP-03, on the Common Portal, either directly or
through a Facilitation Centre notified by the Commissioner, within sixty days of the date from
which the option for composition levy is exercised or within such further period as may be
extended by the Commissioner in this behalf.

II. Effective date for composition levy

(1) The option to pay tax under section 10 shall be effective from the beginning of the financial
year, where the intimation is filed under sub-rule (3) of rule 1 and the appointed date where
intimation is filed under sub-rule (1) of the said rule.

(2) The intimation under sub-rule (2) of rule 1 shall be considered only after grant of registration
to the applicant and his option to pay tax under section 10 shall be effective from the date fixed
under sub-rule (2) or (3) of rule Registration.3.

III. Conditions and restrictions for composition levy

(1) The person exercising the option to pay tax under section 10 shall comply with the following
conditions:

(a) He is neither a casual taxable person nor a non-resident taxable person;

(b) the goods held in stock by him on the appointed day have not been purchased in the course
of inter-State trade or commerce or imported from a place outside India or received from his
branch situated outside the State or from his agent or principal outside the State, where the
option is exercised under sub-rule (1) of rule 1;
(c) The goods held in stock by him have not been purchased from an unregistered person and
where purchased, he pays the tax under sub-section (4) of section 9;
(d) he shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of
goods or services or both received from un-registered persons;
(e) He was not engaged in the manufacture of goods as notified under clause (e) of sub-section
(2) of section 10, during the preceding financial year;
(f) He shall mention the words “composition taxable person, not eligible to collect tax on
supplies” at the top of the bill of supply issued by him; and
(g) He shall mention the words “composition taxable person” on every notice or signboard
displayed at a prominent place at his principal place of business and at every additional place
or places of business.

(2) The registered person paying tax under section 10 may not file a fresh intimation every year
and he may continue to pay tax under the said section subject to the provisions of the Act and
these rules.
IV. Validity of composition levy

(1) The option exercised by a registered person to pay tax under section 10 shall remain valid
so long as he satisfies all the conditions mentioned in the said section and these rules.

(2) The person referred to in sub-rule (1) shall be liable to pay tax under sub-section (1) of
section 9 from the day he ceases to satisfy any of the conditions mentioned in section 10 or
these rules and shall issue tax invoice for every taxable supply made thereafter and he shall also
file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days
of occurrence of such event.

(3) The registered person who intends to withdraw from the composition scheme shall, before
the date of such withdrawal, file an application in FORM GST CMP-04, duly signed,
electronically on the Common Portal.

(4) Where the proper officer has reasons to believe that the registered person was not eligible
to pay tax under section 10 or has contravened the provisions of the Act or these rules, he may
issue a notice to such person in FORM GST CMP-05 to show cause within fifteen days of the
receipt of such notice as to why option to pay tax under section 10 should not be denied.

(5) Upon receipt of reply to the show cause notice issued under sub-rule (4) from the registered
person in FORM GST CMP-06, the proper officer shall issue an order in FORM GST CMP-07
within thirty days of receipt of such reply, either accepting the reply, or denying the option to
pay tax under section 10 from the date of option or from the date of the event concerning such
contravention, as the case may be.

(6) Every person who has furnished an intimation under sub-rule (2) or filed an application for
withdrawal under sub-rule (3) or a person in respect of whom an order of withdrawal of option
has been passed in FORM GST CMP-07 under sub-rule (5), may electronically furnish at the
Common Portal, either directly or through a Facilitation Centre notified by the Commissioner,
a statement in FORM GST ITC-01 containing details of the stock of inputs and inputs contained
in semi-finished or finished goods held in stock by him on the date on which the option is
withdrawn or denied, within 30 days, from the date from which the option is withdrawn or from
the date of order passed in FORM GST CMP-07, as the case may be.

V. Rate of tax of the composition levy

The category of registered persons Category of registered persons Rate of tax
eligible for composition levy u/s
section 10(1) and these rules,
specified in column (2) of the
 Table below shall pay tax under
section 10 at the rate specified in
column (3) of the said Table:
Sl No.
(1) (2) (3)
1 Manufacturers, other than 0.5% CGST + 0.5%
manufacturers of such goods as SGST (Total 1%)
may be notified by the
Government
2 Suppliers (food or any article 2.5% CGST + 2.5%
for human consumption or any SGST (Total 5%)
drink other than alcoholic
liquor)
3 Any other supplies (Traders) 0.5% CGST + 0.5%
eligible for composition levy SGST (Total 1%)
under section 10

What is composition levy under GST?

The composition levy is an alternative method of levy of tax designed for small taxpayers
whose turnover is up to `100 lakhs. The objective of composition scheme is to bring simplicity
and to reduce the compliance cost for the small taxpayers. Moreover, it is optional and the
eligible person opting to pay tax under this scheme can pay tax at a prescribed percentage of
his turnover every quarter, instead of paying tax at normal rate.

Who can opt for Composition Scheme?

Businesses dealing only in goods can only opt for composition scheme. Services providers have
been kept outside the scope of this scheme. However, restaurant sector taxpayers may also opt
for the scheme.

The scheme is available to businesses whose aggregate turnover in the preceding financial year
did not exceed rupees One Crore (previously rupees seventy five lakhs). The Government
may, by notification, increase the said limit to such higher amount, not exceeding `1 Crore, as
may be recommended by the GST council.

Eligible Persons for Composition Levy [Section 10 (2)]

The registered person shall be eligible to opt under sub-section (1), if:—

(a) He is not engaged in the supply of services other than supplies referred to in clause of
paragraph 6 of Schedule II (i.e. Food with services);

(b) He is not engaged in making any supply of goods which are not leviable to tax under
this Act;

(c) He is not engaged in making any inter-State outward supplies of goods;

(d) He is not engaged in making any supply of goods through an electronic commerce
operator who is required to collect tax at source under section 52; and

(e) He is not a manufacturer of such goods as may be notified by the Government on the
recommendations of the Council.

Do Composition Dealers have the option to avail Input Tax Credit?

No, a Composition Dealer is not allowed to avail input tax credit of GST paid to their supplier.
In other words, a taxable person opting to pay tax under the composition scheme is out of the
credit chain. He cannot take credit on his input supplies. When he switches over from
composition scheme to normal scheme, eligible credit on the date of transition would be
allowed.

Can a Composition Dealer issue Tax Invoices?

No. Since a Composition Dealer is not allowed to avail input tax credit, such a dealer cannot
issue a tax invoice as well. A buyer from composition dealer will not be able to claim input tax
on such goods.

What is GSTN?

As per the government website on GST, "Goods and Services Tax" Network (GSTN) is a non-
profit organization proposed to be formed for creating a website / platform for all the concerned
parties related to the GST, namely stakeholders, government and taxpayers to collaborate on a
single portal. When up and running, the portal is supposed to be accessible to the central
government which allows it to track down every transaction on its end while taxpayers are
advertised to have the ability of connecting this to their tax returns.

In short, GSTN is registered as a not-for-profit company under the companies Act. It has been
formed to set up and operate the information technology backbone of the GST. While the
Central (24.5%) and the state (24.5%) governments hold a combined stake of 49%, the
remaining 51% stake is divided among five financial institutions—LIC Housing Finance with
11% stake and ICICI Bank, HDFC, HDFC Bank and NSE Strategic Investment Corporation
Ltd with 10% stake each.

GSTN had awarded Infosys Ltd the contract to develop the hardware and software for GST.
The idea behind GSTN was to set up an entity that is equidistant from both the Central
government and the state governments, as it will advise both the Centre and the states on the
information technology network

What is GSP?

GSP stands for GST Suvidha Provider. A GSP is a service provider who helps the taxpayer to
comply with the provisions of the GST law through its web platform. Goods and Service Tax
Network (GSTN) will receive the returns filed by companies through GST Suvidha Provider.

GST Suvidha provider (GSP) is reckoned as a facilitator for the businesses in India to comply
with the rules and provisions of the GST laws through the GST software. GST is a system that
is backed by the Goods and Services Tax Network (GSTN). The GSTN is a centralized IT
infrastructure that handles all the features of the GST administration and management in India.

GST Suvidha Provider meaning GSPs are those entities who have been envisaged to provide
innovative and convenient methods to taxpayers and other stakeholders in interacting with the
GST Systems – right from registration of entity, to uploading of invoice details, to filing of
returns. Thus there will be two sets of interactions, one between the application user and the
GSP and the second between the GSP and the GST System. It is envisaged that the application
provider and GSP could be the same entity.

The GSP is a private non-profit entity in which the central and state government together hold
49.5% stake. GSTN has created an agenda for providing GST Suvidha Provider licenses to
third-party applications who can become application service providers (ASP) by building
software that connects to any interface like desktops, mobile devices etc.

The GSPs and ASPs together are expected to provide simple and innovative methods to the
taxpayers and others to interact with the GST systems right from the time of registration to
uploading the invoice to the filing of tax. This is in tune with the Digital India initiative of
creating a paperless tax system and making it simpler to do business.

Indian Government has appointed 34 GST Suvidha Providers (GSPs) who will be allowed to
develop simple applications to be used by taxpayers for interacting with GSTN. GSTN has
selected 34 companies who will be known as GST Suvidha Providers (GSPs). Those GSPs can
also develop application software’s which will be used by taxpayers for interacting with the
GSTN.

GSP Ecosystem

A common GST system will provide linkage to all state commercial tax departments, central
tax authorities, tax payers, banks and other stakeholders. The ecosystem consists of all
stakeholders starting from tax payer to tax professional to tax officials to GST portal etc. The
features of GSP ecosystem are:

• GST system is following an approach to provide services to tax payers thru APIs
• All GST functions like registration, composition, uploading invoices, filling of return,
refunds, assessment etc will be done through APIs
• GSTN believes in creating an ecosystem GSP (paperless GST system) providing
innovative solutions and making tax formalities more easy and convenient

LEVY AND COLLECTION OF GST

Meaning of Supply
As per section 7 of CGST Act, the taxable event in GST is supply of goods or services or both.
Under the old regime, taxable events for various taxes were different. For example, for excise
the taxable event was manufacture or production of goods, for service the taxable event was
provision of service and under VAT/CST it was sale of goods. To replace such multiplicity,
GST has brought a single and unified taxable event which is “supply” i.e. tax would be payable
on the supply of goods or services.

The constitution defines “Goods and Services Tax” as any tax on supply of goods, or services
or both, except for taxes on the supply of the alcoholic liquor for human consumption.

The Central and State governments will have simultaneous powers to levy the GST on Intra-
State supply. However, the Parliament alone shall have exclusive power to make laws with
respect to levy of Goods and Services Tax on Inter-State supply.

Categories of Supply

• Supplies made for a consideration in the course of or for continuance of business

• Supplies without consideration
• Supplies made for a consideration whether or not in the course of or for continuance of
business

Scope of Supply:

GST is leviable only when there is either a supply of goods or services or both under the
provisions of law. If something cannot be defined to constitute a supply within the GST Act
than no liability to pay tax under the GST Act would arise. So it is essential to understand the
context in which the term supply is used.

The term, “supply” has been inclusively defined in the Act (u/s 7 of the CGST Act). The
meaning and scope of supply under GST can be understood in terms of following six
parameters, which can be adopted to characterize a transaction as supply:

1. Supply of goods or services. Supply of anything other than goods or services does not attract
GST
2. Supply should be made for a consideration
3. Supply should be made in the course or furtherance of business
4. Supply should be made by a taxable person
5. Supply should be a taxable supply
6. Supply should be made within the taxable territory
While these six parameters describe the concept of supply, there are a few exceptions to the
requirement of supply being made for a consideration and in the course or furtherance of
business. Any transaction involving supply of goods or services without consideration is not a
supply, barring few exceptions, in which a transaction is deemed to be a supply even without
consideration. Further, import of services for a consideration, whether or not in the course or
furtherance of business is treated as supply.

Supply of Goods or Services or Both

Goods as well as services have been defined in the GST Law. The securities are excluded from
the definition of goods as well as that of services. Money is also excluded from the definition
of goods as well as services, however, 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 are included in services.

Supply for Consideration

Consideration has specifically been defined under section 7(1) (a) in the CGST Act, 2017. It
can be in money or in kind. Any subsidy given by the Central Government or a State
Government is not considered as consideration. It is immaterial whether the payment is made
by the recipient or by any other person. 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.

Further, when there is barter of goods of services, the same activity constitutes supply as well
as a consideration. When a barber cuts hair in exchange for a painting, hair cut is a supply of
services by the barber. It is a consideration for the painting received.

Supplies include all forms of:

Sale Any sale of goods or services which broadly result in the
transfer of title in case of goods, and transfer of right to use
in case of services.
Transfer Any branches/stock transfers form a part of supply and are
taxable.
Barter/Exchange When the consideration is paid through goods instead of
money. For example: a seller has supplied goods and the
buyer supplies goods to the extent of payment or when one
product is exchanged with another product.
 License Any grant of license to use, forms part of supply. For
example: online subscriptions.
Rental Renting of property fully or partially is a supply under
GST.
Lease Letting out the building or property on lease is a supply
under GST.
Disposal Disposal of business assets forms part of supply.

Normally supply has to be for a consideration but there are certain activities as specified in
Schedule I which would be considered a supply irrespective of whether they are for a
consideration or without consideration.

Following activities have been specified under Schedule I:-

1. Permanent transfer or disposal of business assets where input tax credit has been availed
on such assets.
2. Supply of goods or services or both between related persons or between distinct persons
as specified in section 25, when made in the course or furtherance of business. Provided
that gifts not exceeding fifty thousand rupees in value in a financial year by an employer
to an employee shall not be treated as supply of goods or services or both.
3. Supply of goods – a) by a principal to his agent where the agent undertakes to supply such
goods on behalf of the principal; or b) by an agent to his principal where the agent
undertakes to receive such goods on behalf of the principal.
4. Import of services by a taxable person from a related person or from any of his other
establishments outside India, in the course or furtherance of business.

Following activities have been specified under Schedule II:-

Transactions Deemed as Supply of Goods:

• Any transfer of the title in goods is a supply of goods
• Any transfer of title of goods under an agreement which stipulates that property in goods
will pass at a future date upon payment of full consideration as agreed like hire purchase
• Permanent transfer or disposal of business assets with or without consideration
• Supply of goods by any unincorporated association or body of persons to a member
thereof
Transactions Deemed as Supply of Services:
• Transfer of right or undivided share in goods without transfer of title
• Any lease, tenancy, license to occupy land
 • Any lease or letting out of the building for business or commerce either wholly or
partially
• Any treatment or process applied on another person’s goods like job work
• Renting of immovable property
• Construction of a complex, building, civil structure or part thereof
• Development, design, programming, customization, adaptation, up-gradation,
enhancement, implementation of information technology software
• Works contracts

Activities which would not constitute Supply

As per section 7(2) of the CGST Act the following activities shall be treated neither as a supply
of goods nor a supply of services:-
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.
As these activities would be treated neither as goods nor services they will not be subject to tax
under the GST law.

Following activities have been specified under Schedule III: - (Specific Exclusions)

a) Services by an employee to the employer in the course of or in relation to his employment.

b) Services by any court or Tribunal established under any law for the time being in force.
c) a. The functions performed by the Members of Parliament, Members of State Legislature,
Members of Panchayats, Members of Municipalities and Members of other local
authorities;
b. The duties performed by any person who holds any post in pursuance of the provisions
of the Constitution in that capacity; or
c. The duties performed by any person as a Chairperson or a Member or a Director in a
body established by the Central Government or a State Government or local authority and
who is not deemed as an employee before the commencement of this clause.
d) Services of funeral, burial, crematorium or mortuary including transportation of the
deceased.
e) Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
f) Actionable claims, other than lottery, betting and gambling.

Composite Supply and Mixed Supply

As per Section 8 of the CGST Act, 2017 certain specific provisions have been made to
determine rate of GST in case of composite supply and mixed supply.

“Composite supply” means a supply made by a taxable person to a recipient comprising two or
more supplies of goods or services, or any combination thereof, which are naturally bundled
and supplied in conjunction with each other in the ordinary course of business, one of which is
principal supply. For e.g. In case where goods are packed and transported with insurance, the
supply of goods, packing materials, transportation and insurance is a composite supply and
supply of goods is the principal supply.
Also the work contracts and supply of goods, being food or any other article for human
consumption or any drink are considered to be deemed composite supply as per clause 6 of
Schedule II of the law.

“Mixed supply” means two or more individual supplies of goods or services, or any
combination thereof, made in conjunction with each other by a taxable person for a single price
where such supply does not constitute a composite supply. For e.g. In case of supply of a
package consisting of watch, tie, belts as a combo pack then although always these items can
be sold individually and are not dependent on each other. Then such a supply would be termed
as mixed supply. It is a basket of supplies sold together like a basket containing chocolates,
Cadbury’s dairy milk, almonds, and other dry fruits.

“Continuous supply of Goods” and “Continuous supply of Services”

Continuous Supply of Goods means goods which are supplied on continuous basis, under a
contract, whether or not by means of wire, cable, pipeline or other conduit, and for which the
supplier invoices the recipient on a regular basis and includes supply of notified goods.
Continuous Supply of Services means services which are provided continuously or on recurrent
basis, under a contract, for a period exceeding three months with periodic payment obligations
and includes supply of notified services.

Why are time, place and value of supply important?

Time of supply means the point in time when goods/services are considered supplied’. When
the seller knows the ‘time’, it helps him identify due date for payment of taxes.
Place of supply is required for determining the right tax to be charged on the invoice, whether
IGST or CGST/SGST will apply.
Value of supply is important because GST is calculated on the value of the sale. If the value is
calculated incorrectly, then the amount of GST charged is also incorrect.

“Time of Supply”
In order to calculate and discharge tax liability it is important to know the date when the tax
liability arises i.e. the date on which the charging event has occurred. In GST law, it is known
as Time of Supply. GST law has provided separate provisions to determine the time of supply
of goods and time of supply of services. Sections 12, 13 & 14 of the CGST Act, 2017, deals
with the provisions related to time of supply and by virtue of section 20 of the IGST Act, 2017
related to time of supply.

As per section 12 of CGST Act 2017, the liability to pay tax on goods shall arise at the time of
supply as determined in accordance with the provisions of this section. CGST/SGST or IGST
must be paid at the time of supply. Goods and services have a separate basis to identify their
time of supply. It can be understood as:

A. Time of Supply for Goods (Section 12)

A.1) According to section 12(2) of CGST Act in case of supplies in respect of which tax is paid
or is liable to be paid on forward basis the time of supply of goods shall be the earlier of the
following dates namely:-
a) The date of issue of invoice by the supplier or
b) The last date on which he is required to issue the invoice with respect to the supply as
per section 31(1) or
c) The date on which the supplier receives the payment with respect to the supply (which
also means the date on which the payment is recorded in the books of account of the
entity or supplier)
For better understanding of the above provision it is better to understand section 31(1) to know
the last date on which supplier is required to issue the invoice. As per sec 31(1) a registered
person supplying taxable goods shall “Before or at the time of”
• Removal of goods for supply to the recipient where the supply involves movement of
goods or
• Delivery of goods or making available thereof to the recipient in any other case supplier
shall issue by invoice

For example:
Mr. X sold goods to Mr. Y worth Rs 100000. The invoice was issued on 15th January. The
payment was received on 31st January. The goods were supplied on 20th January.
The time of supply in this case: Time of supply is earliest of –
1. Date of issue of invoice = 15th January
2. Last date on which invoice should have been issued = 20th January (delivery of goods)
3. Date of receipt of advance/payment = 31st January
Thus the time of supply is 15th January.
What will happen if, in the same example an advance of Rs 50,000 is received by Mr. X on 1st
January?
The time of supply for the advance of Rs 50,000 will be 1st January (since the date of receipt
of advance is before the invoice is issued). For the balance Rs 50,000, the time of supply will
be 15th January.

In continuation of the above section 12(2) of CGST Act in case of continuous supply of goods
shall be the earlier of the following dates namely:-
a) Time when each invoice is issued or
b) Time when each statement is received (like credit card statement)
c) Time when each payment is received

A.2) According to section 12(3) of the CGST Act 2017 in case of supplies in respect of which
tax is paid or is liable to be paid on reverse charge basis then time of supply would be the
earliest of the following date:-
a) The date of receipt of goods or
b) The date of payment as entered in the books of accounts of the recipient or
c) The date on which the payment is debited in recipient’s bank account or
d) The date immediately following thirty days from the date of issue of invoice or any other
document by whatever name called in lieu thereof by the supplier
Provided that when it is not possible to determine the time of supply under above clause then
the time of supply shall be the date of entry in the books of accounts of the recipient of supply.

A.3) According to section 12(4) of the CGST Act 2017 in case of vouchers exchangeable for
goods then time of supply would be the earliest of the following date:-
a) The date of issue of voucher, if the supply is identifiable at that point or
b) The date of redemption of the voucher in all other cases

A.4) According to section 12(5) of the CGST Act 2017 in residual case, where none of the
provisions of sub-sections 2 to 4 of section 12 can be applied, the time of supply would be fixed
as following date:-
a) Due date of filing the periodical returns or
b) In any other case, date on which GST is paid

A.5) According to section 12(6) of the CGST Act 2017 in cases related to an addition in the
value of supply by way of interest, late fees or penalty, the time of supply would be fixed as:
• Time of supply related to an addition in the value of supply by way of interest, late fee
or penalty for delayed payment of any consideration shall be the date on which suppliers
receives such addition in value.
 For example a supplier receives consideration in the month of September instead of due
date of July and for such delay he is eligible to receive an interest amount of `1000/- and
said amount is received on 15.12.2017. The time of supply of such amount (`1000/-) will be
the 15.12.2017 i.e. the date on which it is received by the supplier and tax liability on this
is to be discharged by 20.01.2018.

B. Time of Supply for Services (section 13)

As per Section 13 of CGST Act, 2017, the liability to pay tax arises at the time of supply of
services as determined in accordance with the provisions of this section. CGST/SGST or IGST
must be paid at the time of supply.

B.1) According to section 13(2) of CGST Act in case of supplies in respect of which tax is
liable to be paid on forward basis the time of supply of goods shall be the earlier of the following
dates namely:-
a) The date of issue of invoice by the supplier or
b) The date on which payment is credited to bank account of the supplier or
c) The date on which the supplier receives the payment with respect to the supply (which
also means the date on which the payment is recorded in the books of account of the
entity or supplier)

Note1: As per Rule 47 of CGST Act, invoice should be issued within 30 days from the date
of supply of services. If the supplier is an insurer or a banking company or a financial
institution, including a non-banking financial company, the invoice or any document in lieu
thereof should be issued within 45 days.

Note2: When the supplier receives an amount of up to Rs.1000 in excess of an invoice

value, the time of supply shall be, for the excess amount, at the option of supplier, can be
the date of invoice for such excess amount.

For example:
Mr. A provides services worth Rs 20000 to Mr. B on 1st January. The invoice was issued on
20th January and the payment for the same was received on 1st February.
In the example ascertain first, if the invoice was issued within the prescribed time. The
prescribed time is 30 days from the date of supply i.e. 31st January. The invoice was issued on
20th January. This means that the invoice was issued within prescribed time limit.
The time of supply will be earliest of –
1. Date of issue of invoice = 20th January
2. Date of payment = 1st February
This means that the time of supply of services will be 20th January.

B.2) According to section 13(3) of the CGST Act 2017 in case of supplies on reverse charge
basis then time of supply would be the earliest of the following date:-
a) Date of payment as entered in the books of account of the recipient or
b) The date on which payment is debited in his bank account
c) The Date immediately following 60 days from the date of invoice or any other document
issued by the supplier
d) Where it is not possible to determine the time of supply from the above, the time of
supply will be the date of entry in the books of accounts of the recipient of supply

B.3) According to section 13(4) of the CGST Act 2017 in case of vouchers for services then
time of supply would be the earliest of the following date:-
c) The date of issue of voucher, if the supply is identifiable at that point or
d) The date of redemption of the voucher in all other cases

B.4) According to section 13(5) of the CGST Act 2017 in residual case, where none of the
provisions of sub-sections 2 to 4 of section 13 can be applied, the time of supply would be fixed
as following date:-
a) Due date of filing the periodical returns or
b) In any other case, date on which GST is paid

B.5) As per section 13(6) of the CGST Act 2017, the time of supply for any interest, late fee or
penalty for delayed payment as an addition consideration for the supplies made, is the date on
which the supplier receives such addition in value.

“Place of Supply”

It is very important to understand the term ‘place of supply’ for determining the right tax to be
charged on the invoice.
For example:
Location of Service Place of supply Nature of Supply GST Applicable
Receiver
Maharashtra Maharashtra Intra-state CGST + SGST
Maharashtra Kerala Inter-state IGST

A. Place of Supply for Goods

Usually, in case of goods, the place of supply is where the goods are delivered. So, the place of
supply of goods is the place where the ownership of goods changes. What if there is no
movement of goods. In this case, the place of supply is the location of goods at the time of
delivery to the recipient.
For example: In case of sales in a supermarket, the place of supply is the supermarket itself.

Place of supply in cases where goods that are assembled and installed will be the location where
the installation is done.
For example: A supplier located in Kolkata supplies machinery to the recipient in Delhi. The
machinery is installed in the factory of the recipient in Kanpur. In this case, the place of supply
of machinery will be Kanpur.

B. Place of Supply for Services

Generally, the place of supply of services is the location of the service recipient. In cases where
the services are provided to an unregistered dealer and their location is not available the location
of service provider will be the place of provision of service.
Special provisions have been made to determine the place of supply for the following services:
Services related to immovable property
Restaurant services
Admission to events
Transportation of goods and passengers
Telecom services
Banking, Financial and Insurance services
In case of services related to immovable property, the location of the property is the place of
provision of services.

Example 1:
Mr. Anil from Delhi provides interior designing services to Mr. Ajay (Mumbai). The property
is located in Ooty (Tamil Nadu).
In this case, place of supply will be the location of the immovable property i.e. Ooty, Tamil
Nadu.

Example 2:
A registered taxpayer offers passenger transport services from Bangalore to Hampi. The
passengers do not have GST registration. What will be the place of supply in this case?
The place of supply is the place from where the departure takes place i.e. Bangalore in this case.
Time of supply of goods or services related to an addition in the value of supply by way
of interest, late fees or penalty

Time of supply related to an addition in the value of supply by way of interest, late fee or
penalty for delayed payment of any consideration shall be the date on which suppliers receives
such addition in value. For example a supplier receives consideration in the month of September
instead of due date of July and for such delay he is eligible to receive an interest amount of
`1000/- and said amount is received on 15.12.2017. The time of supply of such amount (`1000/-
) will be the 15.12.2017 i.e. the date on which it is received by the supplier and tax liability on
this is to be discharged by 20.01.2018.

“Value of Supply of Goods or Services”

Section 15 of CGST Act, 2017 explains value of taxable supply. Value of supply means the
money that a seller would want to collect for the goods and services supplied. The amount
collected by the seller from the buyer is the value of supply. But where parties are related and
a reasonable value may not be charged, or transaction may take place as a barter or exchange;
the GST law prescribes that the value on which GST is charged must be its ‘transactional
value’. This is the value at which unrelated parties would transact in the normal course of
business. It makes sure GST is charged and collected properly, even though the full value may
not have been paid.

Forward charge

Forward charge (normal charge) or direct charge is the mechanism where the supplier of
goods/services is liable to pay tax.

For instance, if a chartered accountant provided a service to his client, the service tax will be
payable by the chartered accountant; or for instance, if a car manufacturing company sold some
auto parts to a trader and collected tax from the trader, the manufacturing company remits the
tax.

Under the current tax system, most transactions are covered under the forward charge
mechanism.

Reverse charge
In the case of a reverse charge, the receiver of services is liable to pay the tax where the
Government is empowered u/s 9(3) of the CGST Act to levy the tax. In the example of the
chartered accountant (CA), the client would be liable, not the CA. Some services to which the
reverse charge mechanism applies include goods transport agency services, legal services, rent-
a-car services, manpower supply services, import of taxable services, security services, service
portion in execution of works contract, sponsorship services, etc.

In India, currently, reverse charge is not applicable on goods except in a few states like Punjab,
which has a purchase tax on certain goods. Now under GST, there will be a reverse charge on
goods as well.

The purpose of applying reverse charge is twofold: to increase compliance by unorganized

sectors, such as transport, and to increase tax revenues.

Vouchers for exchangeable goods

Many firms or companies issue vouchers (or gift tokens) for the purchases made to promote
their sales or employers give to their employees gift vouchers to be redeemed immediately or
on a later date against any supply of goods or services. The vouchers are instruments that can
be exchanged as payment of goods or services of the designated value. Therefore, it is important
here to understand the time of supply in case of supply of vouchers in GST.
As per 12(4) of CGST Act, in case of supply of vouchers by the supplier the time of supply
shall be the:-

• The date of issue of voucher if the supply is identifiable at that time or

• The date of redemption of voucher in all the other cases (if not identifiable)
Example: Suppose a cloth showroom sold gift voucher to a customer for `2000 on 10th May and
the customer can purchase anything with the gift voucher. The customer purchases actual goods
on 11th June for `2400 and redeems the voucher of `2000 and settles the balance of `400 by cash.
In this case, the time of supply is the date of redemption of voucher (i.e. 11 th June) as the supply
is not identifiable at the point of issue of voucher.

Residual Case

As per 12(5) of CGST Act, where it is not possible to determine the time of supply under the
provision of sub-section 2,3 or 4 the time of supply shall be :-

• In a case where a periodical return has to be filed, be the date on which such return is to
be filled or
• In any other case be the date on which tax is paid.
Late Fees and Interest on GST Return

Late fees and Interest forms important components of the GST payment and is incurred by
business in case of delay in submitting or filing GST returns. As per Section 12(6) of CGST
Act, 2017 relating to Time of Supply of Goods states that time of supply to the extent it relates
to an addition in the value of supply by way of interest, late fee or penalty for delayed payment
of any consideration shall be the date on which the supplier receives such addition in value.

As per GST laws, the Late Fee is an amount charged for delay in filing GST returns. It can be
referred to as an overdue fine. When a GST registered dealer misses filing GST Returns within
the prescribed due dates, then some amount of late fees is charged. The late fee is also
applicable for the delay in filing NIL returns. For example, there are no figures to declare for
sales or purchases for the month of December 2018 in the GSTR-3B. Still, this return must be
filed. The amount will depend upon the number of days of delay from the due date. GST return
in GSTR-3B is filed on 23rd January 2019, 3 days after the prescribed due date i.e. 20th January
2019. Late fees will be calculated for three days and deposited in cash.
Example: Mr. A of West Bengal supplies a particular good for value of `2000000/- to Mr. B
in Odisha on 07.01.2018. The terms of the payment are that Mr. B should make the payment
within 60 days for the supply i.e. by 08.03.2018 and if Mr. B defaults in payment then interest
@12 % p.a. would be chargeable for default in payment. The applicable GST rate on such item
is say 18%.

Now suppose Mr. B defaults and makes the payment of `2000000/- on 07.04.2018, thus he shall
be liable to pay the interest for 30 days. Mr. A of West Bengal would be charging Mr. B of
Odisha Interest @12% p.a. on `2000000/- for a period of 30 days amounting to `19,726.

Now Mr. A, should raise a debit note in the month of April 2018 under, sub-section (3) of
section 34, to Mr. B of `19,726 charging IGST on the same @18% i.e. `3550.68/-. Mr. A while
filing his returns for the month of April 2018 would show particulars of this debit note in his
return and would pay the IGST liability on submission of GSTR 3.

Aggregate Turnover under GST

Turnover, in common parlance, is the total volume of a business. The term ‘aggregate turnover’
has been defined in section 2(6) of the Act as follows:

“Aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of
inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies,
exports of goods or services or both and inter-State supplies of persons having the same
Permanent Account Number, to be computed on all India basis but excludes Central tax, State
tax, Union territory tax, Integrated tax and cess.

In other words, the definition of aggregate turnover under revised GST u/s 2(6) states that the
aggregate turnover shall include all taxable supplies, exempt supplies, exports of goods and/or
services and inter-State supplies of a person having the same PAN. The word aggregate, simply
means the total amount or sum of the above inclusions. Turnover means value of outward
supplies of goods and services. The turnover is to be computed on all India bases and it shall
exclude taxes.

“Exempt Supply” means supply of any goods and/or services which are not taxable under this
Act and includes such supply of goods and/or services which attract nil rate of tax or which
may be exempt from tax u/s 11 or u/s 6 of the IGST Act, and includes non-taxable supply.
Exempt supplies comprise the following 3 types of supplies:
a. Supplies taxable at a ‘nil rate’ of tax
b. Supplies that are wholly or partially exempted from CGST or IGST, by way of a
notification
c. Non-taxable supplies as defined u/s 2(78) – supplies that are not taxable under the act
(i.e. alcoholic liquor for human consumption).

The analysis / interpretation of definition for computing aggregate turnover are stated below:

Turnover of all products - It is evident from definition that turnover of all the supplies whether
taxable supplies, exempt supplies and exports should be aggregated to compute the limit of `20
Lakhs or `10 Lakhs.

Turnover on basis of PAN - It is further provided that the aggregate turnover of person having
Permanent Account Number (PAN) will be computed on all India bases. It means, if the person
has branch in 3 different states then turnover of all the branches will be considered to compute
the aggregate turnover.

Value of turnover will not include the CGST, SGST and IGST charged on such supply - It is
also provided in definition of aggregate turnover that the value of turnover will not include the
CGST, SGST and IGST charged on such supply. Thus only transaction value computed as per
section 15 of the CGST Act will be aggregated to compute the limit.

Reverse charge and Inward Supplies - The taxable person may also be liable to pay the tax on
reverse charge basis irrespective of the turnover. It is specifically mentioned in the definition
that aggregate turnover will not include the value of supply on which tax is paid on reverse
charge basis and the value of inward supplies.
Supply on own account and on behalf of principal will be included - The clause (i) of
Explanation to section 22 of CGST Act provides that in computing the aggregate turnover of
supplies made by taxable person, whether on his own account or on behalf of principal needs
to be computed. A person can make supply of goods on his own account and as an agent of
principal also. As per clause (i) the value of both the supplies will be aggregated for the purpose
of computing `20 Lakhs or `10 Lakhs.

Supply of Goods by Principal after completion of Job Work - Clause (ii) of Explanation
attached to section 22 of the CGST Act further provides that in computing the aggregate
turnover, the supply of goods by registered job-worker after completion of job work shall be
treated as supply of goods by principal and such turnover shall not be included in aggregate
turnover of registered job-worker. As per clause (ii) the value of such supplies will be included
in the turnover of principal for the purpose of computing `20 Lakhs or `10 Lakhs.
This can be understood with the following example:
Blue Star Limited has the following details for the year 2016-17:

Intra-state supplies `4.00 lakhs

Inter-state supplies `5.00 lakhs
Non-taxable supplies `2.00 lakhs
Value of exports `0.70 lakhs
Exempt supplies `0.60 lakhs
IGST/CGST/SGST paid `0.20 lakhs
Aggregate turnover = 4.00 + 5.00 + 0.7 + 0.6 = `10.30 lakhs.
As per revised GST law, value of non-taxable supply shall not be considered while calculating
aggregate turnover as it is not provided in definition of aggregate turnover.

Exclusion from ‘aggregate turnover’

Aggregate turnover shall exclude the following sums:

• Taxes, if any, charged under the CGST Act, SGST Act and IGST Act.
• Value of inward supplies of goods and services on which tax is levied on reverse charge
mechanism (RCM)
• Value of inward supplies of goods and services

Supplies made by job-worker on behalf of his principal

Job-work implies 'job work' undertaking any treatment or process by a person on goods
belonging to another registered taxable person and the expression 'job worker' shall be
construed accordingly. Anybody who undertakes job-work is called a job-worker. Supply of
goods by a registered job-worker, after completion of job-work shall be treated as the supply
of goods by the 'principal' in terms of section 55 (i.e., Special Procedure for Removal of goods
for Certain Purposes) of GST Law. The value of such goods shall not be included in the
aggregate turnover of the registered job worker.

Transaction Value as per Section 15 of CGST Law

Generally the transaction value shall be the value of taxable supply which is the price actually
paid or payable, if the supplier and recipient is not related person and the price is sole
consideration for the supply. Both conditions should be satisfied by the Supplier and then the
Transaction Value is accepted for the Supply made by the Supplier.

Valuation of supply under GST – section 15(1)

GST will be charged on the ‘transaction value’. Transaction value is the price actually paid (or
payable) for the supply of goods/services between un-related parties (i.e., price is the sole
consideration)
The value of supply under GST shall include: section 15(2)

• Any taxes, duties, cess, fees, and charges levied under any act, except GST will be
included. [15(2) (a)]
• GST Compensation Cess will be excluded if charged separately by the supplier.
• Any amount that the supplier is liable to pay which has been incurred by the recipient
and is not included in the price. (like transport cost) [15(2) (b)]
• The value will include all incidental expenses in relation to sale such as packing,
commission etc. [15(2) (c)]
• Interest, late fee, and penalty for delayed payment of consideration will be included. [15
(2) (d)]
• Subsidies linked to supply, except Government subsidies, will be included. [15(2) (e)]
• Royalty and licence fees related to the supply which the recipient must pay as a condition
in connection with the subject supply to the extent not included in the price will be
included.
• Any reimbursable expenditure or cost incurred by or on behalf of supplier and charged
in relation to the supply will also be included. (Like installation charges, dismantling
charges etc.)

For Example: – Mr. A (Purchaser) placed an order to supply of Goods to Mr. B (Seller). As per
contract Mr. B is required to deliver the goods in the premises of Mr. A. Thereafter Mr. B hires
a transporter for transportation of goods. The lorry receipt of which indicated that freight is
payable by receiver of goods (Mr. A). In this case, Mr. B is required to make the payment to
the transporter as it is the obligation of Mr. B to deliver the goods to the premises to Mr. A but
the payment is done by Mr. A. Therefore, such payment will form part of transaction value of
Goods.

For Example: - Mr. A buys dry fruit of `2,000 and asks for the special packing for which `500
is charged for packing. Hence the transaction value will be `2,500.

For Example of anything done before sale: - A Company advertises for sale of installed plant
and machinery to sell the same on “as is where basis is”. In this case, cost of dismantling the
plant will also be included in the transaction value as the dismantling activity has importance
before sale of goods.

For Example: - Mr. X has supplied goods to Mr. Y on a credit period of 30 days. The contract
provides that interest will be charged at the rate of 18% for delay in making payment of supply.
It specifically provides that such interest will form part of consideration and GST will be
applied.

For Example: - A company gives a concession of `1000 (may be a subsidy) on its product
costing `4500 to backward areas and economically weaker section and hence sells at a price of
`3500. The transaction value in this case would still be `4500 as the subsidy is not given by
Government and not directly linked to supply.

Exclusions from the transaction value – section 15(3)

The value of supply does not include any discount which is given: –

1. Discount given before or at the time of supply provided such discount has been duly recorded
in the invoice issued in respect of such supply and

2. Discount given after the supply has been effected if such discount is as per term of agreement
entered at or before the time of such supply and specifically linked to the relevant invoices and
input tax credit has been reversed by the recipient of supply as is attributable to the discount
issued by the supplier.

Example for Discount shown in Invoice: - Price of a Car is `500000 and discount of 5% is given
being the year end sale. Here the transaction value will be `475000 i.e. after discount which
will not be included in transaction value.
Example for Discount not shown in Invoice: - Mr. A purchased an air conditioner from Mr. B
for `20000 on credit for one month. After one month Mr. A gives discount of `5000 to Mr. B
and B makes payment of `15000. Here, if the discount is not known before or at the time of
supply then transaction value will be `20000 but if discount is based on terms of contract or
terms of payment then transaction value will be `15000 only.

An example of valuation of taxable supply

Particulars Amount (in `)
Value of Goods or services 1,00,000
Loading and Unloading charges 15,000
Shipping Charges 5,000
Gross Value 1,20,000
Less: Trade Discount -2,000
Taxable Value 1,18,000

Related Party under GST

Under GST, related parties are:

▪ Such persons are officers or directors of one another’s businesses;
▪ Such persons are legally recognized partners in business;
▪ Such persons are employer and employee;
▪ Any person directly or indirectly owns or controls or holds twenty-five per cent or more of
the outstanding voting stock or shares of both of them;
▪ One of them directly or indirectly controls the other;
▪ Both of them are directly or indirectly controlled by a third person;
▪ Together they directly or indirectly control a third person;
▪ They are members of the same family;

Related Party Transaction – Value of Supply

Transactions between related parties are of special importance under GST law. When parties
are related, the prices are controlled and they would not sometimes be the prices that would
have otherwise been charged, had the transaction taken place between unrelated parties. Related
persons is defined u/s 2(84) of the GST Act.

For this, the government has notified valuation rules. As per the valuation rules, irrespective of
the value of transaction (whether with transaction or without consideration), charging GST for
value of supply between related parties will be as follows:

A) Value of Supply – Consideration is not wholly in Money

In a lot of related party transaction, the consideration for the value of supply of goods and/or
services might not be paid wholly in money. Hence, it’s important to ensure that in all related
party transactions, the rules concerning value of supply where the consideration is not wholly
in money, is followed.

When the supply of goods or services is for a consideration not wholly in money, then value of
the supply should be calculated as:

• The open market value of such supply;

• If open market value is not available, 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 the time of supply;
• If the value of supply is not determinable as per the above two conditions, then the value of
supply of goods or services should be based on like kind and quality;
• If the value of supply is not determinable as per the above three conditions, then the sum
total of consideration in money and such further amount in money that is equivalent to
consideration not in money as determined by the cost method (cost of production) or
residual method.

Cost Method for Determining Value of Supply under GST

Where the value of a supply of goods or services or both is not determinable by any of rules
prescribed in the procedure for determining value of supply under GST, the value should be
taken as 110% of the cost of production or manufacture or cost of acquisition of such goods or
cost of provision of such services.

B) Value of Supply – Related Party Transaction or Distinct Persons

The value of the supply of goods or services or both between distinct persons or related parties,
other than where the supply is made through an agent, should be calculated as:

• The open market value of such supply;

• If open market value is not available, be the value of supply of goods or services of like
kind and quality;
• If value is not determinable under the above two methods, then the value as determined by
cost method or residual method;
• Also, if goods are intended for further supply as such by the recipient, then the value of
supply 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. Finally, if the
 recipient is eligible for full input tax credit, then the value declared in the invoice should be
deemed to be the open market value of goods or service.

C) Supply of Goods via Agent

A) By a principal to his agent and the agent will supply them on behalf of the principal.
For example, a company based in Mumbai employs an agent in Pune (Maharashtra) and sends
goods to him. GST is applicable.

B) By an agent to his principal when the agent receives these goods on behalf of the principal.
For example, a company in the suburbs employs an agent in the city. The agent buys goods
from the city and sends them to the principal to sell in the suburbs. Any supplies between agent
and principal will be liable to GST. Both agent and principal will be liable to pay GST jointly
& severally. The person paying GST can later claim input tax credit. The value of supply to an
agent is also based on the above provisions in for related persons.
Format for computation of transaction value and cost

Particulars Amount Amount

Selling price / ex-showroom / quoted price xxx
Add: Inclusions to the transaction value not included
in the sale price
a) Materials purchased
a.1) within state (exclusive of CGST,SGCT,IGST) xxx
a.2) from other state (exclusive of IGST) xxx
a.3) from a registered dealer who opted for xxx
composition scheme
a.4) from SEZ unit (exclusive of IGST) xxx
a.5) from an un-registered person within the state xxx
or outside the state
a.6) from other country (imported and inclusive of xxx xxx
BCD but exclusive of IGST)
b) Taxes, duties, fees, charges and cess except xxx
CGST,SGST and IGST
c) Amount paid by the recipient on behalf of supplier
c.1) for raw materials supplied by buyer at free of xxx
cost or reduced cost in connection with supply
c.2) Technical consultation & development cost xxx
c.3) Design charges paid by the buyer xxx
 d) Packing materials and packing charges xxx
e) Pre delivery inspection charges xxx
f) Selling expenses like advertisement, publicity xxx
g) Insurance charges upto place of delivery xxx
h) Bonus, commission etc for increasing sale xxx
i) Freight / Transport charges up to recipient place xxx
j) Additional design charges on request of buyer xxx
k) Interest, late fee or penalty for delayed payment xxx
l) Subsidies directly linked to the price other than xxx
subsidies provided by Central or State Govt.
m) Compulsory Warranty charges xxx
n) Installation and erection charges if it is shown in xxx
Invoice at the time of or before delivery
o) Royalties and licence fees related to supply xxx
p) Loading and unloading charges xxx
q) Shipping charges xxx xxx
Less: Exclusions to the transaction value included in
the sale price
a) Discount in normal trade practice xxx
b) Cash / Trade discount after supply provided that it xxx
is established in agreement linked to supply
c) Supplies and corresponding credit is reversed by xxx
recipient
d) Cost of durables and returnable containers xxx xxx
Transaction value before adding profit margin xxx
Add: Profit margin xxx
Transaction Value / Taxable Value xxx

Example: What is the Transaction value for the purpose of levy of GST and also find out the
GST payable from the following particulars:

The selling price of the product exclusive of GST `10000, rate of GST is 5%, trade discount
allowed as per normal trade practice before delivery of the product is `1200. Freight attributable
for the supply of the product is `750 from factory to buyer place which is not included in the
above selling price.
Computation of transaction value and GST payable

Particulars Amount Amount in `

Selling price 10000
Add: Inclusions to the transaction value not included
in the sale price
a) Freight 750
Sub total 10750
Less: Trade Discount 1200
Transaction Value 9550

Output Tax Liability: = Transaction Value x rate of GST

CGST (9550 x 2.5/100) `238.75

SGST (9,550 x 2.5/100) `238.75
Total GST Payable `477.50

INPUT TAX CREDIT

Input Tax Credit (ITC) means claiming the credit of the GST paid on purchase of Goods and
Services which are used for the furtherance of business. In other words, Input Tax Credit means
reducing the taxes paid on inputs from taxes to be paid on output. The Mechanism of Input Tax
Credit is the backbone of GST and is one of the most important reasons for the introduction of
GST. As GST is a single tax levied across India (right from manufacture of goods/ services till
it reaches the end customer), the chain does not get broken and everybody is able to take benefit
of the same and there is seamless flow of credit.

Need for ITC

The concept is not entirely new as it already existed under the pre-GST indirect taxes regime
(service tax, VAT and excise duty). Now its scope has been widened under GST. Earlier, it was
not possible to claim input tax credit for Central Sales Tax, Entry Tax, Luxury Tax and other
taxes. In addition, manufacturers and service providers could not claim the Central Excise duty.

Under the previous indirect tax regime of levy of Service Tax, VAT, and Excise etc. – a lot of
input tax credit was not properly utilized. Earlier there were multiple types of indirect taxes and
the input tax credit of one tax could not be claimed against the input tax credit of another tax.
For example: Retailers who used to pay Service Tax on Rent for their Shops were not able to
claim Input Tax Credit of Service Tax with the VAT which they used to charge their customers
on sale of goods. However, such issues have now been removed with the introduction of GST
as there is only a single indirect tax which would be levied and there would be seamless flow
of credit.

What is Input?

Under GST law, the term input denotes goods except capital goods used by a supplier during
his/her business to make outward supplies.

What is Input Tax?

Input tax is a tax imposed on the person when he/she receives supply of goods & services which
are used for his business. In other words, when any supply of services or goods is supplied to a
taxable person, the GST charged is known as Input Tax.

Hence, cannot claim ITC for goods & services used for personal purposes.

What is input credit?

Input credit means at the time of paying tax on output, the trader can reduce the tax that is
already paid on inputs. For example – Mr. A is a manufacturer – tax payable on output (FINAL
PRODUCT) is Rs 450 and tax paid on input (PURCHASES) is Rs 300. Then the manufacture
or a trader can claim INPUT CREDIT of Rs 300 and he only needs to deposit Rs 150 in taxes.
What is Electronic Credit Ledger?

It is like a passbook containing all the credits you have accumulated that is maintained on the
common portal.

What is Electronic Cash Ledger?

Similar to a passbook, which contains all the taxes you have paid on the supplies that is
maintained at the common portal for each taxable person registered under GST.

Conditions for availing of ITC: (Entitlement of Input Tax Credit under GST)

• Goods & services on which you want to claim ITC, should have been used only for business
purposes
• If the constitution of registered taxable person changes due to sale, merger or transfer of
business, then unused ITC shall be transferred to the sold, merged or transferred business
• To claim ITC, the Input Tax must be paid through electronic cash ledger or electronic credit
ledger.
• Taxpaying documents should be available like such as tax invoice, debit note etc. They are
also supporting documents.
• ITC can be claimed on taxable & zero rated supplies (exports).
• Goods / service should have been received / deemed to be received by the taxable person
• Tax charged on the invoice and should have been paid to the credit of government.
• Return should have been furnished by the tax payer.
• Credit for goods against an invoice received in lots / installments can be availed only on last
lot in installment.
• The timelines for entitlement of credit against a particular invoice shall lapse on the expiry
of one year from date of issue of invoice.

Input Tax Credit of CGST/ SGST/ UTGST/ IGST

GST comprises of the following levies:-

1. Central Goods and Services Tax (CGST) [also known as Central Tax] which is levied on
intra-state or intra-union territory on supply of goods or services or both.
2. State Goods and Services Tax (SGST) [also known as State Tax] which is levied on supply
of goods or services or both within the same state.
3. Union Territory Goods and Services Tax(UTGST) [also known as Union Territory Tax]
which is levied on supply of goods or services within the same union territory.
4. Integrated Goods & Services Tax (IGST) [also known as Integrated Tax) on inter-state
supply of goods or services of both.

The input tax credit of these components of GST would be allowed in the following manner:-
1. Credit of CGST – Allowed 1st for payment of CGST and the balance can be utilized for the
payment of IGST. Credit of CGST is not allowed for payment of SGST.
2. Credit of SGST/ UTGST – Allowed 1st for payment of SGST/UTGST and the balance can
be utilized for the payment of IGST. Credit of SGST/ UTGST is not allowed for payment of
CGST.
3. Credit of IGST – Allowed 1st for payment of IGST, then for payment of CGST and the
balance for payment of SGST/ UTGST.

This has been explained in the following table:-

Credit of To be utilized 1st May be utilized further
for the payment of for the payment of
CGST CGST IGST
SGST/UTGST SGST/ UTGST IGST
IGST IGST CGST, then SGST/ UTGST

Input Tax Credit is not available to be claimed in the following cases, u/s 16(9):

Allowance/ Disallowance of Input Tax Credit

Under the GST Regime, ITC can be claimed by every registered taxable person on all inputs
used or intended to be used (whether goods or services) in the course of or for the furtherance
of business (Except in certain specified cases). The specified cases where the input tax credit
would not be allowed are mentioned below:-
Sl. Input Tax Credit not allowed for GST Exception (i.e. GST Input Tax Credit allowed
No. paid on for these goods/ services only in case of the
following
1. Credit on Motor vehicles and other Allowed only when they are supplied in the
conveyances purchased or expenses normal course of business or are used for
related to the normal use of motor providing the following taxable services:-
vehicles for office purposes cannot be a. Transportation of Passengers, or
claimed as an input tax credit. b. Transportation of Goods, or
c. Imparting Training on driving, flying,
navigating skills on vehicles
2. Food & Beverages, Outdoor Catering, Allowed only if the goods and/or services are
Beauty Treatment, Health Services, taken to deliver the same category of services
Cosmetic & Plastic Surgery or as a part of composite supply, the credit
would be available.
Example: Mrs. A purchases cosmetic creams to
supply to her customer. In this case, ITC paid
on purchases would be allowed.
3. Membership of Club or Fitness
Centre or Health Centre
4. Rent-a-Cab service, Health Insurance Allowed only if
and Life Insurance a. The Govt makes it obligatory for the
employers to provide it to their employees, or
b. In cases where the goods and/or services are
taken to deliver the same category of services
or as a part of composite supply.
5. Travel Benefits to Employees. E.g.
Leave Travel Allowance
6. Works Contract Services, when Allowed only if
supplied for the Construction of a. Works Contract Services supplied for
Immovable Property Construction of Plant & Machinery
b. One Works Contract Service is input for
another works contract service
7. Construction of Immovable Property,
whether to be used for Personal or
Business use.
8. Goods/ Services on which GST has
been paid under the Composition
Scheme
9. Goods/ Services received by a Non- Allowed for Goods/Services imported by a
Resident Taxable person Non-Resident taxable person
10. Goods/ Services used for Personal
Consumption
11. Goods which are lost/stolen/
destroyed/written off/disposed of by
gift/free sample
12. Any tax paid due to
a. Non-payment of tax, or
 b. Short payment of tax, or
c. Excessive Refund
13. ITC utilized or availed by way of
a. Fraud, or
b. Will-full mis-statements, or
c. Suppression of Facts

The Input Tax Credit of GST paid on all other goods and services which are used for the
furtherance of business would be allowed.

Documents On The Basis Of Which the ITC Can Be Claimed

1. Invoice issued by supplier of goods or services or both.

2. Invoice issued by Recipient along with proof of payment of Tax.
3. A Debit note issued by the supplier.
4. Bill of entry or similar document prescribed under the Customs Act.
5. Revised Invoice.
6. Document issued by the Input Service Distributer.

ITC Allowed Only For Goods and/or Services Used For Business

1. Input Tax Credit is not allowed for Goods and Services used for Personal Use.
2. When Goods and/or Services are received partly for Business and partly for personal use,
one can avail ITC but only for the portion which is used for Business.
3. When goods and/or services are used partly for taxable supplies and partly for exempt
supplies, one can avail ITC only on the portion used for making taxable supplies and zero rated
supplies.
4. ITC is not allowed on the portion used for making exempt supplies.

Transfer of Input Tax Credit

A registered taxpayer can apply for transfer of matched input tax credit that is available in the
Electronic Ledger to another business organization in case of transfer of business by way of
sale of business/merger/demerger by the filing of ITC declaration in Form GST ITC – 02.
For a registered taxable person, if the constitution changes due to merger, sale or transfer of
business, then the input tax credit which is unused shall be transferred to the merged, sold
or transferred business.

Claim of Input Tax Credit

The following conditions have to be met to be entitled to Input Tax Credit under the GST
scheme:

a) One must be a registered taxable person.

b) One can claim Input Tax Credit only if the goods and services received is used for
business purposes.
c) Input Tax Credit can be claimed on exports/zero-rated supplies and are taxable.
d) For a registered taxable person, if the constitution changes due to merger, sale or transfer
of business, then the Input Tax Credit which is unused shall be transferred to the merged,
sold or transferred business.
e) One can credit the Input Tax Credit in his Electronic Credit Ledger in a provisional
manner on the common portal as prescribed in model GST law.
f) Supporting documents – debit note, tax invoice, supplementary invoice, are needed to
claim the Input Tax Credit.
g) If there is an actual receipt of goods and services, an Input Tax Credit can be claimed.
h) The Input Tax should be paid through Electronic Credit/Cash ledger.
i) All GST returns such as GST-1, 2,3, 6, and 7 needs to be filed.

Other Relevant Points Regarding GST Input Tax Credit

1. Input Tax Credit can be availed by a registered person only if all the applicable particulars
as prescribed in the Invoice Rules are mentioned in the Invoice.
2. If the tax paid on inputs is more than the tax paid on output, the ITC can either be carried
forward or claimed as refund.
3. The balance tax after claiming the input tax credit shall be deposited with the Govt under
GST Input Tax Credit (ITC).
4. Claiming of ITC would not be allowed beyond September of the following Financial Year
to which the invoice pertains or the date of filing of Annual Return whichever is earlier.
5. A person who has applied for GST Registration within 30 days of becoming liable for
Registration is entitled to claim ITC in respect of goods held in stock on the day immediately
preceding the date from which he becomes liable to pay tax.
6. A person switching over to the normal scheme from the composition scheme u/s 10 is entitled
to ITC in respect of goods held in stock and capital goods on the day immediately preceding
the day from which he becomes liable to pay tax as a normal taxpayer.
7. Where an exempt supply of goods or services or both becomes taxable, the person making
such supplies shall be entitled to take ITC in respect of goods held in stock relatable to exempt
supplies. He shall also be entitled to take credit on capital goods used exclusively for such
exempt supply.
8. In case of change of constitution of a registered person on account of sale, merger, demerger
etc. the unutilized ITC shall be allowed to be transferred to the transferee.
9. The GST paid under the Reverse Charge Mechanism can also be claimed as Input Tax Credit.
10. The Input Tax Credit is also allowed on GST paid on Capital Goods.
11. No ITC would be allowed if Depreciation has been claimed on the Tax component of the
Capital Goods.
12. The details of GST paid on inputs would be auto-populated in the GSTR 2.

However, the details of GST paid on Inputs on Reverse Charge basis would not be auto-
populated. The details of GST paid on Reverse Charge Basis would be manually required to be
furnished in the GSTR 2.

Matching, Reversal and Reclaim of Input Tax Credit: (Section 42 of CGST Act 2017)

Provisions under Section 42 of the Central Goods and Services Tax (CGST) Act, 2017 relating
to “Matching, Reversal and Reclaim of Input Tax Credit (ITC)”, are as under:

1) The details of every inward supply furnished by a registered person (hereafter referred to as
the “recipient”) for a tax period shall, in such manner and within such time as may be
prescribed, be matched–

(a) With the corresponding details of outward supply furnished by the corresponding
registered person (hereafter referred to as the “supplier”) in his valid return for the same
tax period or any preceding tax period;
(b) With the integrated goods and services tax paid under section 3 of the Customs Tariff
Act, 1975 in respect of goods imported by him; and
(c) For duplication of claims of input tax credit.

(2) The claim of input tax credit in respect of invoices or debit notes relating to inward supply
that match with the details of corresponding outward supply or with the integrated goods and
services tax paid under section 3 of the Customs Tariff Act, 1975 in respect of goods imported
by him shall be finally accepted and such acceptance shall be communicated, in such manner
as may be prescribed, to the recipient.
(3) Where the input tax credit claimed by a recipient in respect of an inward supply is in excess
of the tax declared by the supplier for the same supply or the outward supply is not declared by
the supplier in his valid returns, the discrepancy shall be communicated to both such persons
in such manner as may be prescribed.

(4) The duplication of claims of input tax credit shall be communicated to the recipient in such
manner as may be prescribed.

(5) The amount in respect of which any discrepancy is communicated under sub-section (3) and
which is not rectified by the supplier in his valid return for the month in which discrepancy is
communicated shall be added to the output tax liability of the recipient, in such manner as may
be prescribed, in his return for the month succeeding the month in which the discrepancy is
communicated.

(6) The amount claimed as input tax credit that is found to be in excess on account of duplication
of claims shall be added to the output tax liability of the recipient in his return for the month in
which the duplication is communicated.

(7) The recipient shall be eligible to reduce, from his output tax liability, the amount added
under sub-section (5), if the supplier declares the details of the invoice or debit note in his valid
return within the time specified in sub-section (9) of section 39.

(8) A recipient in whose output tax liability any amount has been added under sub-section (5)
or sub-section (6), shall be liable to pay interest at the rate specified under sub-section (1)
of section 50 on the amount so added from the date of availing of credit till the corresponding
additions are made under the said sub-sections.

(9) Where any reduction in output tax liability is accepted under sub-section (7), the interest
paid under sub-section (8) shall be refunded to the recipient by crediting the amount in the
corresponding head of his electronic cash ledger in such manner as may be prescribed:

Provided that the amount of interest to be credited in any case shall not exceed the amount of
interest paid by the supplier;

(10) The amount reduced from the output tax liability in contravention of the provisions of sub-
section (7) shall be added to the output tax liability of the recipient in his return for the month
in which such contravention takes place and such recipient shall be liable to pay interest on the
amount so added at the rate specified in sub-section (3) of section 50.

ITC Rules for Capital Goods under GST

What are capital goods?

Section 2(19) of CGST Act states “capital goods” means goods, the value of which is
capitalized in the books of account of the person claiming the input tax credit and which are
used or intended to be used in the course or furtherance of business.
Goods will be regarded as capital goods if the following conditions are satisfied:
(a) The value of such goods is capitalized in the books of account of the person claiming input
tax credit;
(b) Such goods are used or intended to be used in the course or furtherance of business.
Therefore, Capital goods are tangible assets such as buildings, machinery, equipment, vehicles
and tools that an organization uses to produce goods or services in order to produce
consumer goods and goods for other businesses. For example, a blast furnace used in iron and
steel industry is a capital asset for the steel manufacturer.

Difference between capital goods & other inputs

Capital goods are not consumed when the final product is made. They are not consumed in a
single year of production. Therefore, they cannot be entirely deducted as business expenses in
the year of their purchase. Instead, they are depreciated over the course of their useful lives.
The business recognizes part of the cost each year through accounting techniques as
depreciation, amortization and depletion.
Whereas, other inputs which are not the capital goods (as inputs) are consumed / utilized in the
final product that is made, fabricated or manufactured. All inputs other than capital goods may
be other inputs consumed, comprising of natural resources, electrical/mechanical items or any
resources which are essential ingredients to obtain an output. Hence, other inputs are consumed
while making the final product and are treated as business expenses as cost of production.
For example:
If you are making a cake in your oven; you add ingredients eggs, water, flour, butter. These are
your inputs. The cake is your final product. The oven is the capital good which helps you to
make the cake.

What is credit on capital goods?

When a business purchases anything, it is required to pay GST on it. Later, the manufacturer
or a trader can claim input tax credit on the GST paid on its purchases. Similarly, when a
business is purchasing any machinery for its factory, the manufacturer will pay the applicable
GST rate. This GST paid can be claimed as credit in the same way as inputs. Credits for capital
goods are available in full. There is no provision stipulating availment of capital goods credit
in instalment or partially. Further, if the tax payer claims depreciation of the tax component in
the value of capital goods (while purchasing the capital asset) under the provisions of Income
Tax Act, then credit is not allowed on such tax component of capital goods.

What is Common Credit?

Businesses often use the same assets and inputs for both business & personal use. The input tax
credit benefit can be availed to the extent of proportionate business use.
Example-1: Ms. Anita owns a grocery shop. She rents a 2-storey building and uses the ground
floor for her shop and 1st floor of the same building as residence. The input credit of GST paid
on rent will be allowed only to the extent it pertains to her business.
Ms. Anita also has an attached land where she grows vegetables and sells them in her shop. The
same property or common property is used for 3 separate reasons – taxable sales, exempted
sales (vegetable) and personal expenses (residence).
While Ms Anita is eligible to claim input credit for GST paid by her on her business expenses,
some of the expenses are used for both business and non-business purposes. The GST in rent
(GST is applicable since it is let out for commercial purposes) is the common credit.

Example-2: Ms. Anita is a freelance designer and blogger. She has a personal laptop which
she also uses for her freelance work. She can claim the input credit of GST paid on purchase of
laptop only to the extent it pertains to her freelance business.
Ms. Anita has also purchased special designing software. Since this pertains only to her
business, she can claim full ITC on this.

Why is common credit important?

ITC is only available for business purposes. Many traders use the same inputs for both business
& personal reasons. A taxpayer cannot claim any tax benefit of personal expenses.
Again, goods exempted under GST already enjoy 0% GST. ITC cannot be claimed for inputs
used in such exempted goods as it will lead to negative taxation. So, ITC on inputs for
exempted goods will also be removed.

A. Capital Goods used only for Personal Use or for Exempted Sales
No ITC is available for personal purchases or for capital goods used in exempted sales. This
will be indicated in FORM GSTR-2 and shall not be credited to the electronic credit ledger.

Example 1: Personal Purchases

Ms. Anita has purchased a fridge. Since this is not required for her business, i.e., a purely
personal purchase, she will not be able to claim any ITC on the GST paid for the fridge.
Example 2: Capital Goods used for exempted sales
Mr. Avinash has purchased a small flour mill in his grocery shop to grind wheat grains to flour.
Since he is producing unbranded flour it is exempted from GST. As it is an exempted sale, he
cannot claim any ITC on the GST paid for the mill.

B. Capital Goods used for normal sales

XYZ has purchased machinery to manufacture shoes. Since, shoes are normal taxable supplies,
the GST included paid while purchasing machinery will be completely available as ITC. This
shall be indicated in FORM GSTR-2 and shall be credited to the electronic credit ledger.

C. Common credit for partly personal/ exempted and partly normal sales
The ITC paid for the capital goods will be credited to electronic credit ledger.
Useful life of such capital asset will be taken as 5 years from the date of purchase
Now the total amount of input tax credited to electronic credit ledger for the whole useful life
will be distributed over the useful life
The useful life will be taken as 5 years.
If you pay GST on a monthly basis then you will use the following formula

If your turnover is less than 1.5 crores, then you will pay GST on a quarterly basis. ITC will be
calculated using the following formula

Blocked Input Tax Credit

As per amended Section 17 subsection 5 of CGST Act which is applicable from 01-02-2019,
a registered taxpayer is not entitled to avail of the credit of taxes paid in respect of certain goods
or services, even if these goods or services are used in the course or furtherance of business.

1. F-Food Beverages & Other

No ITC on the following supply when supplied to Employees – Food and beverages, outdoor
catering, beauty treatment, health services, cosmetic treatment (Unless Obligatory).

2. M-Motor Vehicles for Passengers Transportation

No ITC allowed for Motor Vehicles for transportation of persons if seating capacity is up to 13
persons. However,
 • ITC is allowed if seating capacity up to 13 persons and used for further taxable supply
of such vehicles
• ITC is allowed if seating capacity up to 13 persons and used for transportation of
passengers which are taxable
• ITC is allowed if seating capacity up to 13 persons and used for imparting taxable
training

Moreover No ITC allowed on general insurance, servicing and repair and maintenance services
used in relation to the motor vehicles on which ITC is blocked .

ITC of Motor vehicles used in Goods Transportation is always allowed. Also, ITC of general
insurance, servicing, repair and maintenance is also allowed in this case, provided;

• Freight is being charged in the invoice & levying GST on forward charges basis in
invoice or
• Selling the products in inclusive freight price model where GST charged on bundle price
or
• Not charging any Freight and using vehicle just for goods transportation for traders
business purpose only e.g. goods delivery to customer door step without charging
anything Or pick up of raw material or moving goods from one place to another or any
other purpose.

Moreover, ITC will be available in respect of motor vehicles if they are used for transportation
of money for or by a banking company or a financial institution.

3. C-Construction

No ITC of Works contract services when supplied for construction of immovable property: ITC
not available to a registered person for the tax paid on the inward supply of works contract
services used for the construction of immovable property. This is not applicable to the
construction of plant and machinery. Also, where inward supplies used for further supplying of
a works contract service, ITC is available.

4. G-Goods Lost

No ITC would be made available for goods lost, stolen, destroyed, written off. Moreover no
ITC for Goods disposed off by way of gifts or free samples.

5. P-Personal Expenses or Other Purpose

No ITC of goods or services or both used for personal consumption. Moreover, when goods or
services or both are used partly for Business purpose and also other purpose then ITC should
be proportionately disallowed for other purpose.

6. E-Exempted Supply

No ITC where the tax paid on goods or services or both are used by the registered person for
making exempt supplies. Moreover, when goods or services or both are used partly for effecting
taxable supply and partly for exempted supplies, ITC should be proportionately disallowed for
exempted supplies.

Reversal of Input Tax Credit

ITC can be availed only on goods and services for business purposes. If they are used for non-
business (personal) purposes, or for making exempt supplies ITC cannot be claimed. Apart
from these, there are certain other situations where ITC will be reversed.

ITC will be reversed in the following cases-

1) Non-payment of invoices in 180 days– ITC will be reversed for invoices which were not
paid within 180 days of issue.
2) Credit note issued to ISD by seller– This is for ISD. If a credit note was issued by the seller
to the HO then the ITC subsequently reduced will be reversed.
3) Inputs partly for business purpose and partly for exempted supplies or for personal
use – This is for businesses which use inputs for both business and non-business (personal)
purpose. ITC used in the portion of input goods/services used for the personal purpose must
be reversed proportionately.
4) Capital goods partly for business and partly for exempted supplies or for personal use
– This is similar to above except that it concerns capital goods.
5) ITC reversed is less than required- This is calculated after the annual return is furnished.
If total ITC on inputs of exempted/non-business purpose is more than the ITC actually reversed
during the year then the difference amount will be added to output liability. Interest will be
applicable. The details of reversal of ITC will be furnished in GSTR-2.

Reconciliation of ITC

ITC claimed by the person has to match with the details specified by his supplier in his GST
return. Details are obtained through valid returns filed by both supplier and recipient. In case
of any mismatch, the supplier and recipient would be communicated regarding discrepancies
after the filling of GSTR-3 (monthly returns).
FORM GSTR-1 and FORM GSTR-2A
Details of outward supply of goods and services are filed by supplier in form GSTR-1, which
would be available to recipient in FORM GSTR-2A

FORM GSTR-2 and FORM GSTR-1A

Details of inward recipient of goods and services are filed by recipient in form GSTR-2, which
would be available to supplier in FORM GSTR-1A for him to accept or modify the changes.

FORM GSTR-3
Monthly return to be filed by a registered person mentioning details of inward and outward
supply of goods and/or services, ITC claimed along with taxes payable and paid thereof.

Discrepancy of ITC arises in the following situations:

ITC claimed by recipient is in excess of the tax declared by the supplier, or
The outward supply is not declared by the supplier, or
There is a duplication of claim of ITC by the recipient

Key principles for eligibility of tax credits

Followings are key principles for eligibility of tax credits:-
Supplier should… Recipient should… Goods & Services should…
be registered under GST be registered under GST be for use or intended for use
in course or furtherance of
business
not be under composite not be under composite levy not be in the negative list
levy
have deposited the tax to have paid tax to the
the credit of the govt. Government if on reverse
charge
file valid tax return have made payment to supplier
within 180 days from the date
of invoice
have actually received the
goods or services

Input Tax Credit in case of Imports

Under the GST Regime, the input tax credit of IGST and GST Compensation Cess is available
to the importer. However, the input tax credit of Basic Customs Duty (BCD) would not be
available. In order to avail ITC of IGST and GST Compensation Cess, an importer has to
mandatorily declare GST Registration number (GSTIN) in the Bill of Entry.

The Customs EDI system (Electronic Data Interchange is the computer-to-computer exchange
of business documents in a standard electronic format between business partners) would be
inter-connected with the GST portal for the validation of ITC. Bill of entry in the non-EDI
locations would be digitized and used for validation of input tax credit provided by the GST
portal.

Input Tax Credit in case of SEZ

As per the IGST Law, supplies of goods and services to or by Special Economic Zone
(SEZ) units or SEZ developers will be treated as inter-state supplies. As per the SEZ Act 2005,
supply of goods from SEZs is treated as import of goods into India. Accordingly Basic
Customs Duty (BCD) & Integrated GST will be levied on such supplies from SEZ units and
SEZ developers into DTA (Domestic Tariff Area).
Supplies of goods and services to SEZ units or SEZ developers are to be treated as “zero rated
supplies” and the SEZ developer or SEZ unit receiving such zero rated supplies will be given
similar treatment as exports.

Input Tax Credit on Job Work (section 19):

What is job work?

Job work means processing or working on raw materials or semi-finished goods supplied by
the principal manufacturer to the job worker. This is to complete a part or whole of the process
which results in the manufacture or finishing of an article or any other essential operation. As
per GST Act, job work means any treatment or process undertaken by a person on goods
belonging to another registered person. The person doing the job work is called job worker.
The ownership of the goods does not transfer to the job-worker but it rests with the principal.
The job worker is required to carry out the process specified by the principal on the goods. For
example:
Big Shoe Manufacturers (Principal) send out the half-made shoes (upper part) to smaller
manufacturers (Job worker) to fit in the soles. The job workers send back the shoes to the
principal manufacturer after the completion of operation.
Input Tax Credit on job work
The principal manufacturer will be allowed to take credit of tax paid on purchase of goods send
on job work. However, there are certain conditions like:
a) Place of business
Goods purchased
Sent to job worker

From principal’s Directly from the principal’s

Place of business sellers – without going to the
Principal first
ITC will be allowed in both cases
b) Effective Date

Effective date for

Goods sent

If sent from principal’s If sent directly from the

Place of business principal’s sellers

Date of goods sent out Date of receipt of Goods

By job worker
Is there a time limit for the principal manufacturer to receive back the goods?
Yes. The principal manufacturer must receive the goods back within the following period:
Capital Goods – 3 years from effective date (like equipment, machinery etc.)
Input Goods – 1 year from effective date (semi-processed items, dies, moulds etc.)

What happens if the goods are not received within the specified time?
In case goods are not received within the period as mentioned above, such goods will be deemed
as supply from effective date. The principal manufacturer will have to pay tax on such deemed
supply.
c) Accompanying documents for job work
a) Accounts & records
The responsibility for keeping proper accounts for the inputs or capital goods shall lie with
the principal.
b) Delivery Challan
All goods sent for job work must be accompanied by a challan.
 The challan will be issued by the principal.
It will be issued even for the inputs or capital goods sent directly to the job-worker.
The details of challan must be shown in FORM GSTR-1.
Details of challan must also be filed through Form GST ITC – 04.
The challan issued must include the following particulars:
Date and number of the delivery challan
Name, address and GSTIN of the consigner and consignee
HSN code, description and quantity of goods
Taxable value, tax rate, tax amount- CGST, SGST, IGST, UTGST separately
Place of supply and signature

FORM ITC-04 & Due date of form GST ITC-04

Form GST ITC-04 must be submitted by the principal every quarter. He must include the details
of challan in respect of the following-

Goods dispatched to a job worker or

Received from a job worker or
Sent from one job worker to another
ITC-04 is a quarterly form. It must be furnished on or before 25th day of the month succeeding
the quarter. For example, for Oct-Dec quarter, the due date is 25th Jan.

Recovery of Input Tax Credit and Interest thereon: Section 19 of CGST Act

Where credit has been taken wrongly, the same shall be recovered from the registered taxable
person in accordance with the provisions of this Act.

Summary of taking input tax credit in respect of inputs and capital goods sent for job
work of CGST ACT, 2017

(1) The principal shall be allowed input tax credit on inputs sent to a job worker for job work.

(2) The principal shall be entitled to take credit of input tax on inputs even if the inputs are
directly sent to a job worker for job work without being first brought to his place of business.

(3) Where the inputs sent for job work are not received back by the principal after
completion of job work or otherwise or are not supplied from the place of business of the job
worker within one year of being sent out, it shall be deemed that such inputs had been supplied
by the principal to the job worker on the day when the said inputs were sent out:
Provided that where the inputs are sent directly to a job worker, the period of one year shall be
counted from the date of receipt of inputs by the job worker.

(4) The principal shall, subject to such conditions and restrictions as may be prescribed, are
allowed input tax credit on capital goods sent to a job worker for job work.

(5) The principal shall be entitled to take credit of input tax on capital goods even if the capital
goods are directly sent to a job worker for job work without being first brought to his place of
business.

(6) Where the capital goods sent for job work are not received back by the principal
within a period of three years of being sent out, it shall be deemed that such capital goods had
been supplied by the principal to the job worker on the day when the said capital goods were
sent out:
Provided that where the capital goods are sent directly to a job worker, the period of three years
shall be counted from the date of receipt of capital goods by the job worker.

Input Tax Credit in case of ISD

Who is an Input Service Distributor (ISD) under GST?

An input service distributor (ISD) is a business which receives invoices for services used by
its branches. It distributes the tax paid, to such branches on a proportional basis by issuing
an ISD invoice. The branches can have different GSTINs but must have the same PAN as that
of ISD.

For example: Head Office of ABC limited is located at Bangalore having branches at Chennai,
Mumbai and Kolkata. The head office incurred annual software maintenance expense (service
received) on behalf of all its branches and received the invoice for the same. Since software
is used by all its branches, the input tax credit of entire services cannot be claimed at
Bangalore. The same has to be distributed to all the three locations. Here, the Head Office at
Bangalore is the Input Service Distributor.

However, ISD cannot distribute the input tax credit:

• Paid on Inputs e.g. Raw materials and capital goods e.g. Machine purchased
• To outsourced manufacturers or service providers.
 PROCEDURE AND ADMINISTRATION UNDER GST

I. Application for registration

(1) Every person who is liable to be registered under section 25 and every person seeking
registration under section 25 (hereinafter referred to in this Chapter as “the applicant”) shall,
before applying for registration, declare his Permanent Account Number (PAN), mobile
number, e-mail address, State or Union territory in Part A of FORM GST REG-01 on the
Common Portal either directly or through a Facilitation Centre notified by the Commissioner:

(2) (a) The PAN shall be validated online by the Common Portal from the database maintained
by the Central Board of Direct Taxes;
(b) The mobile number declared under sub-rule (1) shall be verified through a one-time
password sent to the said mobile number; and
(c) The e-mail address declared under sub-rule (1) shall be verified through a separate one-time
password sent to the said e-mail address.
(3) On successful verification of the PAN, mobile number and e-mail address, a temporary
reference number shall be generated and communicated to the applicant on the said mobile
number and e-mail address.

(4) Using the reference number generated under sub-rule (3), the applicant shall electronically
submit an application in Part B of FORM GST REG-01, duly signed, along with documents
specified in the said Form at the Common Portal, either directly or through a Facilitation Centre
notified by the Commissioner.

(5) On receipt of an application under sub-rule (4), an acknowledgement shall be issued

electronically to the applicant in FORM GST REG-02.

(6) A person applying for registration as a casual taxable person shall be given a temporary
reference number by the Common Portal for making advance deposit of tax in accordance with
the provisions of section 27 and the acknowledgement under sub-rule (5) shall be issued
electronically only after the said deposit in the electronic cash ledger.

II. Verification of the application and approval

(1) The application shall be forwarded to the proper officer who shall examine the application
and the accompanying documents and if the same are found to be in order, approve the grant
of registration to the applicant within three working days from the date of submission of
application.

(2) Where the application submitted under rule 1 is found to be deficient, either in terms of any
information or any document required to be furnished under the said rule, or where the proper
officer requires any clarification with regard to any information provided in the application or
documents furnished therewith, he may issue a notice to the applicant electronically in FORM
GST REG-03 within three working days from the date of submission of application and the
applicant shall furnish such clarification, information or documents sought electronically, in
FORM GST REG-04, within seven working days from the date of receipt of such intimation.
Explanation- The clarification includes modification or correction of particulars declared in the
application for registration, other than PAN, State, mobile number and e-mail address declared
in Part A of FORM GST REG-01.

(3) Where the proper officer is satisfied with the clarification, information or documents
furnished by the applicant, he may approve the grant of registration to the applicant within
seven working days from the date of receipt of such clarification or information or documents.
(4) Where no reply is furnished by the applicant in response to the notice issued under sub-rule
(2) within the prescribed period or where the proper officer is not satisfied with the clarification,
information or documents furnished, he shall, for reasons to be recorded in writing, reject such
application and inform the applicant electronically in FORM GST REG-05.

(5) If the proper officer fails to take any action -

(a) Within three working days from the date of submission of application, or
(b) Within seven working days from the date of receipt of clarification, information or
documents furnished by the applicant under sub-rule (2), the application for grant of registration
shall be deemed to have been approved.

III. Issue of registration certificate

(1) Subject to the provisions of sub-section (12) of section 25, where the application for grant
of registration has been approved under rule 2, a certificate of registration in FORM GST REG-
06 showing the principal place of business and additional place(s) of business shall be made
available to the applicant on the Common Portal and a Goods and Services Tax Identification
Number (hereinafter in these rules referred to as “GSTIN”) shall be assigned in the following
format:
(a) Two characters for the State code;
(b) Ten characters for the PAN or the Tax Deduction and Collection Account Number;
(c) Two characters for the entity code; and
(d) One checksum character.

(2) 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 thirty days from
such date.

(3) Where an application for registration has been submitted by the applicant after thirty days
from the date of his becoming liable to registration, the effective date of registration shall be
the date of grant of registration under sub-rule (1) or sub-rule (3) or sub-rule (5) of rule 2.

(4) Every certificate of registration made available on the Common Portal shall be digitally
signed by the proper officer under the Act.

(5) Where the registration has been granted under sub-rule (5) of rule 2, the applicant shall be
communicated the registration number and the certificate of registration under sub-rule (1),
duly signed, shall be made available to him on the common portal within three days after expiry
of the period specified in sub-rule (5) of rule 2.
IV. Display of registration certificate and GSTIN on the name board

(1) 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.

(2) Every registered person shall display his GSTIN on the name board exhibited at the entry
of his principal place of business and at every additional place or places of business.

V. Amendment of registration

(1) Where there is any change in any of the particulars furnished in the application for
registration in FORM GST REG-01 or FORM GST REG-07 etc., as the case may be, either at
the time of obtaining registration or as amended from time to time, the registered person shall,
within fifteen days of such change, submit an application, duly signed, electronically in FORM
GST REG-13, along with documents relating to such change at the Common Portal either
directly or through a Facilitation Centre notified by the Commissioner.

(2) (a) Where the change relates to-

(i) Legal name of business;
(ii) Address of the principal place of business or any additional place of business; or
(iii) addition, deletion or retirement of partners or directors, Karta, Managing Committee,
Board of Trustees, Chief Executive Officer or equivalent, responsible for day to day affairs of
the business which does not warrant cancellation of registration under section 29, the proper
officer shall approve the amendment within fifteen working days from the date of receipt of
application in FORM GST REG-13 after due verification and issue an order in FORM GST
REG-14 electronically and such amendment shall take effect from the date of occurrence of the
event warranting amendment.
(b) The change relating to sub-clause (i) and sub-clause (iii) of clause (a) in any State or Union
territory shall be applicable for all registrations of the registered person obtained under these
rules on the same PAN.
(c) Where the change relates to any particulars other than those specified in clause (a), the
certificate of registration shall stand amended upon submission of the application in FORM
GST REG-13 on the Common Portal:
Provided that any change in the mobile number or e-mail address of the authorized signatory
submitted under rule 1, as amended from time to time, shall be carried out only after online
verification through the Common Portal in the manner provided under the said rule.
(d) Where a change in the constitution of any business results in change of the Permanent
Account Number (PAN) of a registered person, the said person shall apply for fresh registration
in FORM GST REG-01.

1. Tax Invoice (section 31 of GST law)

Sub-section (1) - A registered person supplying taxable goods shall, before or at the time of –
(a) removal of goods for supply to the recipient, where the supply involves movement of goods;
or (b) delivery of goods or making available thereof to the recipient, in any other case, issue a
tax invoice showing the description, quantity and value of goods, the tax charged thereon and
such other particulars as may be prescribed:
Sub-section (2) - A registered person supplying taxable services shall, before or after the
provision of service but within a prescribed period, issue a tax invoice, showing the description,
value, tax charged thereon and such other particulars as may be prescribed:

A tax invoice referred to in section 31 shall be issued by the registered person containing the
following particulars:-
(a) Name, address and GSTIN of the supplier;
(b) a consecutive serial number, in one or multiple series, containing alphabets or numerals or
special characters hyphen or dash and slash symbolized as “-” and “/” respectively, and any
combination thereof, unique for a financial year;
(c) Date of its issue;
(d) Name, address and GSTIN, if registered, of the recipient;
(e) Name and address of the recipient and the address of delivery, along with the name of State
and its code, if such recipient is un-registered and where the value of taxable supply is fifty
thousand rupees or more;
(f) HSN code of goods or Accounting Code of services;
(g) Description of goods or services;
(h) Quantity in case of goods and unit or Unique Quantity Code thereof;
(i) Total value of supply of goods or services or both;
(j) Taxable value of supply of goods or services or both taking into account discount or
abatement, if any;
(k) Rate of tax (central tax, state tax, integrated tax, union territory tax or cess);
(l) Amount of tax charged in respect of taxable goods or services (central tax, State tax,
integrated tax, Union territory tax or cess);
(m) Place of supply along with the name of State, in case of a supply in the course of inter-State
trade or commerce;
(n) Address of delivery where the same is different from the place of supply;
(o) Whether the tax is payable on reverse charge basis; and
(p) Signature or digital signature of the supplier or his authorized representative:

Provided that the Commissioner may, on the recommendations of the Council, by notification,
specify -
(i) the number of digits of HSN code for goods or the Accounting Code for services, that a class
of registered persons shall be required to mention, for such period as may be specified in the
said notification, and
(ii) the class of registered persons that would not be required to mention the HSN code for
goods or the Accounting Code for services, for such period as may be specified in the said
notification:

2. Time limit for issuing tax invoice

The invoice referred to in rule 1, in case of taxable supply of services, shall be issued within a
period of thirty days from the date of supply of service:

Provided that where the supplier of services is an insurer or a banking company or a financial
institution, including a non-banking financial company, the period within which the invoice or
any document in lieu thereof is to be issued shall be forty five days from the date of supply of
service:

Provided further that where the supplier of services is an insurer or a banking company or a
financial institution, including a non-banking financial company, or a telecom operator, or any
other class of supplier of services as may be notified by the Government on the
recommendations of the Council, making taxable supplies of services between distinct persons
as specified in section 25 of Schedule I, may issue the invoice before or at the time such supplier
records the same in his books of account or before the expiry of the quarter during which the
supply was made.

3. Manner of issuing invoice

(1) The invoice shall be prepared in triplicate, in case of supply of goods, in the following
manner:–

(a) The original copy being marked as ORIGINAL FOR RECIPIENT;

(b) The duplicate copy being marked as DUPLICATE FOR TRANSPORTER; and
(c) The triplicate copy being marked as TRIPLICATE FOR SUPPLIER.

(2) The invoice shall be prepared in duplicate, in case of supply of services, in the following
manner:-
(a) The original copy being marked as ORIGINAL FOR RECIPIENT; and
(b) The duplicate copy being marked as DUPLICATE FOR SUPPLIER.

(3) The serial number of invoices issued during a tax period shall be furnished electronically
through the Common Portal in FORM GSTR-1.

4. Bill of supply

A bill of supply referred to in sub-section (3) of section 31 shall be issued by the supplier
containing the following details:-

(a) Name, address and GSTIN of the supplier;

(b) A consecutive serial number, containing alphabets or numerals or special characters;
(c) Date of its issue;
(d) Name, address and GSTIN or UIN, if registered, of the recipient;
(e) HSN Code of goods or Accounting Code for services;
(f) Description of goods or services or both;
(g) Value of supply of goods or services or both taking into account discount or abatement, if
any; and
(h) Signature or digital signature of the supplier or his authorized representative:

5. Revised Invoice under GST

Under GST, all the taxable dealers will have to apply for provisional registration and carry out
all the formalities post which they will get the permanent registration certificate.

For all the invoices issued between the period –

Date of implementation of GST
Date of issue of Registration Certificate
The dealers will have to issue a revised invoice against the invoice already issued between the
said periods. The revised invoice will have to be issued within one month from the date of
issue of the registration certificate.

What are supplementary invoices and their uses?

Supplementary tax invoice is a type of invoice that is issued by a taxable person in case where
any deficiency is found in a tax invoice already issued by a taxable person. It can be in form of
a debit note or a credit note.
What is the difference between revised invoice and supplementary invoice?

The difference between a revised invoice and a supplementary invoice can be enumerated as
follows:
Particulars Revised Invoice Supplementary Invoice
Meaning Revised invoice may be issued by a Supplementary tax invoice has to be
taxable person in relation to any issued by a taxable person in case where
invoice already issued by him. any deficiency is found in a tax invoice
already issued by a taxable person.
Period covered The period starting from the Not based on period but invoice specific
effective date of registration till the
date of issuance of certificate of
registration.
Issued to whom Only to registered person. To registered taxable persons as well as
unregistered persons.

6. Transportation of goods without issue of invoice

(1) For the purposes of

(a) Supply of liquid gas where the quantity at the time of removal from the place of business
of the supplier is not known,
(b) Transportation of goods for job work,
(c) Transportation of goods for reasons other than by way of supply, or
(d) Such other supplies as may be notified by the Board,
The consigner may issue a delivery challan, serially numbered, in lieu of invoice at the time
of removal of goods for transportation, containing following details:
• Date and number of the delivery challan,
• Name, address and GSTIN of the consigner, if registered,
• Name, address and GSTIN or UIN of the consignee, if registered,
• HSN code and description of goods,
• Quantity (provisional, where the exact quantity being supplied is not known),
• Taxable value,
• Tax rate and tax amount – central tax, State tax, integrated tax, Union territory tax or
cess, were the transportation is for supply to the consignee,
• Place of supply, in case of inter-State movement, and
• Signature
(2) The delivery challan shall be prepared in triplicate, in case of supply of goods, in the
following manner:–
(a) The original copy being marked as ORIGINAL FOR CONSIGNEE;
(b) The duplicate copy being marked as DUPLICATE FOR TRANSPORTER; and
(c) The triplicate copy being marked as TRIPLICATE FOR CONSIGNER.

(3) Where goods are being transported on a delivery challan in lieu of invoice, the same shall
be declared in FORM [WAYBILL].

(4) Where the goods being transported are for the purpose of supply to the recipient but the tax
invoice could not be issued at the time of removal of goods for the purpose of supply, the
supplier shall issue a tax invoice after delivery of goods.

Debit Note and Credit Note under GST

When goods supplied are returned or when there is a revision in the invoice value due to goods
(or services) not being up to the mark or extra goods being supplied, a Debit Note or Credit
Note is issued by the supplier and receiver of goods and services.
A debit note or a Credit Note can be issued in 2 situations –

When the amount payable by buyer to seller decreases –There can be a change in the value of
goods after the goods are delivered and invoice is issued by the seller. This can be due to a
return of goods or due to the bad quality of the goods delivered, etc. In this case, the value of
goods decreases due to which a Debit Note is issued by the purchaser to the seller. The Debit
Note provides details of the amount of money debited from the sellers’ account and also states
the reason for the same.

The reason behind this – In the purchaser’s books of account the seller will have a credit
balance. When a debit note is issued, the credit balance of the Sellers account decreases; thus
reducing the seller’s balance. It means that lesser amount is required to be paid by the buyer to
the seller to settle his liability. Thus debit note reduces the liability for the buyer.

The seller issues a Credit Note as a response or acknowledgment to the Debit Note. When the
amount payable by buyer to seller increases - when the value of invoice increases due to extra
goods being delivered or the goods already delivered have been charged at an incorrect value a
Debit Note is required to be issued. The Debit Note, in this case, is issued by the seller to the
buyer. And the buyer as an acknowledgment to the receipt of Debit Note issues a Credit Note.

The reason behind this – In the seller’s books of account the buyer will have a debit balance.
When a debit note is issued then the debit balance of the Buyers account increases. It means
that more amounts are required to be paid by the buyer to the seller to settle his liability. Thus,
credit note increases the liability for the buyer.

The debit note/ credit note shall contain the following particulars:

Name, address, and GSTIN of the supplier, nature of the document, a consecutive serial number
containing only alphabets and/or numerals, unique for a financial year, date of issue of the
document, name, address and GSTIN/ Unique ID Number, if registered, of the recipient, name
and address of the recipient and the address of delivery, along with the name of State and its
code, if such recipient is unregistered, serial number and date of the corresponding tax invoice
or, as the case may be, bill of supply, the taxable value of goods or services, rate of tax and the
amount of the tax credited or, as the case may be, debited to the recipient, and signature or
digital signature of the supplier or his authorized representative.

Debit Note or Credit Note can be issued anytime i.e. there is no time limit for issuing the Debit
Note. Also, Debit Notes and Credit Notes issue have to be declared in the GST returns filed in
the following month for the month in which document is issued.
The tax liability will be adjusted but no reduction in output tax liability of the supplier will be
permitted if the incidence of tax and interest on such supply has been passed on to any
other person.

Accounts and Records under GST (u/s 35 & 36 and Rule 56 to 58 of CGST Act)

Every registered person under GST is required to keep and maintain all specified Accounts and
records at his principal place of business, as mentioned in the certificate of Registration. In
case more than one place of business is specified in the certificate of registration, the accounts
relating to each place of business shall be kept at such places of business.

Section 35 of the CGST Act, 2017 has cast the responsibility on the owner or operator of
warehouse or godown or any other place used for storage of goods and on every transporter to
maintain specified records.

Accounts Maintained under GST

1) Accounts and Other Records

Every registered person, other than a person paying tax u/s 10 (Composite Dealer), shall
maintain at his principal place of business:
 a) Accounts of stock in respect of goods received and supplied; and such account shall
contain particulars of the opening balance, receipt, supply, goods lost, stolen, destroyed,
written off or disposed of by way of gift or free samples and balance of stock including
raw materials, finished goods, scrap and wastage thereof
b) A separate account of advances received, paid and adjustments made thereto
c) Account containing the details of tax payable together with a register of tax invoice,
credit notes, debit notes and delivery challan issued or received.

Who must maintain accounts under GST?

It is the responsibility of the following persons to maintain specified records:

• The owner of Godown
• Operator of warehouse or godown or any other place used for storage of goods
• Every transporter
• Every registered person whose turnover during a financial year exceeds the prescribed
limit (at present it is 2 crores) will get his accounts audited by a chartered accountant or
a cost accountant.

What are the accounts which must be maintained under GST?

Section 35 provides that every registered person shall keep and maintain, at his principal place
of business, as mentioned in the certificate of registration, a true and correct account of:
a) Production or manufacture of goods
b) Inward and outward supply of goods or services or both
c) Stock of goods
d) Input tax credit availed (Input CGST a/c / SGST a/c / IGST a/c)
e) Output tax payable and paid (Output CGST a/c / SGST a/c / IGST a/c)
f) Other particulars as may be prescribed

What records must be maintained under GST? (Rule 56 of CGST Rules)

Every registered person must also maintain relevant documents which include:
• Goods or services imported or exported
• Supplies attracting payment of tax on Reverse Charge
• Bills of supply
• Invoices or delivery challan
• Credit notes and debit notes
• Receipt vouchers, payment vouchers, refund vouchers
• Electronic way (e-way) bills
Additionally, there must be separate records for each activity (i.e. manufacturing, trading, and
the provision of services). Records must be in serially-numbered account books and include the
following information:
• Names and complete addresses of suppliers
• Names and complete addresses of customers
• Address of all premises where the goods are stored, including goods stored during
transit, and descriptions of the stock stored

What is an e-Way Bill?

E-Way Bill is an electronic way bill for movement of goods which can be generated on the e-
Way Bill Portal. Transport of goods of more than `50,000 (Single Invoice/bill/delivery challan)
in value in a vehicle cannot be made by a registered person without an e-way bill.
When an e-way bill is generated a unique e-way bill number (EBN) is allocated and is available
to the supplier, recipient, and the transporter.

When should e-Way Bill be issued?

E-Way bill will be generated when there is a movement of goods in a vehicle/ conveyance of
value more than `50,000 (either each Invoice or in aggregate of all Invoices in a vehicle/
Conveyance) –
• In relation to a ‘supply’
• For reasons other than a ‘supply’ (e.g. a goods return)
• Due to inward ‘supply’ from an unregistered person

2) What accounts are to be maintained by registered taxable person providing Works

Contract Service?

According to Rule 1(15) of Accounts and Records Rules, 2017 the registered taxable
person who provides works contract service shall maintain the accounts showing:
• the names and addresses of the persons on whose behalf the works contract is executed;
• the names and addresses of suppliers from whom a taxable person has received goods
or services;
• description, amount, and quantity (if applicable) of goods / services procured for the
execution of works contract;
• description, amount, and quantity (if applicable) of goods / services utilized in the
execution of each works contract;
• payments received in respect of each works contract
3) What accounts to be maintained by Every Owner or Operator of Warehouses or
Godowns or Transporters? (Rule 58 of CGST Rules)

Every owner/operator of warehouse or godowns or any other place used for storage of goods
and transporter (whether registered or not) needs to maintain records of consigner, consignee
and other relevant details as stated below and also required to submit the details regarding his
business on the Common Portal in FORM GST ENR-01:

For transporter (business of transporting goods)

• Goods transported
• Goods delivered
• Goods stored in transit by him or branches
For owners/operators of godowns/warehouses
• Accounts related to that period for which goods remain with him
• Details of dispatch, movement, receipt and disposal
• The goods shall be stored in such manner that they can be identified item wise and owner
wise and shall facilitate any physical verification or inspection, if required at any time.

4) Electronic Cash, Credit and Liability Ledger under GST

Every registered taxpayer will have three ledgers under GST which will be generated
automatically at the time of registration and will be maintained electronically.
Electronic Cash Ledger- This ledger will serve as an electronic wallet. The taxpayer will have
to deposit money into his cash ledger (add money to the wallet). The money will be utilized to
make the payment.
Electronic Credit Ledger- The input tax credit on purchases will be reflected here under three
categories i.e. IGST, CGST & SGST. The taxpayer will be able to utilize the balance shown in
this account only for payment of tax (not for interest, penalty etc.)
Electronic Liability Ledger: This ledger will show the total tax liability of a taxpayer after
netting off for the particular month. This ledger will be auto-populated.

5) Period for preservation of accounts under GST

As per the GST Act, every registered taxable person must maintain the accounts books and
records, together with all invoices, bills of supply, credit and debit notes, and delivery challan
relating to stocks, deliveries, inward supply and outward supply, for at least 72 months (6
years). It shall be kept at every related place of business mentioned in the certificate of
registration. The period will be counted from the last date of filing of Annual Return for that
year. The last date of filing the Annual return is 31st December of the following year.
 For example:
For the year 2017-2018, the due date of filing the annual return is 31-12-2018. The books
& records for 2017-2018 must be maintained for 6 years, i.e. 31-12-2023.
If the taxpayer is a part of any proceedings before any authority (First Appellate) or is
under investigation then he must maintain the books for 1 year after the order of such
proceedings/appeal has been passed.

6) Consequences of Not Maintaining Proper Records under GST

If the taxpayer fails to maintain proper records in respect of goods or services, then the proper
officer shall treat such unaccounted goods or services as if the taxpayer had supplied them. The
officer will determine the tax liability on such unaccounted goods. The taxable person will be
required to pay the tax liability calculated along with penalty.

Accounts To Be Maintained Under Goods and Services Tax Law

Account/Records Information Required By Whom?
Production Register or Account should contain detail of goods Every assessee carrying out
Production a/c manufactured in a factory or production manufacturing activity
house
Purchase Register All the purchases made within a tax All Assessee
period for manufacturing of goods or
provision of services
Sales Register Account of all the sales made within a All Assessee
tax period must be maintained
Stock Register This register should contain a correct All Assessee
stock of inventory available at any
given point of time
Input Tax Credit This register should maintain the details All Assessee
Availed of Input Tax Credit availed for a given
tax period
Output Tax Liability This register should maintain the details All Assessee
of GST liability outstanding to be
adjusted against input credit or paid out
directly
Output Tax Paid This register should maintain the details All Assessee
of GST paid for a particular tax period
Other Records Government can further specify by way Specific Businesses as
Specified of a notification, additional records and notified by the government
accounts to be maintained

How to Maintain GST Accounts?

All GST accounts and records, including the books of account must be maintained at the
principal place of business along with records relating to additional place of business. Each
of the volume of books of account with GST records maintained manually should be serially
numbered. While maintaining GST account manually, if any entry in any of the registers or
accounts or documents must be erased, effaced or overwritten, then it should be scored out
under attestation and there after correct entry should be recorded. If GST accounts are
maintained electronically, then there should be a log of every entry edited or deleted. Also, if
GST accounts and records are maintained electronically, then the records should be
authenticated by means of a digital signature and should be accessible from every related
place of business mentioned on the GST registration certificate.

Finally, any documents, registers, or any books of account belonging to a registered person that
are found at any premises, even will be presumed to be maintained by the taxpayer, unless
proved otherwise. Hence, it’s important to ensure that all accounting and financial information
is maintained safely by the taxpayer.

Generation and Maintenance of Electronic Records: (Rule 57 of CGST Rules)

The following requirements have been prescribed for maintenance of records in electronic
form:
• Proper electronic back-up of records in such manner that, in the event of destruction of
such records due to accidents or natural causes, the information can be restored within a
reasonable period of time.
• Produce, on demand, the relevant records or documents, duly authenticated, in hard copy
or in any electronically readable format.
• Where the accounts and records are stored electronically by any registered person, he
shall, on demand, provide the details of such files, passwords of such files and
explanation for codes used, where necessary, for access and any other information which
is required for such access along with a sample copy in print form of the information
stored in such files.
Returns & Refunds

For properly updating the invoices, Indian taxpayers and businesses have to file certain
returns with the Government.

Different tax return forms have been prescribed under GST law for different kinds of
taxpayers. Every statute requires the registered person to file the return in such format and
within such time as may be prescribed in the specific statute. In the same line, the GST
Act makes the provisions for furnishing of information by taxable person through filing of
returns. In GST, returns are self-assessed by the registered persons.

These returns have to be mandatorily filed as any non-compliance towards the same may lead
to disallowance of input tax credit, apart from attracting penalties and interests etc. Proper filing
of information and passing the same in the returns is a mandatory process for smooth flow of
credit to the last recipient. The returns have been designed so that all transactions are in sync
with each other and that no transaction is left unattended between the buyer and seller.

What is GST Return?

A return is a document containing details of income which a taxpayer is required to file with
the tax administrative authorities. This is used by tax authorities to calculate tax liability.
Under GST, a registered dealer has to file GST returns that include:
• Purchases
• Sales
• Output GST (On sales)
• Input tax credit (GST paid on purchases)
To file GST returns, GST compliant sales and purchase invoices are required.

Key Features of GST Returns

• GST returns can only be filed online.

• You will be able to generate & prepare forms offline but they need to be filed online.
• A common return will be required for CGST, IGST, SGST & additional tax.
• At GST common portal, you will be able to file return yourself or authorize someone to
do it on your behalf.
• Revision of returns once filed will not be allowed. You will be required to accommodate
changes in next return.

Who Needs to File Return under GST?

 • All the registered dealers irrespective of whether they do any business activity or not. A
nil return will be required in case of no business activity.
• Those PSUs or government entities which are not dealing in GST supplies. (they have
separate filing procedure and are assigned separate departmental ID’s)
• Those persons who deal with nil-rated or non-GST or exempted goods.
• UN agencies, etc. will file return but only for the month in which they make purchases.
In the GST regime, any regular business has to file three monthly returns and one annual return.
This amounts to 37 returns in a year. There are separate returns required to be filed by special
cases such as composition dealers.

What are the types of GST Returns? (With form, interval and due date)
List of all the returns to be filed under the GST Law along with the due dates

3.1. Any regular business: As per the CGST Act

Return Particulars Interval Due Date
Form
GSTR-1 Details of outward supplies of taxable Monthly 10th of the next month
goods and/or services effected
GSTR-2 Details of inward supplies of taxable Monthly 15th of the next month
goods and/or services effected claiming
input tax credit
GSTR-3 Monthly return on the basis of Monthly 20th of the next month
finalization of details of outward
supplies and inward supplies along with
the payment of amount of tax
GSTR-9 Annual Return Annually 31st December of next
financial year

3.2. A dealer opting for composition scheme:

A composition dealer will enjoy the benefits of lesser returns & compliance along with
payment of taxes at nominal rates. A composition dealer will file only 2 returns:
Return Particulars Interval Due Date
Form
GSTR-4 Return for compounding Quarterly 18th of the month succeeding quarter
taxable person
GSTR-9A Annual Return Annually 31st December of next financial year
3.3. Returns to be filed by specific registered dealers:
Return Particulars Interval Due Date
Form
GSTR-5 Return for Non-Resident Monthly 20th of the next month
foreign taxable person
GSTR-6 Return for Input Service Monthly 13th of the next month
Distributor
GSTR-7 Return for authorities Monthly 10th of the next month
deducting tax at source.
GSTR-8 Details of supplies effected Monthly 10th of the next month
through e-commerce operator
and the amount of tax collected
GSTR-10 Final Return Once. When Within three months of the date of
registration is cancellation or date of cancellation
cancelled or order, whichever is later
surrendered
GSTR-11 Details of inward supplies to Monthly 28th of the month following the
be furnished by a person month for which statement is filed
having UIN and claiming
refund
Different Types of Returns applicable under the new GST Law

GST return can be filed using different forms depending on the type of transaction and
registration of the taxpayer. Return forms for normal taxpayers are:

GSTR-1
GSTR-1 return form has to be filed by a registered taxable supplier with details of the outward
supplies of goods and services. This form is filled by the supplier. The buyer has to validate the
auto-populated purchase information on the form and make modifications if required. The form
will contain the following details:
Business name, period for which the return is filed, Goods and Services Taxpayer Identification
Number (GSTIN)
Invoices issued in the previous month and the corresponding taxes collected
Advances received against a supply order that has to be delivered in the future
Revision in outward sales invoices from the previous tax periods
GSTR-1 has to be filed by 10th of the following month.
GSTR-2A
This form is available to the recipients. It is available on the 11 th of next month for the recipients
to see and validate the information therein. Recipients have time from 11th to 15th of next month
to change any information, delete or add based on their books of accounts.

GSTR-2
GSTR-2 return form has to be filed by a registered taxable recipient with details of the inward
supplies of goods and services. The form will contain the following details:
Business name, period for which the return is filed, Goods and Services Tax Identification
Number (GSTIN)
Invoices issued in the previous month and the corresponding taxes collected
Advances received against a supply order that has to be delivered in the future
Revision in outward sales invoices from the previous tax periods
GSTR-2 has to be filed by 15th of the following month.

GSTR-1A
GSTR-1A form shall be auto populated after filing of GSTR-2 on the 15th of next month, having
all the correct or changed information. The supplier shall have the choice to accept or reject the
changes made by the recipient. Following such acceptance, the GSTR-1 shall be revised to such
extent.

GSTR-3
GSTR-3 return form has to be filed by a registered taxpayer with details that are automatically
populated by from GSTR-1 and GSTR-2 returns forms. The taxpayer has to verify and make
modifications, if any. GSTR-3 return form will contain the following details:
Details about Input Tax Credit, liability, and cash ledger
Details of tax paid under CGST, SGST, and IGST
Claim a refund of excess payment or request to carry forward the credit
GSTR-3 has to be filed by 20th of the following month.

GSTR-4
GSTR-4 return form has to be filed by taxpayers who have opted for the Composition Scheme.
Taxpayers with small business or a turnover of up to `75 lakhs can opt for the Composition
Scheme wherein he or she have to pay tax at a fixed rate based on the type of business.
Taxpayers under this scheme will not have input tax credit facility. GSTR-4 quarterly return
form will contain the following details:
The total value of consolidated supply made during the period of return
Details of tax paid
Invoice-level purchase information
GSTR-4 has to be filed by 18th of the following month.

GSTR-5
GSTR-5 return form has to be filed by all registered non-resident taxpayers. This form will
contain the following:
Name and address of the taxpayer, GSTIN, and period of return
Details of outward supplies and inward supplies
Details of goods imported, any amendments in goods imported during the previous tax periods
Import of services, amendments in import of services
Details of credit or debit notes, closing stock of goods, and refund claimed from cash ledger
GSTR-5 has to be filed by 20th of the following month.

GSTR-6
GSTR-6 return form has to be filed by all taxpayers who are registered as an Input Service
Distributor. This form will contain the following:
Name and address of the taxpayer, GSTIN, and period of return
Details of input credit distributed
Supplies received from registered persons
The amount of input credit availed under the current tax period
Details of inward supplies will be auto-populated from GSTR-1 and GSTR-5 return forms
Details of the receiver of input credit corresponding to his or her GSTIN
Details of credit or debit notes
Input tax credit received, input tax credit reverted, and input tax credit distributed as SGST,
CGST, and IGST
GSTR-6 has to be filed by 13th of the following month.

GSTR-7
GSTR-7 return form has to be filed by all registered taxpayers who are required to deduct tax
at source under the GST rule. This form will contain the following:
Name and address of the taxpayer, GSTIN, and period of return
TDS details and amendments in invoice amount, TDS amount or contract details
TDS liability will be auto-populated. Details of fees for late filing of return and interest on
delayed payment of TDS
Refund received from Electronic Cash Ledger will be auto-populated
GSTR-7 has to be filed by 10th of the following month.
GSTR-8
GSTR-8 return form has to be filed by all e-Commerce operators who are required to collect
tax at source under the GST rule. This form will contain details of supplies effected and the
amount of tax collected under Sub-section (1) of Section 43C of Model GST Law. Other details
include:
Name and address of the taxpayer, GSTIN, and period of return
Details of supplies made to registered taxable person and amendments, if any
Details of supplies made to unregistered persons
Details of Tax Collected at Source
TDS liability will be auto-populated. Details of fees for late filing of return and interest on
delayed payment of TDS
GSTR-8 has to be filed by 10th of the following month.

GSTR-9
GSTR-9 return form is filed by normal taxpayers with details of all income and expenditure for
the year. This detail will be regrouped in accordance with the monthly returns. The taxpayer
will have the opportunity to make modifications in the information provided if required. GSTR-
9 has to be filed by 31st December of the following financial year along with the audited copies
of the annual accounts.

GSTR-10
GSTR-10 return form has to be filed by any taxpayer who opts for cancellation of GST
registration. This form will contain the following:
Application Reference Number (ARN)
Date of cancellation of GST registration
Unique ID of cancellation order
Date of cancellation order
Details of closing stock including amount of tax payable on closing stock
GSTR-10 final return form has to be filed within 3 months of the date of cancellation or date
of cancellation order, whichever is later.

GSTR- 11
GSTR-11 return form has to be filed by everyone who has been issued a Unique Identity
Number (UIN) and claims a refund of the taxes paid on inward supplies. This form will contain
the following details:
Name of the government entity, UIN, and period of return
All inward purchases from GST registered supplier will be auto-populated
Based on the above mentioned details, the tax refund will be made
GSTR-11 form has to be filed on 28th of the month, following the month for which supply was
received.

GST Payments and Refunds

Once GSTR 1 and GSTR 2 are filed a dealer is required to file GSTR 3 and make GST Payment.
Also if a refund is required to be claimed the same can be done by filing relevant refund related
forms.

A. Payments

1. What are payments to be made under GST?

Under GST the tax to be paid is mainly divided into 3:
IGST – To be paid when interstate supply is made (paid to center)
CGST – To be paid when making supply within the state (paid to center)
SGST – To be paid when making supply within the state (paid to state)
Circumstances CGST SGST IGST
Goods sold from Delhi to Chandigarh NO NO YES
Goods sold within Delhi YES YES NO
Goods sold from Bangalore to Mysore YES YES NO
Apart from the above payments a dealer is required to make these payments –
Tax Deducted at Source (TDS) – TDS is a mechanism by which tax is deducted by the dealer
before making the payment to the supplier
For example –
A government agency gives a road laying contract to a builder. The contract value is Rs 10
lakhs. When the government agency makes payment to the builder TDS @ 1% (which amounts
to Rs 10,000) will be deducted and balance amount will be paid.

Tax Collected at Source (TCS) – TCS is mainly for e-commerce aggregators (who owns and
manages an electronic platform). It means that any dealer selling through e-commerce will
receive payment after deduction of TCS @ 2%.

2. How to calculate the GST payment to be made?

Usually, the Input Tax Credit should be reduced from Outward Tax Liability to calculate the
total GST payment to be made. TDS/TCS will be reduced from the total GST to arrive at the
net payable figure. Interest & late fees (if any) will be added to arrive at the final amount.
Also, ITC cannot be claimed on interest and late fees. Both interest and late fees are required
to be paid in cash.
The way the calculation is to be done is different for different types of dealers –

Regular Dealer
A regular dealer is liable to pay GST on the outward supplies made and can also claim Input
Tax Credit (ITC) on the purchases made by him.
The GST payable by a regular dealer is the difference between the outward tax liability and the
ITC.

Composition Dealer
The GST payment for a composition dealer is comparatively simpler. A dealer who has opted
for composition scheme has to pay a fixed percentage of GST on the total outward supplies
made.
GST is to be paid based on the type of business of a composition dealer.
Type of Business CGST SGST Total
Manufacturer & Traders (Goods) 0.5% 0.5% 1.0%
Restaurants not serving alcohol 2.5% 2.5% 5.0%
Service Providers are not eligible for Composition Scheme.

3. Who should make the GST payment and when?

These dealers are required to make GST payment –
• A Registered dealer is required to make GST payment if GST liability exists.
• Registered dealer required to pay tax under Reverse Charge Mechanism (RCM).
• E-commerce operator is required to collect and pay TCS
• Dealers required deducting TDS
• GST payment is to be made when the GSTR-3 is filed i.e. by 20th of the next month.

4. What are the electronic ledgers?

These ledgers are maintained on the electronically on GST Portal.

Types of Electronic Ledgers

Cash Ledger Credit Ledger Liability Ledger

 This ledger will reflect all ITC as self-assessed in The total tax liability of a tax
deposits made in cash, and monthly returns will be payer (after netting) for the
TDS or TCS made on reflected here. The credit in particular month will be
account of the taxpayer. This this ledger can be used to shown here. This ledger will
ledger can be used for make payment of tax only be automatically displayed
making any payment on and no other amounts such as on a GST Tax payer’s
account of GST interest, penalty, fees etc. dashboard.

5. How to make GST payment?

GST payment can be made in 2 ways:

Payment through Credit Ledger
The credit of ITC can be taken by dealers for GST payment. The credit can be taken only for
payment of Tax. Interest, penalty and late fees cannot be paid by utilizing ITC.
Payment through Cash Ledger
GST payment can be made online or offline. The challan has to be generated on GST Portal for
both online and offline GST payment.
Where tax liability is more than Rs 10,000, it is mandatory to pay taxes Online.

What is E-FPB?
E-FPB stands for Electronic Focal Point Branch. They are branches of authorized banks which
are authorized to collect payment of GST. Each authorized bank will nominate only one branch
as its E-FPB for PAN India transactions. The E-FPB will have to open accounts under each
major head for all governments. Total 38 accounts (one each for CGST, IGST and one each for
SGST for each State/UT Govt.) will have to be opened. Any amount received by such E-FPB
towards GST will be credited to the appropriate account held by such EFPB.

CPIN
It is an indication that the payment has been realized and credited to the appropriate government
account. CPIN stands for Common Portal Identification Number given at the time of
generation of challan at GST portal. It is a 14 digit unique number to identify the challan and
before making GST payment. Whereas, CIN stands for Challan Identification Number and
is a 17 digit unique number of the challan generated after making GST payment.

B. Refunds

1. What is GST refund?

Usually when the GST paid is more than the GST liability a situation of claiming GST refund
arises. Timely refund mechanism is essential in tax administration, as it facilitates trade through
the release of blocked funds for working capital, expansion and modernization of existing
business. The provisions pertaining to refund contained in the GST law aim to streamline and
standardize the refund procedures under GST regime. Thus, under the GST regime, there will
be a standardized form for making any claim for refunds. The claim and sanctioning procedure
will be completely online and time bound, which is a marked departure from the existing time
consuming and cumbersome procedure.

2. When can the refund be claimed?

Situations Leading to Refund Claims:

The relevant date provision embodied in Section 54 of the CGST Act, 2017, provision
contained in Section 77 of the CGST Act, 2017 and the requirement of submission of relevant
documents as listed in Rule 1(2) of Refund Rules is an indicator of the various situations that
may necessitate a refund claim. A claim for refund may arise due to:
• Export of goods or services
• Supplies to SEZs units and developers
• Deemed exports
• Refund of taxes on purchase made by UN or embassies etc.
• Refund arising on account of judgment, decree, order or direction of the Appellate
Authority, Appellate Tribunal or any court
• Refund of accumulated Input Tax Credit on account of inverted duty structure
• Finalization of provisional assessment
• Refund of pre-deposit
• Excess payment due to mistake
• Refunds to International tourists of GST paid on goods in India and carried abroad at the
time of their departure from India
• Refund on account of issuance of refund vouchers for taxes paid on advances against
which, goods or services have not been supplied
• Refund of CGST & SGST paid by treating the supply as intra-State supply which is
subsequently held as inter-State supply and vice versa
Thus, practically every situation is covered. The GST law requires that every claim for refund
is to be filed within 2 years from the relevant date.

3. Credit Notes

Further, Section 34 of the CGST Act, 2017 provides for issuance of credit notes for post supply
discounts or if goods are returned back within a stipulated time. When such credit notes are
issued, obviously it would call for reduction in output liability of the supplier. Hence, the taxes
paid initially on the supply would be higher than what is actually payable. In such a scenario,
the excess tax paid by the supplier needs to be refunded. However, instead of refunding it
outright, it is sought to be adjusted after verifying the corresponding reduction in the input tax
credit availed by the recipient. Section 43 of the CGST Act, 2017 provides for procedure for
reduction in output liability on account of issuance of such credit notes. This is another form of
refund by adjustments in the output tax liability.

4. What is the time limit for claiming the refund?

The time limit for claiming a refund is 2 years from relevant date.
The relevant date is different in every case. The different relevant date’s scenario is:

• When the goods are exported through air or sea, then relevant date shall be the date on
which such ship or aircraft leaves India
• When the goods are carried by a land vehicle, then relevant date shall be the date when
the goods cross the land frontier of the country
• When the goods are sent through post, then relevant date shall be the date of dispatch of
goods from the post office
• When the supply includes services, and when the same is completed before receipt of
payment, then relevant date shall be the payment receipt date
• Similarly, when the services are performed after receipt of an advance, then relevant
date shall be the invoice date
• Where refund claim is made for excess input tax credit unutilized, then relevant date
shall be the end of the financial year for which such refund claim is being made
• Where the goods are supplied for deemed exports, i.e. supply to SEZ or 100% EOU, the
relevant shall be return filing date related to such deemed exports was filed
• Where refund arises due to an order passed in favour of the appellant, then relevant date
shall be the date of such order
• Where tax was paid following a provisional assessment and refund now arises, then
relevant date shall be the date at which such tax was adjusted
• When the person claiming refund is not the supplier, then relevant date shall be the date
at which the goods are received by such person
• For all other cases, relevant date shall be the date of payment of tax

It is mandatory to keep in mind these relevant dates as failure to file refund applications within
mentioned time can lead to blockage of credit.
Also if refund is paid with delay an interest of 24% p.a. is payable by the government.

5. How to claim GST refund?

The refund application has to be made in Form RFD-01 within 2 years from relevant date. If a
GST refund claim is less than `2 lakhs, then a self-declaration of the applicant must be
submitted to the effect that the incidence of tax has not been passed to any other person along
with other documents. For GST refund claims exceeding `2 lakhs, a certificate from a Chartered
Accountant/ Cost Accountant must be submitted along with the documents.

Once the application made, an acknowledgement in Form RFD-02 will be auto generated for
future references and sent across through an email and an SMS. In case the system finds some
deficiencies in the refund application, then Form RFD-03 shall be sent to the tax payer to correct
his application.

GST Penalties
To prevent tax evasion and corruption, GST has brought in strict provisions for offenders
regarding penalties, prosecution, and arrest.

What does penalty mean?

The word “penalty” is not specifically defined in GST and so it takes the meaning from various
judicial pronouncements and principles of jurisprudence.
A penalty is a punishment imposed by law for committing an offence or failing to do something
that was the duty of a party to do.
A penalty can be corporal or pecuniary, civil or criminal.
Both corporal (jail) and pecuniary (monetary) penalties are applicable under GST.
If any of the offenses are committed then a penalty will have to be paid under GST. The
principles on which these penalties are based are also mentioned by law.

Penalties
For late filing
Late filing attracts penalty called late fee. The late fee is `100 per day per Act. So it is `100
under CGST & `100 under SGST. Total will be `200/day. The maximum is `5,000. There is no
late fee on IGST in case of delayed filing.
Along with late fee, interest has to be paid at 18% per annum. It has to be calculated by the
taxpayer on the tax to be paid. The time period will be from the next day of filing (26 th / 29th
Aug.) to the date of payment.

For not filing

If the assessee is not filing any GST return then subsequent returns cannot be filed. For
example, if GSTR-2 return of August is not filed then the next return GSTR-3 and subsequent
returns of September cannot be filed. Hence, late filing of GST return will have a cascading
effect leading to heavy fines and penalty which is as below.
Tax amount involved 100 - 200 lakhs 200 - 500 lakhs Above 500 lakhs
Jail term Upto 1 year Upto 3 years Upto 5 years
Fine In all three cases
Cases of fraud also face penalties, prosecution, and arrest.

Interest on Late Payment of GST Due

Interest has to be paid by every taxpayer who:

• Makes a delayed GST payment i.e. pays GST after the due date.
• Claims excess Input Tax Credit
• Reduces excess Output Tax Liability
Currently, GST has to be paid at the time of filing GSTR-3B and GSTR-4.
If GST is not paid within the due dates of filing return Interest at following rates has to be paid:
Particulars Interest
Tax paid after due date 18% p.a.
Excess ITC Claimed or excess reduction in Output Tax 24% p.a.
The Interest has to be calculated from the next day on which tax was due.
For example, a taxpayer fails to make a tax payment of `10,000 for the month of December
2017 (due date – 20th Jan 2018). He makes the payment on 20 th Feb 2018. Interest will be
calculated as follows:
`10,000 * 31 days/365 * 18% = `153.
Thus it is important to make tax payment and file GST Return within due dates.

Notice for Not Filing GST Return

If a taxpayer fails to furnish GST returns for more than a month or two, a GSTR-3A notice may
be issued by the GST authorities. On issuing GSTR-3A notice, the taxpayer is provided a period
of 15 days to regularize GST return filing by paying any penalty as shown on the GST portal.
If the pending GST returns are not filed within 15 days of GSTR-3A notice, then the GST
Officer could assess tax liability, fines and penalty based on the information available and make
the same payable by the taxpayer.
Hence, on receiving GSTR-3A notice, it is advisable for all GST taxpayers to immediately
regularize all GST compliance by paying the applicable penalty.

Offences
There are 21 offenses under GST. All the offences are available in the GST manual.
The major offenses under GST are:
• Not registering under GST, even though required by law
• Supply of any goods/services without any invoice or issuing a false invoice
• The issue of invoices by a taxable person using the GSTIN of another bona fide taxpayer
• Submission of false information while registering under GST
• Submission of fake financial records/documents or files, or fake returns to evade tax
• Obtaining refunds by fraud
• Deliberate suppression of sales to evade tax
• Opting for composition scheme even though a taxpayer is ineligible

For the 21 offenses with no intention of fraud or tax evasion

An offender not paying tax or making short payments must pay a penalty of 10% of the tax
amount due subject to a minimum of `10,000.
Consider — in case tax has not been paid or a short payment is made, a minimum penalty of
`10,000 has to be paid. The maximum penalty is 10% of the tax unpaid.

For the 21 offenses with the intention of fraud or tax evasion

An offender has to pay a penalty amount of tax evaded/short deducted etc., i.e., 100% penalty,
subject to a minimum of `10,000.
There are 21 offences under GST. To understand in detail it is grouped as:

a) Fake/wrong invoices
A taxable person supplies any goods/services without any invoice or issues a false invoice.
He issues any invoice or bill without supply of goods/services in violation of the provisions of
GST
He issues invoices using the identification number of another bonafide taxable person

b) Fraud
He submits false information while registering under GST
He submits fake financial records/documents or files fake returns to evade tax
Does not provide information/gives false information during proceedings

c) Tax evasion
He collects any GST but does not submit it to the government within 3 months
Even if he collects any GST in contravention of provisions, he still has to deposit it to the
government within 3 months. Failure to do so will be an offence under GST
He obtains refund of any CGST/SGST by fraud
He takes and/or utilizes input tax credit without actual receipt of goods and/or services
He deliberately suppresses his sales to evade tax

d) Supply/transport of goods
He transports goods without proper documents
Supplies/transports goods which he knows will be confiscated
Destroys/tampers goods which have been seized

e) Others
He has not registered under GST although he is required to by law
He does not deduct TDS or deducts lesser amount where applicable.
He does not collect TCS or collects lesser amount where applicable.
Being an Input Service Distributor, he takes or distributes input tax credit in violation of the
rules
He obstructs the proper officer during his duty (for example, he hinders the officer during the
audit by tax authorities)
He does not maintain all the books that he required to maintain by law
He destroys any evidence
List of different forms under GST
The form naming system under GST is impressive. They have named forms in such a simple
manner that understanding nature of form becomes easy.
For example all the forms for return filing will are named as GSTR-1, GSTR-2 etc. and
similarly forms to apply for a practitioner are named as GST PCT-1, GST PCT-2 etc. Below is
the list of different forms to be used under GST for registration, composite levy, return filing,
assessments etc.
GST Registration forms
Form Purpose of form
GST REG-01 Application for Registration
GST REG-02 Acknowledgement
GST REG-03 Notice for Seeking Additional Information / Clarification / Documents
relating to Application for registration/amendments/cancellation
GST REG-04 Clarification/additional information/document for Registration /
Amendment / Cancellation
GST REG-05 Order of Rejection of Application for Registration / Amendment /
Cancellation
GST REG-06 Registration Certificate
GST Registration forms
Form Purpose of form
GST REG-07 Application for Registration as Tax Deductor at source (u/s 51) or Tax
Collector at source (u/s 52)
GST REG-08 Order of Cancellation of Registration as Tax Deductor at source or Tax
Collector at source
GST REG-09 Application for Registration of Non Resident Taxable Person
GST REG-10 Application for registration of person supplying online information and
data base access or retrieval services from a place outside India to a person
in India, other than a registered person
GST REG-11 Application for extension of registration period by casual / non-resident
taxable person
GST REG-12 Order of Grant of Temporary Registration/ Suo Moto Registration
GST REG-13 Application/Form for grant of Unique Identity Number (UIN) to UN
Bodies/ Embassies /others
GST REG-14 Application for Amendment in Registration Particulars (For all types of
registered persons)
GST REG-15 Order of Amendment
GST REG-16 Application for Cancellation of Registration
GST REG-17 Show Cause Notice for Cancellation of Registration
GST REG-18 Reply to the Show Cause Notice issued for Cancellation
GST REG-19 Order for Cancellation of Registration
GST REG-20 Order for dropping the proceedings for cancellation of registration
GST REG-21 Application for Revocation of Cancellation of Registration
GST REG-22 Order for revocation of cancellation of registration
GST REG-23 Show Cause Notice for rejection of application for revocation of
cancellation of registration
GST REG-24 Reply to the notice for rejection of application for revocation of
cancellation of registration
GST REG-25 Certificate of Provisional Registration
GST REG-26 Application for Enrolment of Existing Taxpayer
GST REG-27 Show Cause Notice for cancellation of provisional registration
GST REG-28 Order of cancellation of provisional registration
GST REG-29 Application for cancellation of provisional registration
GST REG-30 Form for Field Visit Report
GST Returns forms
Form Purpose of Form
FORM GSTR-1 Furnishing details of outward supplies
FORM GSTR-2 Furnishing details of inward supplies
FORM GSTR-3 GST Monthly Return for inward & outward supply along with payment
of tax
FORM GSTR-4 GST Quarterly Return for outward supply along with payment of tax
FORM GSTR-5 Return by a non-resident - Furnish details of inward supplies, outward
supplies, ITC availed, tax paid, and closing stock
FORM GSTR-6 Furnish details of input credit distributed (ISD)
FORM GSTR-7 Return by a Tax Deductor at Source
FORM GSTR-8 Return by an E-commerce operator/Tax collector
FORM GSTR-9 Annual Return for a Normal Taxpayer
FORM GSTR-9A Annual Return for Taxpayer under composition levy
FORM GSTR-10 Final Return when GST registration is cancelled or surrendered (once)
FORM GSTR-1A To update the details of sales for GSTR-1 which was filed earlier
FORM GSTR-2A Purchase-related tax return that is automatically generated for each
business Notice to dealers who fail to file monthly or annual returns
FORM GSTR-3A Details of inward supplies made available to the composition dealer on
the basis of Form GSTR-1 furnished by the supplier
FORM GSTR-3B Simple Return in which summary of outward supplies along with Input
Tax Credit is declared and payment of tax is affected by taxpayer
FORM GSTR-4A Non-resident taxpayers who provide OIDAR services have to file GSTR-
5A
FORM GSTR-5A Details of inward supplies made available to ISD on the basis of Form
GSTR-1

Forms for Composition tax payers

Form Purpose of form
GST CMP-01 Intimation to pay tax under section 10 (composition levy) by users who
migrated to GST
GST CMP-02 Intimation to pay tax under section 10 (composition levy)
GST CMP-03 Intimation of details of stock on date of opting for composition levy
(Only for persons registered under the existing law migrating on the
appointed day)
GST CMP-04 Intimation/Application for withdrawal from composition Levy
GST CMP-05 Notice for denial of option to pay tax under section 10
Forms for Composition tax payers
Form Purpose of form
GST CMP-06 Reply to the notice to show cause
GST CMP-07 Order for acceptance / rejection of reply to show cause notice

Payment Forms under GST

Form Purpose of Form
GST PMT-01 Electronic Liability Register of registered person (Part–I: Return related
liabilities) Electronic Liability Register of taxable person (Part–II: Other
than return related liabilities)
GST PMT-02 Electronic Credit Ledger
GST PMT-03 Order for re-credit of the amount to cash or credit ledger on rejection of
refund claim
GST PMT-04 Application for intimation of discrepancy in Electronic Credit
Ledger/Cash Ledger/Liability Register
GST PMT-05 Electronic Cash Ledger
GST PMT-06 Challan For Deposit of Goods and Services Tax
GST PMT-07 Application for intimating discrepancy in making payment
ITC Forms (Input Tax Credit)
Form Purpose of Form
GST ITC – 1 Declaration for claim of input tax credit under sub-section (1) of section
18
GST ITC – 2 Declaration for transfer of ITC in case of sale, merger, demerger,
amalgamation, lease or transfer of a business under section 18 (3)
GST ITC – 3 Declaration for intimation of ITC reversal on inputs, inputs contained in
semi-finished and finished goods and capital goods in stock u/s 18 (4)
GST ITC – 4 Details of goods/capital goods sent to job worker and received back.

Refund forms under GST

Form Purpose of Form
GST RFD-01 Application for Refund
GST RFD-02 Acknowledgement
GST RFD-03 Deficiency Memo
GST RFD-04 Provisional Refund Order
GST RFD-05 Payment Advice
GST RFD-06 Refund Sanction/ Rejection Order/Interest on delayed refund order (same
as refund order)
 Refund forms under GST
Form Purpose of Form
GST RFD-07 Order for complete adjustment of sanctioned Refund
GST RFD-08 Notice for rejection of application for refund
GST RFD-09 Reply to show cause notice
GST RFD-10 Application for Refund by any specialize agency of UN or Multilateral
Financial Institution and Organization, Consulate or Embassy of foreign
countries, etc

Assessment And Audit

GST Procedure
Goods and Service Tax (GST) is structured for efficient tax collection, reduction in corruption,
easy inter-state movement of goods and a lot more.

What does Assessment mean under GST?

The word “Assessment “is comprehensive and can comprehend the whole procedure by
ascertaining and imposing liability on taxpayer. “Assessment” means determination of tax
liability under CGST Act, 2017 and includes self-assessment, re-assessment, provisional
assessment, summary assessment and best judgment assessment. Sections 59 to 64 of Chapter
XII under CGST Act, 2017 deals with “Assessment”.

In short, Assessment is the process of determination of the tax liability of a taxpayer. There are
different ways to determine tax liability under the GST law. GST Assessment is required to be
done to establish the tax liability of an assessee. Taxation Laws lay down a process of
assessment, i.e. a way to figure out exactly how much tax should be paid.

Below are the various types of assessment under GST. Only self-assessment is done by the
taxpayer himself. All the other assessments are by tax authorities.

Types of Assessment under GST

These ledgers are maintained on the electronically on GST Portal.

Assessment

By Tax By tax
 Payer Authorities

Self Provisional Summary Scrutiny Best

Assessment Assessment Assessment of returns Judgment
Assessment

Non Unregistered
Filer’s persons

Short notes to different kinds of GST assessment

a) Self Assessment (sec. 59)

Self GST assessment is available to every registered taxable person to assess the tax payable
by him for any tax period. Thus, determination of tax liability is to be undertaken by the
taxpayer himself and stated in the return to be filed by him. The return is required to primarily
contain inward supplies in Form GSTR-02 and outward supplies in Form GSTR-01 of
goods/services, Input Tax Credit, tax payable and tax paid. Hence, the furnishing of the return
shall mean self-assessment of the taxpayer.

b) Provisional Assessment (sec. 60)

Provisional GST assessment can be invoked by a taxable person by making a
request/application in Form GST ASMT-01 to the assessing officer in case he is not able to
determine
• The value of the supplies (goods or services or both)
• Tax rate applicable to such supplies
The proper officer may on receipt of the said application in Form GST ASMT-01, issue a notice
in Form GST ASMT-02 to furnish additional information if any.
The applicant shall file a reply to the notice received by him in Form GST ASMT–03 and may
appear in person before the said officer if he so desires.

b.1 – Procedure for Provisional Assessment

The detailed request in writing to the proper officer shall indicate –
• Specific grounds/reasons, and the documents or information, due to which he is unable
to self assess his tax payable
• Period for which provisional assessment is required
 • The rate of duty or the value or both proposed to be applied by the assessee for
provisional payment of tax
• An undertaking to appear before the proper officer on the date fixed by him and furnish
all relevant information and documents within the time specified.

b.2 – Order of Provisional Assessment

The proper officer will issue a specific order directing provisional assessment stating –
• The grounds on which Provisional Assessment is ordered
• The rate/value at which the tax has to be provisionally paid
• The amount of differential tax for which bond is to be executed
• The amount of security/surety as may be fixed by the proper officer.

b.3 – Furnishing of Bond & Security

The registered person shall execute a bond in Form GST ASMT-05 along with a security in the
form of a bank guarantee not exceeding twenty-five percent of the amount covered under the
bond as determined by the proper officer.

b.4 – Payment of Tax on provisional basis

The proper officer may issue an order in Form GST ASMT-04 to pay tax on a provisional basis.

b.5 – Obligation to pass Final Order

The proper officer shall, within a period six months from the date of the communication of the
“Provisional Order”, pass the final assessment order in Form GST ASMT-07 after taking into
account such information as may be required (in Form GST ASMT-06).

b.6 – Extension of time to pass final order

On sufficient cause, in writing, six months may be extended by the Jt. Commissioner or
Additional Commissioner for a further period of six months. However, the Commissioner can
further extend it for 4 years on his discretion.

c) Summary Assessment (sec. 64)

Here, the assessing officer determines the liability of the assessee on the basis of returns filed
by the taxpayer and other evidence in the possession of the assessing officer without calling for
either the taxpayer or his records. The proper officer with the permission of Additional/Joint
Commissioner, proceed to assess the tax liability of such person to protect the interest of
revenue and issue an assessment order in Form GST ASMT-16 if he has sufficient grounds to
believe that any delay in doing so may adversely affect the interest of revenue.
d) Scrutiny Assessment (sec. 61)
The Proper Officer can scrutinize the return and related furnished particulars to verify the
correctness of the return and inform about any discrepancies noticed (in Form GST ASMT-10)
and seek explanations.
If the explanation is acceptable, the registered person will be informed and no further action
will be taken.
If explanation given is rejected within 30 days of being informed by the proper officer or where
the registered person, fails to take the corrective action, the proper officer can start appropriate
action including Audit, Special Audit, etc.

e) Best Judgment Assessment

If a registered person fails to furnish due return even after issuing of notice for submission of
the return, the proper officer may proceed to assess such person to the best of his judgment.

e.i – Assessment of non-filers of returns

Where a registered person fails to furnish the return or even after the service of a notice under
section 46, the proper officer may proceed to assess the tax liability of the said person to the
best of his judgment taking into account all the relevant material and issue an assessment order
in Form GST ASMT-15 within a period of five years as the case may be. (Section 62)

e.ii – Assessment of unregistered persons –

Where a taxable person fails –
To obtain registration or
Whose registration has been cancelled but who was liable to pay tax, the proper officer may
proceed to assess the tax liability to the best of his judgment and issue an assessment order
within a period of five years as the case may be. However, no such assessment order shall be
passed without giving the person an opportunity of being heard. (Section 63)

Audit under GST

Audit under GST is the process of examination of records, returns and other documents
maintained by a taxable person. The purpose is to verify the correctness of turnover declared,
taxes paid, refund claimed and input tax credit availed, and to assess the compliance with the
provisions of GST.

Threshold for Audit

Every registered taxable person whose turnover during a financial year exceeds the prescribed
limit [as per the latest GST Rules, the turnover limit is above `2 Crore] shall get his accounts
audited by a chartered accountant or a cost accountant. He shall electronically file:
• an annual return using the Form GSTR-09B along with the reconciliation statement by
31st December of the next Financial Year
• the audited copy of the annual accounts
• a reconciliation statement, reconciling the value of supplies declared in the return with
the audited annual financial statement
• And other particulars as prescribed.

Audit under GST

Audit by Audit by GST

Taxable Person Tax Authorities

File Audited + Audited General Audit (order Special Audit by a CA

Accounts + Reconciliation order by nominated by
Statement Commissioner) Commissioner

A. Audit by Registered Dealer

Every registered dealer whose turnover during a financial year exceeds the `2 Crore has to get
his accounts audited by a CA or a CMA.

B. Audit by Tax Authorities

General Audit
The Commissioner or a person authorized by him may undertake an audit of a registered person
for the period, frequency and manner prescribed.
• Audit can be carried out either in the premises of the registered person or may also be
done at the office of the proper officer, by calling for information and documents
• 15 days clear notice shall be provided to the person before initiation of such an audit
• The audit proceedings have to be closed within 3 months from the date of initiation of
audit (Where the date of commencement of audit shall be the date on which all the
 documents and information called for are provided or audit actually initiated at the
business premises, whichever is later).
• Also, if the Commissioner is satisfied that the audit cannot be completed in 3 months,
he can record the reasons in writing and extend the time for a further maximum period
of 6 months.
• The registered person is obliged to provide all necessary details, documents and
information required for completion of an audit.
• On conclusion of an audit, the proper officer shall, within thirty days, inform the
registered person, whose records are audited, about the findings, his rights and
obligations and the reasons for such findings.
• Once the above are done, the proper officer may determine tax payable and interest and
penalty, if any, thereon, and also initiate collection proceedings.

Special Audit
• During any stage of any investigation, scrutiny, assessment or any other proceedings
under this act, if the proper officer, not below the rank of Assistant Commissioner, with
the prior approval of Commissioner, may get the books of accounts audited by a CA or
Cost Accountant nominated by the Commissioner, if so required in interest of revenue
keeping in view of the complexity of transactions or business or claim of input credit
• Such CA or Cost Accountant is required to submit duly signed and certified report within
90 days to such Assistant Commissioner, extendable to further period of 90 days in case
of an application in writing by such CA or Cost Accountant or for a sufficient reason
• Such audit report is subject to principle of natural justice, wherein, an opportunity to be
heard shall also be provided to the registered person
• Remuneration or fee of such nominated person shall be decided by the commissioner
and his decision shall be final
• All other provisions of tax, interest, penalty and collection shall apply to audit under this
section too.

Findings of Audit

On conclusion of an audit, the officer will inform the taxable person within 30 days of:
• the findings,
• their reasons, and
• the taxable person’s rights and obligations
If the audit results in detection of unpaid/short paid tax or wrong refund or wrong input tax
credit availed, then demand and recovery actions will be initiated.
Rectifications to Returns after GST Audit

If any taxable person, after furnishing a return discovers any omission/incorrect details (from
results of audit), he can rectify, subject to payment of interest. However, no rectification will
be allowed after the due date for filing of return for the month of September or second quarter,
(as the case may be), following the end of the financial year, or the actual date of filing of the
relevant annual return, whichever is earlier.

For example, X found during the audit that he has made a mistake in Oct 2017 return. X
submitted an annual return for FY 2017-18 on 31st August 2018 along with audited accounts.
He can rectify the Oct 2017 mistake within – 20th Oct 2018 (last date for filing Sep return) Or
31st August 2018 (the actual date of filing of relevant annual return)
- earlier, i.e., his last date for rectifying is 31st August 2018.

This rectification will not be allowed where results are from scrutiny/audit by the tax
authorities.

Form Number and Description used under Assessment and Audit:

FORM NO. Description

GST ASMT 01 Application for Provisional Assessment
GST ASMT 02 Additional Documents or Details demand by Proper officer against ASMT 01
GST ASMT 03 Reply file against ASMT 02
GST ASMT 04 Order Pass to Allow for Provisional Assessment
GST ASMT 05 For execute the bond and furnish the security through bank guarantee
GST ASMT 06 Calling of Information by proper officer for Final Assessment
GST ASMT 07 Final Assessment Order
GST ASMT 08 Application for release of security from the proper officer
GST ASMT 09 Order pass for releasing of security
GST ASMT 10 Notice of discrepancies occurred at the time of Scrutiny of Returns
GST ASMT 11 Reply against ASMT 10
GST ASMT 12 Intimation by proper officer against reply filed in ASMT 11
GST ASMT 13 Order of Assessment as per Section 62
GST ASMT 14 Notice for making the best judgment Assessment
GST ASMT 15 Order of Best Judgment Assessment after giving opportunity of being heard
GST ASMT 16 Order of Summary Assessment made under Section 64
GST ASMT 17 Application for Withdrawal of the summary Assessment
GST ASMT 18 Order passed against ASMT 18
GST ADT-01 Notice to the registered person for intimating about Audit.
GST ADT-02 Inform the findings of the Audit by the proper officer to the registered person
GST ADT-03 Notice about special audit to the registered person
GST ADT-04 Inform the findings of the Audit by the proper officer to the registered person

Inspection, Search, Seizure and Arrest under GST

In any tax-administration, there are provisions for search, inspection, arrest and seizure. These
are made for protecting the interests of the legitimate tax payers (by evading tax, tax evaders
might get unfair advantage over genuine tax payers). It also acts as a restraint for evasion of
tax. In order to safeguard the legitimate dues of any government, these provisions are necessary.
The new GST in India has been structured for effective collection of tax, reducing corruption
as well as easier inter-state goods/services movement.

Inspection & Search under the GST

Search: The term search can be ‘attempting to find something’. In the legal world, search can
be an action taken by an official of the government such as police officer or tax officer
(depending on the case). The process includes examining or looking carefully through any
place, objects or person etc with the objective of finding something that might be hidden or
concealed and can act as evidence for tax evasion. An individual can conduct ‘search’ only
under valid and proper law.

Inspection: Inspection can be understood as the process of closely examining something. In

legal language, the provision is softer than search. An authorized person can inspect any
business place of an individual as well as any business place engaged in goods transport or
operator/owner of a godown or warehouse.

Ordering for GST Inspection

The process for GST inspection (or search, seizure and arrest) should only be exercised during
exceptional circumstances and as a last resort, for protection of Government Revenue. In order
to make sure that the provisions are not misused as well as the tax payers rights are effectively
protected, these provisions can be carried out only when officers with Joint Commissioner
Ranks or above, have reasons for believing that exceptional circumstances exist.

The circumstances under which ‘reasons to believe’ provision arises are when an individual (in
order to evade tax) has:
• Suppressed any supply transaction
• Suppressed any stock-in-hand transaction
• Claimed ITC (input tax credit) in excess
• Violated any ITC/ GST provision
 • Any warehouse operator or transporter has accumulated goods that have evaded tax
payments or kept the goods/ services accounts in such manner that can evade tax.
In any of the above conditions, the Joint Commissioner can authorize CGST or SGST officer
for inspecting the place of business of:
• Taxable person, or
• Transporter, or
• Operator or owner of the warehouse

What is meant by ‘reasons to believe’?

‘Reason to believe’ means having knowledge of facts (although does not mean having direct
knowledge), that would make any reasonable person, knowing the same facts, to reasonably
conclude the same thing.
As per the Indian Penal Code, 1860, “A person is said to have ‘reason to believe’ a thing, if he
has sufficient cause to believe that thing but not otherwise.”
Reason to believe is a determination based on intelligent examination and evaluation. It is
different from a purely subjective consideration, i.e., an opinion. It is based on facts rather than
an interpretation of facts.

Is it necessary to record the ‘reasons to believe’ in writing, before issuing order for
Inspection/Search/Seizure?

GST Act does not mention recording the reasons to believe. In fact, Finance Act 2017 has
amended Sec 132(1) & (1A) of Income Tax Act retrospectively stating, that reason to believe,
shall not be disclosed to any person or any authority or the Appellate Tribunal.

Power of inspection, search and seizure

(1) Where the GST officer, not below the rank of Joint Commissioner, has “reasons to believe”
that:
a) A taxable person has suppressed any transaction relating to supply of goods or services
or the stock of goods in hand, or has claimed input tax credit in excess of his entitlement
under the Act or rules made there under to evade tax under this Act or
b) Any person engaged in the business of transporting goods or an owner or operator of a
warehouse or a godown or any other place is keeping goods which have escaped
payment of tax or has kept his accounts or goods in such a manner as is likely to cause
evasion of tax payable under this Act,
 then he may authorize in writing any other officer (of CGST/SGST) to inspect any places
of business of the taxable person or the persons engaged in the business of transporting
goods or the owner or the operator of warehouse or godown or any other place.

(2) Where the GST officer, not below the rank of Joint Commissioner, either pursuant to an
inspection carried out under above section (1) or otherwise, has “reasons to believe” that any
goods liable to confiscation or any documents or books or things, which in his opinion shall be
useful for or relevant to any proceedings under this Act, are secreted in any place, he may
authorize in writing any other officer to search and seize such goods, documents or books or
things.

(3) The officer authorized under section (2) above shall have the power to seal or break open
the door of any premises or to break open any almairah, box, receptacle (that into which
anything is received) in which any goods, accounts, registers or documents of the person are
suspected to be concealed, where access to such premises, almairah, box or receptacle is denied.

(4) The person from whose custody any documents are seized under section (2) shall be entitled
to make copies thereof or take extracts there from in the presence of an officer of CGST/SGST.

(5) Where any goods are seized under section (2) and no notice in respect thereof is given within
sixty days of the seizure of the goods, the goods shall be returned to the person from possession
they were seized.

(6) The Central or a State Govt. may, having regard to the perishable or hazardous nature of
any goods, depreciation in value of the goods with the passage of time, constraints of storage
space for the goods or any other relevant considerations, specify the goods or class of goods
which shall, as soon as may be after the seizure under section (2), be disposed of by the proper
officer in such manner as the Central or a State Govt. may prescribe.

(7) Where any goods, being goods specified under section (6), have been seized by a proper
officer under section (2), he shall prepare an inventory of such goods in the manner as may be
prescribed in this behalf.

Then it can be authorized to any officer in FORM GST INS-01 to inspect & search places of
businesses of:
• the taxable person or
• the transporter or
• owner/operator of warehouse
He can also examine any other place if he sees fit.
When can ‘Search’ be ordered under GST?

Based on the ‘inspection’ results (or other reasons), CGST/SGST or any superior officer can
authorize search order in case of below mentioned ‘reasons to believe’:
• Presence of goods that can be confiscated
• Books or documents or other items that can be deemed useful during various
proceedings & are hidden

Seizure under the GST

Seizure: The new GST law has not defined ‘seizure’ specifically. As per legal parlance, a
seizure can be described as process of taking someone or something under legal force. This can
be seizure of evidence. A seizure is different from Detention as the latter means not allowing
an owner the access to seized goods via legal notice or order. In detention, the ownership of
goods lies with owner.

In case seizing of goods is not practicable or viable, the owner is ordered to keep the goods in
place and not remove them without having permission for the same. The legal officer has the
authority to keep documents and books until it is deemed unnecessary for inquiry and
examination. If the books or documents or any evidence are considered irrelevant for the
examination, it needs to be returned to the owner within thirty days from issue of the notice.
CCP (Code of Criminal Procedure) will be applied in case of search and seizure.

Arrest under the GST

In case of firm belief by the CGST or SGST commissioner that an individual has committed
felony, an authorized CGST or SGST officer can arrest the individual.

If an individual is arrested for specific offences which involve tax amount excess of INR 200
lakhs, the offence will be classified as non-cognizable & bailable. Such people will be released
by Assistant or Deputy Commissioner on Bail. This will be for all cases wherein the tax amount
is less than INR 500 lakhs. In case tax arrests are on offence when the specified amount above
INR 500 lakhs, this offence will be termed cognizable & non-bailable. In these cases, only
Judicial Magistrate will be considered for bail.

When do goods become liable to confiscation under the provisions of CGST/SGST Act?
As per section 130 of SGST/SGST Act, goods become liable to confiscation when any person
does the following:
a) Supplies or receives any goods in contravention of any of the provisions of this Act or rules
made there under leading to evasion of tax;
b) Does not account for any goods on which he is liable to pay tax under this Act;
c) Supplies any goods liable to tax under this Act without having applied for the registration;
d) Contravenes any of the provisions of the CGST/ SGST Act or rules made there under with
intent to evade payment of tax.

What are the safeguards provided in GST Act(s) in respect of Search or Seizure?
Certain safeguards are provided in section 67 of CGST/SGST Act in respect of the power of
search or seizure. These are as follows:
• Seized goods or documents should not be retained beyond the period necessary for their
examination;
• Photocopies of the documents can be taken by the person from whose custody documents
are seized;
• For seized goods, if a notice is not issued within six months of its seizure, goods shall be
returned to the person from whose possession it was seized. This period of six months can
be extended on justified grounds up to a further period of maximum six months;
• An inventory of seized goods shall be made by the seizing officer;
• Certain categories of goods to be specified under CGST Rules (such as perishable,
hazardous etc.) can be disposed of immediately after seizure;
• Provisions of Code of Criminal Procedure 1973 relating to search and seizure shall apply.
However, one important modification is in relation to sub-section (5) of section 165 of Code
of Criminal Procedure – instead of sending copies of any record made in course of search
to the nearest Magistrate empowered to take cognizance of the offence, it has to be sent to
the Principal Commissioner/ Commissioner of CGST/ Commissioner of SGST.

Demand and Recovery

Demand and recovery provisions are applicable when a registered dealer has paid tax
incorrectly or not paid tax at all. It is also applicable when an incorrect refund or ITC is claimed
by the dealer.
The proper officer will issue a show cause notice along with a demand for payment of tax and
penalty in case of fraud.
Demands can arise in the following cases:
• Unpaid or short paid tax or wrong refund
• Tax collected but not deposited with the Central or a State Government
• CGST/SGST paid when IGST was payable and vice versa.
If demand is not paid, the IT department starts recovery proceedings

Advance ruling
What is advance ruling under the GST regime? (Section 95 of CGST/SGST Act)

Under the GST regime, advance rules are clearly-written decisions provided by the tax officials
to clear up questions that taxpayers are likely to have regarding the supply of goods and
services.

“Advance Ruling” means a decision provided by Authority or the Appellate Authority to an

applicant on matters or on questions specified in subsection (2) of section 97 or subsection (1)
of section 100 of CGST Act 2017 in relation to supply of goods or services being undertaken
or proposed to be undertaken by the applicant.
An advance ruling helps the applicant in planning his activities, which are liable for payment
of GST, well in advance. It also brings certainty in determining the tax liability, as
the ruling given by the Authority for Advance Ruling is binding on the applicant as well as
Government authorities. An advance ruling is often requested when the taxpayer is confused
and uncertain about certain provisions.

Advance ruling can be sought in the following cases: (section 97(2))

1. Classifying goods and/or services
2. Applicability of a notification issued under GST
3. Determining the time and value of a supply of goods and/or services
4. Determining whether input tax credit is permissible
5. Determining the liability to pay tax on any goods or services
6. Possibility of the applicant being registered under GST
7. Determining whether a particular activity will result in a supply of goods or services

Section 100(1) of the CGST Act provides that concerned officer, the jurisdictional officer or an
applicant aggrieved by any advance ruling pronounced by the Authority for Advance Ruling,
may appeal to the Appellate Authority.

The objective of any advance ruling, including under GST is to-

a) Provide certainty for tax liability in advance in relation to a future activity to be
undertaken by the applicant
b) Attract Foreign Direct Investment (FDI) – By clarifying taxation and showing a clear
picture of the future tax liability of the FDI. The clarity and clean taxation will attract
non-residents who do not want to get involved in messy tax disputes.
c) Reduce litigation and costly legal disputes
d) Give decisions in a timely, transparent and inexpensive manner

Procedure for Making Advance Ruling Application

a) An applicant seeking an advance ruling must make an application in Form GST ARA-1
with the question and a fee of `5000. Once the application is received, the Authority for
Advance Ruling, it will be forwarded to the concerned officer for gathering the concerned
records.

b) The Authority for Advance Ruling would then examine the advance ruling application along
with the records furnished by the taxpayer and concerned officer. Based on the findings, the
Authority for Advance Ruling can pass an order admitting or rejecting the application. In
case of rejection, the applicant must be provided an opportunity of being heard and the
reason for rejection of the advance ruling application must be stated in the order.

c) It is important to note that application for advance ruling will not be admitted in cases where
the question raised in the application is already pending or decided in any proceedings in
the case of an applicant under any of the provisions of the GST Act.

d) If the application for advance ruling is accepted, the Authority for Advance Ruling must
pass an order within 90 days of receipt of the application. Before the ruling, the Authority
for Advance Ruling would set dates for hearing the applicant and the concerned
jurisdictional officers of GST.

e) In case of difference of opinion between two members of Authority for Advance Ruling,
the matter will be referred to the Appellate Authority for Advance Ruling. If the members
of Appellate Authority for Advance Ruling are also unable to come to a decision, then the
matter would be deemed that no advance ruling can be given in respect of the question
raised by the taxpayer.

Appeals and Revision

Any appeal under any law is an application to a higher court for a reversal of the decision of a
lower court. Appeals arise when there are any legal disputes.

What are disputes?

Tax laws (or any law) impose obligations. Such obligations are broadly of two kinds: tax-
related and procedure-related. The taxpayer’s compliance with these obligations is verified by
the tax officer (through audit, anti-evasion, examining etc.). Sometimes there are situations of
actual or perceived non-compliance which leads to difference of opinion. If the difference in
views persists, it results into a dispute, which is then required to be resolved.
Though “appeal” and “revision” appears to be similar legal terms, there are certain subtle
differences between them. The distinction between an appeal and a revision is a real one.

Appeal: There is no definition of the word “appeal” in any statute. It can be defined as the
judicial examination by a higher Court of a decision of an inferior Court. It is a legal proceeding
by which a case is brought before a higher court for review of the decision of a lower court.
Appeal is a process of re-examination by a higher court of the judgment, or the order or the
decision made by a lower court in a suit or in a case. Appeal is the right of entering a superior
court and seeking its help to redress the error of the lower court. It is a proceeding taken before
a superior court for reversing or modifying the decision of an inferior court on ground of error.

Revision: Revision is the act of examining again in order to remove any defect or grant relief
against irregular or improper exercise or non-exercise of jurisdiction by a lower court. Revision
is like re-working and re-writing. Revision means the action of revising, especially critical or
careful examination or perusal with a view to correcting or improving.

The initial resolution of this dispute is done by a departmental officer by a quasi-judicial process
resulting into the issue of an initial order known by various names -assessment order,
adjudication order, order-in-original, etc.

GST Act defines the phrase “adjudicating authority” as any authority competent to pass any
order or decision under this Act, but does not include the Board, the First Appellate Authority
and the Appellate Tribunal. Thus, in a way, any decision or order passed under the Act is an
act of “adjudication”.

Some examples are: cancellation of registration, best judgment assessment, decision on a

refund claim, and imposition of a penalty.

Steps of appeals under GST

Appeal level Orders passed by…. Can Appeal to…. Sections of Act
1st Adjudicating Authority First Appellate Authority 107
2nd First Appellate Authority Appellate Tribunal 109-110
3rd Appellate Tribunal High Court 111-116
4th High Court Supreme Court 117-118

Appeal cannot be filed in certain cases (Section 93)

The Board or the State Government may, on the recommendation of the Council, fix monetary
limits for appeals by the GST officer to regulate the filing of appeal and avoid unnecessary
litigation expenses

Can all decisions be appealed against?

No. Appeals cannot be made for the following decisions taken by a GST officer-
• An order to transfer the proceedings from one officer to another officer
• An order to seize or retain books of account and other documents; or
• An order sanctioning prosecution under the Act; or
• An order allowing payment of tax and other amount in installments

A person unhappy with any decision or order passed against him under GST by an adjudicating
authority can appeal to the First Appellate Authority. If they are not happy with the decision of
the First Appellate Authority they can appeal to the National Appellate Tribunal, then to High
Court and finally Supreme Court.

Appeal to Courts

Taxpayers have the rights to appeal an order with the Courts. High Court may admit an appeal
if it is satisfied that the case involves a substantial question of law. However, no appeal can be
filed with the High Court if an order is passed by National Bench or Regional Benches.

To file an appeal before the High Court, an appeal memorandum must be filed, precisely stating
the substantial question of law involved, within 180 days from the date of receipt of order
appealed against accompanied by prescribed fee.

Taxpayers also have the rights to appeal with the Supreme Court in case of any judgement or
order passed by National Bench, Regional Benches of Appellate Tribunal or High Court.

Provisions relating to electronic commerce

E-commerce and E-commerce operator plays a vital role in Today’s market scenario. The
related provisions applicable on E-commerce operator under GST are as follows:

“Electronic commerce” means the supply of goods or services or both, including digital
products over digital or electronic network – section 2(44)
“Electronic commerce operator” (ECO) means any person who owns, operates or manages
digital or electronic facility or platform for electronic commerce – section 2(45)

Registration of e-commerce operator:

The Registration provisions for E-commerce operator or the person supplying through E-
commerce platform are as follows:

Compulsory Registration for ECO: Every electronic commerce operator has to compulsorily
register as per provisions of section 24(10) of CGST Act, 2017. The benefit of threshold limit
of `20 lakhs (`10 lakhs for special category states except J & K) is not applicable to them.
Persons who are required to pay tax under sub-section (5) of section 9 have to compulsorily
register as per provisions of section 24(4).

Compulsory Registration for person supplying through ECO: Persons who supply goods
or services or both, other than supplies specified u/s 9(5), through such electronic commerce
operator who is required to collect tax at source under section 52 has to compulsorily register
as per provisions of section 24(9). However, the persons making supplies of services, other than
supplies specified under subsection (5) of section 9 is allowed to take benefit of threshold limit
vide Notification No. 65/2017 – Central Tax dated 15/11/2017.

Restriction on Composition dealer: Person who is engaged in making any supply of goods
through an electronic commerce operator who is required to collect tax at source under section
52 can’t take registration under composition scheme u/s 10.

Specified Services u/s 9(5) of CGST Act and u/s 5(5) of IGST Act

In respect of specified services, tax shall be paid by the ECO on behalf of the service suppliers
if such services are supplied through it and all the provisions of the Act shall apply to such ECO
as if he is the supplier liable to pay tax in relation to the supply of such services. The
Government has notified following categories of services, the tax on intra-State/ inter-state
supplies shall be paid by the ECO –
Sl. Description of supply of Supplier of service Person Notification No.
Service Liable to
Pay GST
1 Transportation of Any person E- Notification No. 17/2017-
passengers by a radio-taxi, commerce Central Tax (Rate) dated
motor cab, maxi cab and operator 28th June, 2017
motor cycle Corresponding
IGST Notification No.
 14/2017-Integrated Tax
(Rate) dated 28th June,
2017
2 Providing accommodation Any person except E- –do–
in hotels, inns, guest who is liable for commerce
houses, clubs, campsites registration under sub- operator
or other commercial section (1) of section
places meant for 22 of the said CGST
residential or lodging Act
purposes
3 Services by way of house- Any person except E- Inserted vide Notification
keeping, such as who is liable for commerce No. 23/2017-Central
plumbing, carpentering registration under sub- operator Tax(Rate) dated
etc section (1) of section 22nd Aug, 2017
22 of the said CGST Corresponding
Act Notification No. 23/2017-
Integrated Tax (Rate)
dated 22nd Aug, 2017

Furthermore, above mentioned suppliers of services covered u/s 9(5) are exempted from
compulsory registration and can take benefit of threshold limit.

Collection of tax at source (Section-52)

Every electronic commerce operator, not being an agent, shall collect TCS at such rate not
exceeding 1% (1% CGST + 1% SGST), of the net value of taxable supplies made through it
by other suppliers where the consideration with respect to such supplies is to be collected by
the operator.

ECO should make the tax collection during the month in which the consideration amount is
collected from the recipient. The amount of TCS collected by the ECO is to be deposited to the
Government and ECO is required to furnish a statement in Form GSTR-8, electronically within
10 days after the end of the month in which amount was so collected.

Levy and collection

Every e-commerce transaction involves below three parties and two types of transactions:
1. Seller;
2. Buyer;
 3. ECO.
Types of transaction:
1. between Seller & Buyer – Sale of Goods;
2. between Seller & ECO – Provision of market place service.
GST shall be levied on both transactions:
• Between seller & buyer: GST on entire value of goods/ services supplied (GST shall
be paid by the supplier except in case of services specified u/s9(5))
• Seller & ECO: GST on commission value/ other charges earned by ECO for providing
providing market platform to seller. (GST shall be paid by the ECO)

Where an electronic commerce operator does not have a physical presence in the taxable
territory, then any person representing him for any purpose in the taxable territory shall be
liable to pay tax, and if he neither have a physical presence in the taxable territory nor have a
representative in the said territory, such electronic commerce operator shall appoint a person in
the taxable territory for the purpose of paying tax and such person shall be liable to pay tax.

CUSTOMS ACT, 1962

It was an ancient customs that whenever a merchant entered a kingdom with his goods, he had
to make a suitable gift to the king to get the king’s permission to sell his goods in that kingdom.
Over a period of time, this custom was formalized into “Customs Duty”.

The Customs Act was passed in India by the Parliament in the year 1962, which replaced the
erstwhile Sea Customs Act, 1878. Further, the Customs Tariff Act was passed in the year 1975
to replace the Indian Tariff Act, 1934. The Customs Tariff was amended in the year 1985 to
deal with the complexities and rapid developments. Thus, now the Act stands as a complete
code as to the levy and collection of duties on import and export of goods.

Therefore, there are two acts, which form part of Customs Law in India, namely, the Customs
Act, 1962 and Customs Tariff Act, 1975.

The Customs Act, 1962: This is the main Act. It provides for levy and collection of customs
duty. Besides, it provides import/export procedures, prohibitions on importation and
exportation of goods, penalties, offences etc. The Act extends to the whole of India.

The Customs Tariff Act, 1975: The Customs Duty is levied on goods imported or exported
from India at the rate specified under the Customs Tariff Act, 1975. It contains two schedules.
Schedule I gives classification and rate of duties for imports of goods into India. Schedule II
gives classification and rate of duties for exports of goods outside India. Further, it makes
provisions for additional duty, preferential duty, anti-dumping duty, protective duties etc.

Meaning: Customs Duty is a duty or tax, which is levied by Central Government on import of
goods into and exports of goods from India. In other words, ‘Customs Duty’ refers to the tax
imposed on the goods when they are transported across the international borders. The import
of goods has been defined in the IGST Act, 2017 as bringing goods into India from a place
outside India. All imports shall be deemed as inter-state supplies and accordingly integrated tax
shall be levied.

Objectives of Customs Duty:

a) To prevent illegal imports and exports of goods

b) To raise revenue to the central government
c) To regulate imports of foreign goods into India
d) To conserve foreign exchange, regulate supply of goods into domestic market
e) To promote international trade
f) To reduce deficit in balance of trade and balance of payment
g) To provide protection to the domestic industry from foreign competition by restricting
import of selected goods, bringing in import quotas etc.

Important terms:

a) Territorial Waters of India: Territorial waters mean that portion of sea which extend upto
12 nautical miles inside sea from baseline on coast of India.(1 nautical mile = 1.85 kms).

b) Indian Customs Water: Section 2(28) defines Indian Customs Water to mean the waters
extending into sea upto the limit of contiguous zone of India. Contiguous zone of India
comes immediately after the territorial water of India and extends upto 24 nautical miles.

c) Indian Exclusive Economic Zone: It extends upto 200 nautical miles from the baseline into
the sea.

d) Customs Station: It means any customs port, customs airport or land customs station, where
imported goods are permitted to be unloaded or goods are exported.

e) Customs Area: It means the area of customs station and includes any area where imported
goods or export goods are ordinarily kept before clearance by customs authorities.
f) Drawback: Drawback means the rebate of duty chargeable on any imported materials or
excisable materials used in manufacture or processing of goods which are manufactured in
India and exported.

Types of Customs Duty

1) Basic Customs Duty: It is levied u/s 12 of the Customs Act and specified u/s 2 of the
Customs Tariff Act and in the First Schedule of tariff. Normally it is levied as a percentage
of value as determined u/s 14(1). The duty may be fixed on ad-valorem basis or specific
rate basis. Those rates may be at the standard rate or, in the case of import from some
countries, at the preferential rates. A preferential rate is applicable only if goods are
imported from “most favoured nation”. The most favoured nation means the member
countries of the World Trade Organization who are accorded the status of MFN (Most
Favoured Nation) like Bangladesh, Srilanka, Mauritius, Korea, Philippines etc. The Central
Government has the power to reduce or exempt any goods from these duties. Education cess
(EC) @ 2% and Secondary and Higher Education Cess (SHEC) @ 1% are applicable extra.

2) Additional Customs Duty (Countervailing Duty – CVD): Additional Customs Duty is often
called CVD. It is levied u/s 3(1) of the Customs Tariff Act. This duty is equivalent to the
amount of excise duty payable on such goods if manufactured in India. CVD is imposed
when excisable goods are imported in order to counter balance the excise duty which is
leviable on similar goods, if such goods are manufactured in India. Rationale behind CVD
is to safeguard the interest of Indian manufacturers.

CVD is payable on assessable value (value of goods) plus Basic Customs Duty plus National
Calamity Contingent Duty (NCCD). If the product is leviable with different rates, then the
highest rate among those rates is to be considered. However, while calculating CVD,
Education Cess, Secondary and Higher Education Cess, Anti-Dumping Duty and Safeguard
Duty are not required to be considered.

3) Special Additional Duty (SAD): This duty is also known as Special CVD. This SAD is
levied u/s 3(5) of the Customs Tariff Act and levied on any imported goods. This duty is
levied at 4%. The purpose of this special duty is to counter balance the sales tax, VAT, or
any other charges for time being leviable on a like article on its sale or purchase or
transportation in India. Special CVD is payable on Assessable Value plus BCD plus CVD
plus EC plus SAHEC on imported goods but not Safeguard duty and Anti-Dumping duty.

4) Anti-Dumping Duty: Often, large manufacturer from abroad (exporter) may export goods
at very low prices compared to prices normally prevalent in export market. Such dumping
may be with an intention to disturb the domestic industry or market or to dispose off their
 excess stock at a very low price. This is called “dumping” and is an unfair trade practice. In
order to avoid such dumping, the Central Government can impose u/s 9A of Customs Tariff
Act, Anti-Dumping Duty, if the goods are being sold at less than its normal value. Anti-
dumping action can be taken only when there is an Indian industry producing ‘like articles’.
EC and SAHEC are not applicable and it cannot exceed ‘margin of dumping’ to such article.

5) Safeguard Duty: Under section 8B of the Customs Tariff Act, the Central Government can
impose safeguard duty. This duty can be imposed if the government is satisfied that the
goods are imported in large quantities and under such conditions that they are causing or
threatening to cause serious injury to domestic industry. Such duty is also permissible under
WTO agreement, with the condition that it should not discriminate between imports from
different countries having Most Favoured Nation status. The objective of this duty is to have
a free and fair competition.

Safeguard Duty is not applicable for imports by EOU or SEZ units, unless it is specifically
made applicable in the notification. Anti-dumping and Safeguard duty are not considered
for calculating CVD or Special CVD. EC and SAHEC are not payable on Safeguard duty.
Safeguard duty is product specific i.e. it is applicable only for certain articles in respect of
which it is imposed.

As per section 8C, in case goods are imported in increased quantities from China, a
safeguard duty is imposed. It is also clarified that value for calculation of IGST as well as
Compensation Cess shall also include Anti-Dumping Duty amount and Safeguard Duty
amount.

6) National Calamity Contingent Duty (NCCD): The National Calamity duty chargeable on
the goods specified in the Seventh Schedule shall be in addition to any other duties of excise
chargeable on such goods under the Central Excise Act, 1944 (1 of 1944) or any other law
for the time being in force. NCCD is a duty of Central Excise and not Customs.

It is levied on import of pan masala, chewing tobacco & cigarettes at different rates as
applicable. It is levied @1% on PFY, motor cars, multi utility vehicles and 2-wheelers and
`50 per ton on crude oil vide section 134 of Finance Act, 2003. NCCD shall continue to be
levied on tobacco and tobacco products at the rates as applicable prior to 1st July, 2017.

7) Protective Duty: As per section 6(1) of Customs Tariff Act, protective duty is levied by the
Central Government upon recommendation made by the Tariff Committee and upon CG
being satisfied that it is necessary to provide protection to any industry established in India.
At present, this duty is not in force. No CVD, EC & SHEC are applicable.
Provisions under IGST Act, 2017 Applicable for imported goods

Integrated Goods and Services Act came to effect from June 22, 2017.Through ordinance, The
President of India extended the Act to the state of Jammu & Kashmir also with effect from 8th
July, 2017.

Article 269A under GST regime constitutionally mandates that supply of goods, or of services,
or both in the course of import into the territory of India shall be deemed to be supply of goods,
or of services, or both in the course of inter-State trade or commerce. So import of goods or
services will be treated as deemed inter-State supplies and would be subject to integrated tax.
While IGST on import of services would be leviable under the IGST Act, the levy of the IGST
on import of goods would be levied under the Customs Act, 1962 read with the Custom Tariff
Act, 1975. The importer of services will have to pay tax on reverse charge basis.

Accordingly, goods imported into India are now subjected to IGST u/s 3(7) of the Customs
Tariff Act, not CVD and not Special CVD. However, petroleum products and tobacco products
are outside the scope of GST and hence CVD and special CVD are applicable to them as usual.
The Additional Customs Duty (CVD) and Special Additional Duty (SAD) are not to be
charged separately at present while computing the assessable value as the same is subsumed
under GST regime.

Further, GST Compensation Cess would be applicable u/s 3(9) of the Customs Tariff Act and
u/s 8 of the CGST (Compensation to States) Act, only on those supplies of goods or services
that have been notified by central government. As of now, GST Compensation Cess is levied
on car, luxury goods, panmasala and tobacco etc.

Exemptions from Customs Duty

The government has notified on the exemptions and abatement of customs duty on goods.
Section 25 of the Customs Act authorizes the Central Government to issue notification
granting exemption from customs duty partially or wholly on any goods.
• If any imported goods are pilfered after the unloading thereof and before the proper
officer has made an order for clearance for home consumption or deposit in a warehouse,
the importer shall not be liable to pay the duty leviable on such goods except where such
goods are restored to the importer after pilferage
• Abatement of duty on damaged or deteriorated goods: where it is shown to the
satisfaction of the Assistant Commissioner or Deputy Commissioner of Customs -
• that any imported goods had been damaged or had deteriorated at any time before
or during the unloading of the goods in India; or
 • that any imported goods, other than warehoused goods, had been damaged at any
time after the unloading thereof in India but before their examination under section
17, on account of any accident not due to any willful act, negligence or default of
the importer, his employee or agent; or
• that any warehoused goods had been damaged at any time before clearance for
home consumption on account of any accident not due to any willful act,
negligence or default of the owner, his employee or agent, such goods shall be
chargeable to duty in accordance with the provisions of sub-section (2).
• Remission of duty on lost, destroyed or abandoned goods:
• Without prejudice to the provisions of section 13, where it is shown to the
satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner
of Customs that any imported goods have been lost (otherwise than as a result of
pilferage) or destroyed, at any time before clearance for home consumption, the
Assistant Commissioner of Customs or Deputy Commissioner of Customs shall
remit the duty on such goods.
• The owner of any imported goods may, at any time before an order for clearance
of goods for home consumption under section 47 or an order for permitting the
deposit of goods in a warehouse under section 60 has been made, relinquish his
title to the goods and thereupon he shall not be liable to pay the duty thereon.
• Power to make rules for denaturing or mutilation of goods: The Central Government
may make rules for permitting at the request of the owner the denaturing (act of nature)
or mutilation of imported goods which are ordinarily used for more than one purpose so
as to render them unfit for one or more such purposes; and where any goods are so
denatured or mutilated they shall be chargeable to duty at such rate as would be
applicable if the goods had been imported in the denatured or mutilated form.
• Power to grant exemption from duty:
• If the Central Government is satisfied that it is necessary in the public interest so
to do, it may, by notification in the Official Gazette, exempt generally either
absolutely or subject to such conditions (to be fulfilled before or after clearance)
• If the Central Government is satisfied that it is necessary in the public interest so
to do, it may, by special order in each case, exempt from payment of duty.

Relevant Provisions under IGST Act:

As per section 5 of the IGST Act that Subject to the provisions of sub-section (2), there shall
be levied a tax called the integrated goods and services tax on all inter-State supplies of goods
or services or both, except on the supply of alcoholic liquor for human consumption, on the
value determined under section 15 of the Central Goods and Services Tax Act and at such rates,
not exceeding forty per cent., as may be notified by the Government on the recommendations
of the Council and collected in such manner as may be prescribed and shall be paid by the
taxable person.

Provided that the integrated tax on goods imported into India shall be levied and collected in
accordance with the provisions of section 3(7) of the Customs Tariff Act, 1975 on the value as
determined under the said Act at the point when duties of customs are levied on the said goods
under section 12 of the Customs Act, 1962.

A very important change is that at present anti-dumping and safeguard duties does not form
part of the value for levy of CVD, whereas anti-dumping and safeguard duties, besides
assessable value and basic customs duty, will be included in the value for the purpose of levy
of IGST.

The integrated tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly
known as petrol), and natural gas and aviation turbine fuel shall be levied with effect from such
date as may be notified by the Government on the recommendations of the Council.

Determination of Nature of Supply

Supply of goods imported into the territory of India, till they cross the customs frontiers of
India, shall be treated to be a supply of goods in the course of inter-State trade or commerce.

Section 8(1) Proviso:

Provided that the following supply of goods shall not be treated as intra-State supply, namely:
(i) supply of goods to or by a Special Economic Zone developer or a Special Economic
Zone unit;
(ii) goods imported into the territory of India till they cross the customs frontiers of India;
Part (ii) above is dealing with high sea purchases for which IGST is payable.

High Sea Sales (from the point of view of an entity incorporated in India) refers to the sale of
goods which is made after the goods cross the custom barriers of the Foreign Nation but before
crossing (entering) the custom frontiers of India by way of transfer of document of title. It is
the High Sea Purchases made by an Indian entity (or importer) from an exporter, for which
IGST becomes payable u/s 7(2) of IGST Act, 2017 once it enters the custom frontiers of India
and treated as supply of goods.

Section 3 of Customs Tariff Act, 1975 has been amended and new subsections added as given
below:
Section 3(7) (Substituted): Any article which is imported into India shall, in addition, be liable
to integrated tax at such rate, not exceeding forty per cent as is leviable under section 5 of the
Integrated Goods and Services Tax Act, 2017 on a like article on its supply in India, on the
value of the imported article as determined under sub-section (8).

Section 3(8) For the purposes of calculating the integrated tax under sub-section (7) on any
imported article where such tax is leviable at any percentage of its value, the value of the
imported article shall, notwithstanding anything contained in section 14 of the Customs Act,
1962, be the aggregate of:

(a) the value of the imported article determined under sub-section (1) of section 14 of the
Customs Act, 1962 or the tariff value of such article fixed under sub-section (2) of that
section, as the case may be; and
(b) any duty of customs chargeable on that article under section 12 of the Customs Act,
1962, and any sum chargeable on that article under any law for the time being in force
as an addition to, and in the same manner as, a duty of customs, but does not include the
tax referred to in sub-section (7) or the cess referred to in sub-section (9).

Section 3(9) Any article which is imported into India shall, in addition, be liable to the goods
and services tax compensation cess at such rate, as is leviable under section 8 of the Goods and
Services Tax (Compensation to States) Cess Act, 2017 on a like article on its supply in India,
on the value of the imported article as determined under sub-section (10).

Section 3(10) For the purposes of calculating the goods and services tax compensation cess
under sub-section (9) on any imported article where such cess is leviable at any percentage of
its value, the value of the imported article shall, notwithstanding anything contained in section
14 of the Customs Act, 1962, be the aggregate of:
(a) the value of the imported article determined under sub-section (1) of section 14 of the
Customs Act, 1962 or the tariff value of such article fixed under sub-section (2) of that
section, as the case may be; and
(b) any duty of customs chargeable on that article under section 12 of the Customs Act,
1962, and any sum chargeable on that article under any law for the time being in force
as an addition to, and in the same manner as, a duty of customs, but does not include the
tax referred to in sub-section (7) or the cess referred to in sub-section (9).

Section 3(11) The duty or tax or cess, as the case may be, chargeable under this section shall
be in addition to any other duty or tax or cess, as the case may be, imposed under this Act or
under any other law for the time being in force.
Section 3(12) The provisions of the Customs Act, 1962 and the rules and regulations made
there under, including those relating to drawbacks, refunds and exemption from duties shall, so
far as may be, apply to the duty or tax or cess, as the case may be, chargeable under this section
as they apply in relation to the duties leviable under that Act.

Summary of Customs Duty Payable under GST Laws

The following example shows the calculation the above three duties if the assessable value is
`100.
eq. Duty Description Duty % Amount Total Duty
A Assessable Value 100
B Basic Customs Duty 10 10 10
C Subtotal for calculating IGST(A+B) 110
D Add IGST@18% 18 19.8 19.8
E Sub total 129.8 29.8
F Education Cess of Customs @ 2% of 2 0.596 0.596
BCD + IGST above
G Secondary and Higher Education Cess 1 0.298 0.298
@ 1% of BCD + IGST above
H Total 130.694 30.694
I Total Duty rounded off (The importer is eligible to 31
take input tax credit on IGST paid).

Methods for determining Customs value

Customs valuation is a customs procedure applied to determine the customs value of imported
goods. The rates of Customs duties leviable on imported goods and export goods are either
specific or on ad valorem basis or at times on specific cum ad valorem basis. When Customs
duties are levied at ad valorem rates, i.e. based on the value of the goods, it becomes essential
to lay down in the law itself the broad guidelines for such valuation to avoid arbitrariness and
to ensure that there is uniformity in approach at different Customs formations. Accordingly,
Section 14 of the Customs Act, 1962 lays down the basis for valuation of import and export
goods. The Customs Act identifies six methods of customs valuation.

The World Trade Organization's Valuation Agreement is the basis of the requirements of each
of these methods. These rules ensure the values of the imported goods are in accordance with
commercial reality, and they prohibit the use of arbitrary or fictitious customs values.

Use one of these six methods to determine the Customs value of goods to be imported. You
must use them in strict hierarchical order.

Method one – transaction value [section 14(1) and Rule 3(1)]

Importers should use this method when determining the value for duty on the price
paid or payable for imported goods with consideration to certain adjustments (as per provisions
under Rule 10 of Customs Valuation Rules).

If the import of goods is the result of a sale for export to France (for example and purchaser of
France), the transaction value is applied and is the primary method. You should use this method
first, whenever possible.

Rule 10 of Customs Valuation Rules, 2007 provides that the following costs and services can
be added to transaction value of imported goods. It includes what you paid (or will pay) for the
item, but also includes:
• commissions and brokerage fees, except buying commissions
• packing and container costs and charges
• the value of any items (like materials, components, tools, moulds etc) or services you
supplied free – or at reduced cost – to the seller to get the product made or sold
• royalties and licence fees relating to imported goods
• any proceeds from resale, disposal or use that you must then pay to the seller
• the value of any materials, parts, and services used to repair or refurbish the item before
importing it
• transport and shipping costs, including loading/unloading and handling charges, before
the item leaves the country you’re exporting from
• cost of insurance
• engineering, development, art work, design work, plans and sketches undertaken and
necessary for production of imported goods

You can deduct the following charges – if you paid them, and they’re clearly separated from
the price of your item(s):
• transport and insurance costs, including loading/unloading and handling charges, after
the item leaves its country of export
• any (reasonable) costs related to constructing, maintaining or getting technical help with
the item when it arrives in France
• any (reasonable) costs for transport or insurance of the item(s) within France
• any France Customs duties or other French taxes

Cost of transport from exporting country to India is to be added in AV at maximum of 20% of

FOB (Free on Board) price in case of air freight. But the cost of transportation by sea will be
actual cost.
Loading, unloading and handling charges (called Landing Charges) shall be added and
calculated at 1% of CIF value (Cost, Insurance, Freight) i.e. FOB plus Insurance plus Freight.
Actual expenditure is not considered.

When insurance charges are considered and are to be added, the same shall be at actual cost
incurred and if the actual cost is not ascertainable, it will be 1.125% of FOB.

To use the transaction value method

• You must have evidence of a sale for export to France. For example, a commercial
invoice, contract or purchase order. If there are multiple sales for export, then the
Customs value is to be based on the 'last sale' that occurs immediately before the goods
enter France, and not on any other sale that occurred prior in the supply chain.
• Any relationship between the buyer and seller mustn’t have affected the item’s price.
• The item’s price or sale mustn’t be subject to any condition or consideration where a
value can’t be determined
• There mustn’t be any restrictions in the sale about how the buyer will dispose of or use
the item, except for those:
• imposed by law
• that limit where the item can be sold
• that don’t have a substantial effect on the item’s value

Examples of items where you can’t use the transaction value method include:
• gifts
• free samples
• anything on consignment
• anything imported by a company branch that isn’t a separate legal entity to the seller
• items that were imported under a hire or leasing contract

Other valuation methods

If you cannot use the transaction value method, then you need to identify which of the following
five methods would apply.

Method two – transaction value of identical goods (“identical goods method”) [Rule 4]

Based on the transaction value of identical items brought into France at the same time (or
nearly); you must have proof of the identical items’ value. Identical goods means that goods
should be same (or identical) in all respects, including physical characteristics, quality and
reputation; except for minor differences in appearance that do not affect value of goods.
Method three – transaction value of similar goods (“similar goods method”) [Rule 5]

Based on the transaction value of similar items brought into France, at the same time (or nearly);
you must have proof of the similar items’ value. Rule 5(1) defines similar goods as goods which
although not alike in all respects, have like characteristics, like components and perform similar
functions.

Method four – deductive value [Rule 7]

It applies if the imported goods are sold in France (as earlier example) within 90 days of arriving
in the country. The resale price of the item in France is reduced to the Customs value if the item
had initially been sold for export to France.

Method five – computed value [Rule 8]

It is based on the production cost of the imported goods, plus an amount for profit and general
expenses and all other expenses under Rule 10. This method is generally restricted to cases
where you have access to the producer’s factory costs and profit margins.

Under the proviso to Rule 6, if the importer requests and the Customs Officer approves, this
computed value method can be used before the method of deductive value.

Method six – residual basis of valuation or fall back method or best judgment value [Rule 9]

If you cannot use any of the methods above, you can flexibly interpret – within reason – one of
the previous methods to get the customs value for your goods. While deciding the assessable
value under this method, reasonable means consistent with general provisions of these rules
should be the basis and valuation should be on basis of data available in India. The value so
determined cannot be more than the normal price.

For example: there is a sale in France but it occurs 110 days after the goods arrive in France; it
would be reasonable to use method four – deductive value, by flexibly interpreting the
timeframe specified in the method.

Depending on the items, how they’re imported and the documents you have, you might be able
to determine their Customs value based on:
• the valid list price of the items
• “list price” is what the seller in the country of export would charge a buyer in France
• a valuation from an independent assessor
The insurance value of an item isn’t acceptable for determining residual value.
Methods you can’t use

You can’t determine a customs value by choosing:

• the selling price of items made in France
• a system which looks for the higher of two alternative values
• the item’s price on the domestic market, in the country you exported from
• the item’s production cost(s), other than using production values already worked out for
identical or similar items
• the sale price of the item to a country other than France (or a country where exported)
• minimum customs values
• arbitrary or made-up values

Baggage Provisions

Baggage means all dutiable articles, imported by passenger or a member of crew in his baggage.
In other words, it is the luggage of the passenger travelling by air or sea from one country to
another. Unaccompanied baggage, if dispatched previously or subsequently within prescribed
period is also covered.

Baggage does not include:

• Motor Vehicles, Alcoholic Drinks and goods imported through courier
• Article imported under an import licence for his own use or on behalf of others

Declaration by owner of baggage (section 77)

Section 77 of Customs Act provides that owner of any baggage has to make declaration of its
contents to customs officer. Rate of duty and tariff valuation shall be the rate and valuation in
force on the date of declaration. Customs have provided 2 channels at airport.

Green Channel:
If customer does not have any dutiable goods, he can go through green channel.
Red Channel:
Person carrying dutiable goods should pass through red channel. Any passenger found walking
through green channel with dutiable goods or found mis-declaring quantity, value or description
while going through red channel is liable to penal action of seizure and confiscation. He can even
be arrested.

Rate of Custom Duty on Baggage: (section 78)

• Tariff rate is 100%.
• However, effective rate (i.e. specified by a notification) is 35% w.e.f.1-3-2005.
 • Baggage is exempt from CVD and SAD.
• EC – 2% and SHA – 1%
• Total Custom Duty – 36.05% (35 + 3%) (Duty payable on baggage)

Exemption to Laptop Computer:

Laptop Computer brought as baggage by person over 18 years of age is full exempt from custom
duty.

Concessional rate in certain cases:

A person returning after one year or a person transferring his residence to India after two years'
stay abroad is eligible for concessional rates on some goods.

Duty on Gold in some cases:

Gold brought as baggage by a passenger of Indian origin or a person holding Indian passport.
The duty is only `200 per 10 gms for import of gold bars bearing manufacturer’s or refiner’s
imprinted serial number and weight expressed in metric units and gold coins. In case of other
gold, including tola bars and ornaments (but excluding ornaments studded with stones or
pearls), the duty is `500 per 10 Gms. No special additional duty or CVD is payable. But EC –
2% and SAH – 1% is payable.
Duty on silver in some cases:
Silver brought as baggage by a passenger of Indian origin holding Indian passport upto100 Kg
is chargeable to duty of `1,000 per Kg, if the person was staying abroad for over six months.
Duty has to be paid only in convertible foreign currency. No special additional duty, or CVD
is payable. Silver can be brought in any form, including medallions, coins and jewellery, except
foreign currency coins and jewellery studded with stones or pearls. Out of the period of 6
months, short visit up to 30 days are permitted, if the concession was not availed in such short
visit.

Relevant date for determining rate of duty and valuation:

As per Section 78 of Custom Act “Relevant Date” for rate of duty and baggage is date on which
declaration is made in respect of baggage as required u/s 77 of Custom Act.

Exemption/ Restrictions on Baggage

Exemption only to bonafide baggage: (section 79)

As per section 79(1) of Custom Act, bonafide baggage will be passed free of custom duty.
Section 79(1) of Custom Act provides that - article in any baggage of passenger or crew will
be allowed if it was in use for a period specified in rule. Bonafide gifts within the limits
prescribed in rules (present baggage rules does not prescribe any limit for which the article in
baggage should be “in use”, but unused article may not be held as “bonafide” baggage)

Bonafide baggage includes

• Wearing apparel
• Personal and household effects meant for personal use of passenger or
• Family members travelling with him and not for sale or gift
• Jewellery including articles made wholly or mainly of gold, in reasonable quantity
according to status of passenger
• Tools of draftsman
• Instruments of physician or surgeon

Bonafide baggage will not include:

• Alcoholic Liquor exceeding haft pint
• Perfumed spirit exceeding 2 ounces in opened or unopened bottles
• Cigars or cheroots exceeding 50
• Country bidis exceeding 200
• Unmanufactured or manufactured tobaccos exceeding 4 ounces and snuff exceeding 10
tola
• Piano, Pianola and Radio
• Car, Carriage, Refrigerator
• Cotton piece goods in long lengths
• Arm and ammunition except personal licensed guns etc.
• Wireless apparatus and Dictaphone

Export Certificate:
If a person had gone abroad from India, he should take “Export Certificate” while taking out
Jewellery; Camera etc. otherwise Custom Duty will be leviable while bringing back the goods.

Temporary detention of baggage (section 80)

Where the baggage of a passenger contains any article which is dutiable or the import is
prohibited or in respect of which a true declaration has been made u/s 77, then the proper officer,
at the request of the passenger, may detain such article for the purpose of being returned to him
on his leaving India.

Regulations in respect of baggage (section 81)

The Board may make regulations for

 a. providing for the manner of declaring the contents of any baggage
b. providing for the custody, examination, assessment to duty and clearance of baggage
c. providing for the transit or transshipment of baggage from one customs station to another
or to a place outside India

Baggage Rules, 2016

Rule-3: Baggage of Indian Resident or foreigner residing in India

Resident means a person holding Indian Passport and normally residing in India (i.e. Indian
persons going abroad for short visit).
An Indian resident or a foreigner residing in India or a tourist of Indian origin, not being an
infant arriving from any country other than Nepal, Bhutan or Myanmar, shall be allowed
clearance free of duty articles in his bonafide baggage, that is to say -
a. used personal effects and travel souvenirs; and
b. articles other than those mentioned in Annexure-I, upto the value of `50000 if these
are carried on the person or in the accompanied baggage of the passenger:
Provided that a tourist of foreign origin, not being an infant, shall be allowed clearance free of
duty articles in his bonafide baggage, that is to say -
a. used personal effects and travel souvenirs; and
b. articles other than those mentioned in Annexure-I, upto the value of `15000 if these
are carried on the person or in the accompanied baggage of the passenger:
Provided further that where the passenger is an infant, only used personal effects shall be
allowed duty free:
Explanation - The General Free Allowance (GFA) of a passenger under this rule for an Indian
Resident shall be `50000 and shall not be allowed to pool with the free allowance of any other
passenger.

Rule-4: Passengers arriving from Nepal, Bhutan or Myanmar

An Indian resident or a foreigner residing in India or a tourist, not being an infant arriving from
Nepal, Bhutan or Myanmar, shall be allowed clearance free of duty articles in his bona fide
baggage, that is to say -
a. used personal effects and travel souvenirs; and
b. articles other than those mentioned in Annexure -I up to the value of `15000 if these
are carried on the person or in the accompanied baggage of the passenger:
Provided that where the passenger is an infant, only used personal effects shall be allowed duty
free:
Provided further that where the passenger is arriving by land, only used personal effects shall
be allowed duty free;
Explanation - The free allowance of a passenger under this rule shall not be allowed to pool
with the free allowance of any other passenger.

Rule-5: Allowances for Professionals Returning to India

An Indian passenger who was engaged in his profession abroad shall on his return to India be
allowed clearance free of duty, articles in his bonafide baggage to the extent as mentioned
below:
Eligible Passenger Articles allowed free of duty
(a) Indian passenger returning after (i) Used household articles upto an aggregate value
atleast 3 month of `12,000/-
(ii) Professional equipment upto a value of `20,000/-
(b) Indian passenger returning after (i) Used household articles upto an aggregate value
atleast 6 month of `12,000/-
(ii) Professional equipment upto a value of `40,000/-
(c) Indian passenger returning after a Used household articles and personal effects, (which
stay of minimum 365 days during the have been in the possession and use abroad of the
preceding 2 years on termination of his passenger or his family for at least six months), and
work, and who has not availed this which are not mentioned in Annex I, Annexure II or
concession in the preceding three Annexure III of the Baggage Rules 1998 upto an
years. aggregate value of `75,000/-

Rule-6: Jewellery
A passenger residing abroad for more than one year, on return to India, shall be allowed
clearance free of duty in his bonafide baggage of jewellery upto a weight, of 20 grams with a
value limited to `50000 if brought by a gentleman passenger, or 40 grams with a value limited
to `100000 if brought by a lady passenger.

Rule-7: Duty Free Allowances for Tourists

A tourist is a passenger
a) who is not normally a resident in India;
b) who enters India for a stay of not more than six months in the course of any twelve
months period for legitimate non-immigrant purposes, such as : touring, recreation,
sports, health, family reasons, study, religious pilgrimage, or business;
A tourist arriving in India shall be allowed duty free clearance of articles in his bonafide
baggage to the extent as mentioned below:-

Eligible Tourists Articles allowed free of duty

 (a) Tourists of Indian origin coming to (i) Used personal effects and travel souvenirs, if -
India other than tourists of Indian origin (a) These goods are for personal use of the tourist,
coming by land routes as specified in and (b) these goods, other than those consumed
Annexure IV (i.e. places notified) during the stay in India, are re-exported when the
tourist leaves India for a foreign destination.
(ii) Articles as allowed to be cleared under rule 3 or
rule 4.
(b) Tourists of foreign origin, other than (i) Used personal effects
those of Pakistani origin coming from (ii) Articles other than those mentioned in
Pakistan, coming to India by air. Annexure I upto a value of `15000 for personal use
of the tourist or as gifts and travel souvenirs if these
are carried on the person or in the accompanied
baggage of the passenger.
(c) Tourists – ( i) Used personal effects
(i) Of Pakistani origin coming from (ii) Articles other than those mentioned in
Pakistan other than by land routes; Annexure I upto a value of `6000 for personal use
(ii) Of Pakistani origin or foreign tourists of the tourist or as gifts and travel souvenirs if these
coming by land routes as specified in are carried on the person or in the accompanied
Annexure IV; baggage of the passenger.
(iii) Of Indian origin coming by land
routes as specified in Annexure IV.

Rule-8: Transfer of residence

A person, who is engaged in a profession abroad, or is transferring his residence to India, shall,
on return, be allowed clearance free of duty in addition to what he is allowed under rule 3 or,
as the case may be, under rule 4, articles in his bonafide baggage to the extent mentioned in
column (2) of the Appendix below, subject to the conditions, if any, mentioned in the
corresponding entry in column (3) of the said Appendix. The value of duty free personal and
household items depends upon the duration of stay abroad.

Duration of stay abroad Articles allowed Conditions

free of duty (`)
From 3 months upto 6 months 60000 Indian Passenger
From 6 months upto 12 months 100000 Indian Passenger
Minimum stay of 1 year during 200000 Indian Passenger should not have
the preceding 2 years availed this concession in the
preceding 3 years
 Minimum stay of 2 years or 500000 Minimum stay of 2 years abroad
more immediately preceding the date of the
arrival on transfer of residence

Rule-9: Provisions regarding unaccompanied baggage

These rules shall apply to unaccompanied baggage except where they have been specifically
excluded:

Provided that the said unaccompanied baggage had been in the possession, abroad, of the
passenger and is dispatched within one month of his arrival in India or within such further
period as the Deputy Commissioner of Customs or Assistant Commissioner of Customs may
allow:

Provided further that the said unaccompanied baggage may land in India upto two months
before the arrival of the passenger or within such period, not exceeding one year, as the Deputy
Commissioner of Customs or Assistant Commissioner of Customs may allow, for reasons to
be recorded, if he is satisfied that the passenger was prevented from arriving in India within the
period of two months due to circumstances beyond his control, such as sudden illness of the
passenger or a member of his family, or natural calamities or disturbed conditions or disruption
of the transport or travel arrangements in the country or countries concerned or any other
reasons, which necessitated a change in the travel schedule of the passenger.

Annexure I
1. Firearms.
2. Cartridges of fire arms exceeding 50.
3. Cigarettes exceeding 100 or cigars exceeding 25 or tobacco exceeding 125 gms.
4. Alcoholic liquor or wines in excess of two liters.
5. Gold or silver, in any form, other than ornaments.
6. Flat Panel (LCD/LED/Plasma) Television.

Annexure II
1. Colour Television or Monochrome Television.
2. Digital Video Disc Player.
3. Video Home Theatre System.
4. Dish Washer.
5. Music System.
6. Air-Conditioner.
7. Domestic refrigerators of capacity above 300 liters or its equivalent.
8. Deep Freezer.
9. Microwave Oven.
10. Video camera or the combination of any such video camera with one or more of the
following goods, namely:-
a) Television Receiver;
b) Sound recording or reproducing apparatus;
c) Video reproducing apparatus.
11. Word Processing Machine.
12. Fax Machine.
13. Portable Photocopying Machine.
14. Vessel.
15. Aircraft.
16. Cinematographic films of 35 mm and above.
17. Gold or Silver, in any form, other than ornaments.

Annexure III
1. Video Cassette Recorder or Video Cassette Player or Video Television Receiver or
Video Cassette Disk Player.
2. Washing Machine.
3. Electrical or Liquefied Petroleum Gas Cooking Range
4. Personal Computer( Desktop Computer)
5. Laptop Computer( Notebook Computer)
6. Domestic Refrigerators of capacity up to 300 liters or its equivalent.

Annexure IV (Land route)

Amritsar: Punjab Delhi: Ferozpur District: Punjab
1) Amritsar Railway Station 7) Delhi Railway Station 13) Hussainiwala
2) Attari Road Baroda: Gujarat Baramullah District: J&K
3) Attari Railway Station 8) Assara Naka 14) Adoosa
4) Khalra 9) Khavda Naka Poonch District: J&K
Jodhpur Division: Rajasthan 10) Lakhpat 15) Chakan-da-bagh
5) Barmer Railway Station 11 Santalpur Naka
6) Munabao Railway Station 12) Suigam Naka

Illustration: Mr. Rajesh an Indian and above 18 years of age went to London on 01-04-2018.
The following details of baggage are submitted by him to the Customs authorities on return to
India on 20-05-2018.
(a) Two Music systems each worth `15,000.
(b) Jewellery brought by Mr. Ravindra worth `40,000 (16 Grams)
(C) A new laptop worth `45,000
(d) Liquor 2 litres worth `10,000
Write a brief note on his eligibility with regard to duty free baggage allowances as per the
Baggage Rules, 2016.

Solution: Mr. Ravindra is not eligible for exemption from jewellery as he did not stay abroad
over one year. Music systems are dutiable but covered under General free allowance of `50,000.

Music systems `30,000

Jewellery `40,000
Liquor `10,000 (liquor is dutiable baggage upto two litres)
Total `80,000
Less: GFA `50,000
Dutiable baggage `30,000
Duty @ 36.05% = `10,815
Notes: Under Baggage Rules, 2016, GFA has been increased to `50,000 even for a visit to
China. Lap top is non dutiable for persons of 18 years and above.

Duty Drawback Provisions

Drawback is the refund, reduction or waiver in whole or in part of customs duties assessed or
collected upon importation of an article or materials which are subsequently exported.

Duty Drawback provisions are made to grant rebate of duty or tax chargeable on any imported
/ excisable materials and input services used in the manufacture of export goods. The Duty
Drawback provisions are described under Section 74 and Section 75 under the Customs Act,
1962. The duties and taxes neutralized under the scheme are (i) Customs and Union Excise
Duties in respect of inputs and (ii) Service Tax in respect of input services.

The duty drawback scheme has been notified for a large number of export products by the
Government after an assessment of the average incidence of Customs, Central Excise duties,
Service Tax and Transaction Cost suffered by the export products.

Duty Drawback is of two types: (i) All Industry Rate and (ii) Brand Rate. The legal framework
is provided u/s 75 and 76 of the Customs Act, 1962 and the Customs and Central Excise Duties
and Service Tax Drawback Rules, 1995 (Drawback Rules, 1995).

The All Industry Rate (AIR) is essentially an average rate based on the average quantity and
average value of inputs and average amount duties (both Excise & Customs) borne by exporters
and Service Tax suffered by a particular export product. The All Industry Rates are notified by
the Government in the form of a Drawback Schedule every year. The All Industry Rate (AIR)
of Duty Drawback is generally fixed as a percentage of FOB prices of export product.

The Brand Rate of Duty Drawback is allowed in cases where the export product does not have
any AIR of Duty Drawback or the same neutralizes less than 4/5th of the duties paid on materials
used in the manufacture of export goods. This work is handled by the jurisdictional
Commissioners of Customs & Central Excise. Exporters who wish to avail of the Brand Rate
of Duty Drawback need to apply for fixation of the rate for their export goods to the
jurisdictional Central Excise Commissionarate. The Brand Rate of Duty Drawback is granted
in terms of Rules 6 and 7 of the Drawback Rules, 1995.

With the introduction of GST, necessary changes have been made to duty drawback provisions
to align with the GST provisions. As far as duty drawback is concerned, Drawback Rules, 1995
are now replaced by a new set of rules called ‘Customs and Central Excise Duties Drawback
Rules, 2017’ (hereinafter referred to as ‘DBK Rules, 2017’) which came into effect from
1st October, 2017 (Notification No. 88/2017 Cus (NT) dated 21.09.2017). The rules provide for
drawback of Customs and Central Excise Duties excluding Integrated Tax and Compensation
Cess leviable under sub-section (7) and (9) of Section 3 of the Customs Tariff Act, 1975
chargeable on any imported materials or excisable materials used in the production or
manufacture of goods exported.

Section 74:

As per section 74, if the re-exports of imported goods, which are identified quickly and within
two years from the date of payment of duty on the importation. Then an exporter is eligible to
claim 98% of the duty paid by him as drawback under section 74.

Imported goods re-exported – Drawback u/s 74

When goods are imported on the payment of customs duty and are later sought to be exported
within a specified period, customs duty paid at the time of import of the goods, with a small
percent deduction, can be claimed as Duty Drawback at the time of export of such goods. Such
Duty Drawback is granted in terms of Section 74 of the Customs Act, 1962 read with Re-export
of Imported Goods (Drawback of Customs Duty) Rules, 1995. For this purpose, the identity of
export goods is cross verified with the particulars furnished at the time of import of such goods.

Where the goods are not put into use after import (i.e. imported goods exported as such), 98%
of Duty Drawback is admissible under Section 74 of the Customs Act, 1962. In cases the goods
have been put into use after import, Duty Drawback is granted on a sliding scale basis (i.e. on
duty drawback rates) depending upon the extent of use of the goods. No Duty Drawback is
available if the goods are exported 18 months after import. Application for Duty Drawback
is required to be made within 3 months from the date of export of goods, which can be extended
upto 12 months subject to conditions and payment of requisite fee as provided in the Drawback
Rules, 1995.

Necessary requirements for drawback u/s 74

The elements necessary to claim drawback are:
a) The goods on which drawback is claimed must have been previously imported;
b) Import duty must have been paid on these goods when they were imported;
c) The goods should be entered for export within two years from the date of payment of duty
on their importation (whether provisional or final duty). The period can be further extended
to three years by the Commissioner of Customs on sufficient cause being shown.
d) The goods are identified as the goods imported.
e) The goods must be capable of being identified as imported goods.
f) The goods must actually be re-exported to any place outside India.
g) The market price of such goods must not be less than the amount of drawback claimed as
per section 76(1) (b) of the Customs Act.
h) The amount of drawback should not be less than `50 vide section 76(1) (c) of the Customs
Act.

Section 75:

As per section 75, if the export of goods manufactured or processed out of imported material
with value addition, then a drawback should be allowed of duties of customs chargeable on any
imported materials of a class or description. If sale proceeds not received within the stipulated
period, a drawback is to be reversed or adjusted. Duty Drawback under section 75 can be
claimed either as a fixed percentage depending upon the value of goods exported.

Interest Payment
A new Section 75A has been incorporated in the Customs Act to provide for payment of interest
on delayed payment of drawback. Interest at the rate of 15% p.a. is payable to the exporters if
the claim is not settled within three months from the date of issue of acknowledgement by the
department.

Section 76: Prohibition and regulation of drawback in certain cases

(1) Notwithstanding anything hereinbefore contained, no drawback shall be allowed -
a) in respect of any goods the market price of which is less than the amount of drawback
due thereon
 b) where the drawback due in respect of any goods is less than fifty rupees
(2) Without prejudice to the provisions of sub-section (1), if the Central Government is of
opinion that goods of any specified description in respect of which drawback may be claimed
under this Chapter are likely to be smuggled back into India, it may, by notification in the
Official Gazette, direct that drawback shall not be allowed in respect of such goods or may be
allowed subject to such restrictions and conditions as may be specified in the notification.

Recovery of Duty Drawback

Where an amount of drawback and interest has been paid erroneously or the amount so paid is
in excess of what the claimant is entitled to, the claimant shall, on demand by a proper officer
of Customs repay the amount so paid erroneously or in excess and where the claimant fails to
repay the amount it shall be recovered by the Customs Officer. Where an amount of drawback
has been paid to an exporter but the sale proceeds in respect of such export goods have not been
realized by the exporter in India within the period allowed under the Foreign Exchange
Management Act, 1999, such drawback shall be recovered.

Goods Eligible for Drawback

The following are the eligible goods for the duty drawback.
• To export goods imported into India
• To export goods imported into India after having been taken for use
• To export goods manufactured/produced out of imported material
• To export goods manufactured/produced out of indigenous material
• To export goods manufactured /produced out of imported or and indigenous materials.

Duty Drawback Rates

The following are the drawback rates of which import duty with the fixed percentage shall be
allowed in respect of used goods after their importation u/s 74(2) and which have been out of
customs control.
Sl. The period between the date of clearance and the date when the % of drawback
No. goods are placed under Customs control for export
1. Not more than 3 months 95%
2. More than 3 months but not more than 6 months 85%
3. 6-9 months 75%
4. 9-12 months 70%
5. 12-15 months 65%
6. 15-18 months 60%
7. More than 18 months Nil
Documents Required

The following documents are required for processing drawback claim.

• Triplicate copy of the Shipping Bill bearing examination report recorded by the proper
officer of the customs at the time of export
• Copy of the Bill of entry
• Import Invoice
• Proof of payment of duty paid on the importation of goods
• Approval from the Reserve Bank of India for re-exports of goods
• Copy of the Bill of Lading or Airway bill
• Copy of the Bank Certified Invoices
• Sixtuplicate Copy of AR-4
• Export invoice and packing list
• Freight and Insurance certificate
• Copy of the Test report of goods
• Modvat Declaration
• A worksheet showing the drawback amount claimed
• DEEC Book and licence copy where applicable – Duty Exemption Entitlement
Certificate is an Export Promotion Scheme which enables import of duty free inputs
required for manufacture of export goods
• Transshipment certificate where applicable
• Blank acknowledgement card in duplicate
• Pre-receipt for drawback amount on the reverse of Shipping Bill duly signed on the
revenue stamp

Procedure for Claiming Duty Drawback

The procedure for claiming duty drawback on export goods (whether AIR or Brand Rate) to be
claimed at the time of export and requisite particulars filled in the prescribed format of Shipping
Bill/Bill of Export under Drawback. If the processing of documents has been computerised,
then the exporter is not required to file any separate application for claiming duty drawback. In
the case of manual export, a separate application is to be submitted for claiming duty drawback.
The claim is to be accompanied by certain documents as laid down in the Drawback Rules
1995. Triplicate copy of the shipping bill becomes the application only after the Export General
Manifest is filed.

Procedure in relation to transportation and warehousing

The term ‘warehouse’ for the purposes of the application of the provisions of the Customs Act,
1962 has been defined under Section 2(43) of the Act, as under:

Warehouse means a public warehouse licensed u/s 57 or a private warehouse licensed u/s 58
or a special warehouse licensed under section 58A;

Warehouses either – public or private could be licensed as above said, only at the places
declared by the Central Board of Excise and Customs to be warehousing stations by means of
notifications in the official gazette. Therefore, warehouses cannot be licensed in all places
[Section 9 of the Customs Act, 1962].

The object behind licensing of Public (Bonded) warehouses or Private (Bonded) warehouses or
special warehouses is to afford a facility to the importers to deposit the imported goods for the
specified period, before they are cleared for home consumption or re-export.

The Central Board of Excise and Customs hereby makes the following regulations:

1) Appointment of warehouse keeper –

(1) A licensee shall appoint a warehouse keeper who has sufficient experience in warehousing
operations and customs procedures to discharge functions on his behalf.
(2) The warehouse keeper shall obtain a digital signature from authorities licensed by the
Controller of Certifying Authorities for filing electronic documents required under the Act,
rules or regulations made there under.

2) Facilities, equipment and personnel –

A licensee shall provide at the warehouse in respect of which a licence has been issued -
a) such facilities, equipment and personnel as are sufficient to control access to the
warehouse and provide secure storage of the goods in it, including -
i) doors and other building components of sturdy construction
ii) secure locks on doors and windows; and
iii) signage that prominently indicates that the site or building is a customs bonded
warehouse
b) adequate personnel, equipment and space for the examination of goods by officers of
customs
c) a computerised system for accounting of receipt, storage, operations and removal of
goods

3) Receipt of goods from customs station –

(1) Upon receipt of goods at a warehouse from a customs station, the licensee shall –
 a. verify the one-time-lock affixed by the proper officer at the customs station on the
container or means of transport, as the case may be, carrying the goods to the warehouse;
b. inform the bond officer immediately if the one-time-lock is not found intact, and refuse
the unloading of the goods;
c. allow unloading, provided the one-time-lock is found intact and verify the quantity of
goods received by reconciling with the bill of entry for warehousing and invoice;
d. report any discrepancy in the quantity of the goods within twenty four hours to the bond
officer;
e. endorse the bill of entry for warehousing bearing the order referred to in subsection (1)
of section 60, with the quantity of goods received and retain a copy thereof;
f. acknowledge the receipt of the goods by endorsing the transportation document
presented by the carrier of the goods and retain a copy thereof; and
g. take into record the goods received
(2) Upon taking into record the goods received in the warehouse, the licensee shall cause to be
delivered an acknowledgement to the proper officer referred to in sub-section (1) of section 60
and to the bond officer regarding the receipt of the goods at the warehouse.

4) Transfer of goods to another warehouse –

(1) A licensee shall not allow transfer of warehoused goods to another warehouse without the
permission of the bond officer u/s 67 on the Form for transfer of goods from a warehouse.
(2) Where an owner of the warehoused goods produces the Form for transfer of goods from a
warehouse bearing the orders of the bond officer, the licensee shall-
a) allow removal of the goods and their loading onto the means of transport;
b) affix a one-time-lock to the means of transport;
c) endorse the number of the one-time-lock on the Form for transfer of goods from a
warehouse and retain a copy thereof;
d) endorse the number of the one-time-lock on the transport document and retain a copy
thereof;
e) take into record the removal of the goods; and
f) cause to be delivered, copies of the retained documents to the bond officer

5) Receipt of goods from another warehouse –

Upon receipt of goods from another warehouse, a licensee shall -
a) verify the one-time-lock on the means of transport carrying the goods to the warehouse;
b) inform the bond officer immediately if the one-time-lock is not found intact, and refuse
the unloading of the goods;
 c) allow unloading, provided the one-time-lock is found intact, and verify the quantity of
goods received by reconciling with the Form for transfer of goods from a warehouse
bearing the orders of the bond officer;
d) report any discrepancy in the quantity of goods to the bond officer within twenty four
hours;
e) endorse the Form for transfer of goods from a warehouse with quantity received and
retain a copy thereof;
f) acknowledge the receipt of the goods by endorsing the transportation document
presented by the carrier of the goods and retain a copy thereof;
g) take into record the goods received; and
h) cause to be delivered, copies of the retained documents to the bond officer and to the
warehouse keeper of the warehouse from where the goods have been received

6) Removal of warehoused goods for home consumption –

(1) A licensee shall not allow goods to be removed from the warehouse for home consumption,
unless the bond officer permits the removal of the goods.
(2) Upon the owner of the goods producing an order made by the proper officer u/s 68, the bond
officer shall permit removal of the goods and the licensee shall –
a) deliver the quantity of goods as mentioned in the bill of entry for home consumption to
the owner of the goods and retain a copy of the bill of entry; and
b) take into record the goods removed

7) Removal of warehoused goods for export –

(1) A licensee shall not remove or cause to be removed any warehoused goods for export except
by an order made by the proper officer u/s 69.
(2) Upon the bond officer permitting the removal of the goods from the warehouse, the licensee
shall, in the presence of the bond officer, cause the goods to be loaded onto the means of
transport and affix a one-time-lock to the means of transport.

8) Operations in relation to warehoused goods –

A licensee shall ensure that the warehoused goods are not manipulated, altered, processed or
otherwise dealt, except for or during the course of operations permitted u/s 64 or section 65.

9) Allowance in Case of Volatile Goods –

When any warehoused goods to which Section 70 applies are at the time of delivery from a
warehouse found to be deficient in quantity on account of natural loss, the Assistant/Deputy
Commissioner of Customs may remit the duty on such deficiency [Section 70(1)]. Sub-section
(2) of Section 70 lays down that this section applies to such warehoused goods as the Central
Government, having regard to the volatility of the goods and the manner or their storage, may,
by notification in the Official Gazette specify.
The Government has issued Notification No. 122/63 Cus. Dated 11-5-1963 (as amended), under
Sub-section (2), which details such goods namely:
a) aviation fuel, motor spirit, mineral turpentine, acetone, menthol, raw naphtha,
vaporizing oil, kerosene, high speed diesel oil, batching oil, diesel oil, furnace oil and
ethylene dichloride kept in tanks and liquid helium gas kept in containers;
b) wine, spirit and beer, kept in casks, to which the provisions of this section shall apply
when they are deposited in a warehouse

Adjudication and Appeals before the Customs Authorities

Adjudication is the legal process by which an arbiter (or judge) reviews evidence and
argumentation, including legal reasoning set forth by opposing parties or (aggrieved persons)
to come to a decision which determines rights and obligations between the parties involved. In
short, it is “The legal process of resolving a dispute.”

The main function of the adjudication branch is to adjudicate the SCN (Show Cause Notice)
received from Preventive branch. This branch deals with the adjudication of SCN with in the
powers of three officers, namely Assistant/Deputy Commissioner of Customs, Joint
Commissioner / Additional Commissioner of Customs and Commissioner of Customs.

Adjudication Procedure

As and when the cases are booked by Preventive Branch, the file is transferred to the
Adjudication Branch after issuance of show cause notice or accepting the waiver of show cause
notice. On receipt of the SCN, the matter is discussed with the Adjudicating authority and after
discussing the facts laid down in the SCN, with the Adjudicating Authority, a letter is issued to
the party for Personal Hearing (PH), covering minimum three suitable dates, to present himself
or represent through his authorized representative before the Adjudicating Authority.
Thereafter, the case is decided on merits considering all the facts on record, arguments and
submission made by the party.

In case the party does not appear in person or through his authorized representative the case is
decided ex-parte after granting at least three opportunities of PH to the Notices as per practice
followed in the branch. Thereafter as per instructions the Adjudication Order is passed by the
Adjudicating Authority. After signing the Order in Original the same is sent to the party for
further disposal/finalization.

Appeals to Commissioner (Appeals) – (section 128 of Customs Act)

In this context, an appeal means a request made to a court of law or to someone in authority to
change a previous decision. It also means to apply to a higher court or authority for a reversal
of the decision of a lower court or authority.

(1) Any person aggrieved by any decision or order passed under this Act by an officer of
customs lower in rank than a Commissioner of Customs may appeal to the Commissioner
(Appeals) within sixty days from the date of communication to him of such decision or order :

Provided that the Commissioner (Appeals) may, if he is satisfied that the appellant was
prevented by sufficient cause from presenting the appeal within the aforesaid period of sixty
days, allow it to be presented within a further period of thirty days.

(1A) The Commissioner (Appeals) may, if sufficient cause is shown at any stage of hearing of
an appeal, grant time, from time to time, to the parties or any of them and adjourn the hearing
of the appeal for reasons to be recorded in writing:

Provided that no such adjournment shall be granted more than three times to a party during
hearing of such appeal;

(2) Every appeal under this section shall be in such form and shall be verified in such manner
as may be specified by rules made in this behalf.

Procedure in appeal (section 128B)

(1) The Commissioner (Appeals) shall give an opportunity to the appellant to be heard if he so
desires.
(2) The Commissioner (Appeals) may, at the hearing of an appeal, allow the appellant to go
into any ground of appeal not specified in the grounds of appeal, if the Commissioner (Appeals)
is satisfied that the omission of that ground from the grounds of appeal was not willful or
unreasonable.
(3) The Commissioner (Appeals) shall, after making such further inquiry as may be necessary,
pass such order as he thinks just and proper, confirming, modifying or annulling the decision
or order appealed against;

Provided that an order enhancing any penalty or fine in lieu of confiscation or confiscating
goods of greater value or reducing the amount of refund shall not be passed unless the appellant
has been given a reasonable opportunity of showing cause against the proposed order:
Provided further that where the Commissioner (Appeals) is of opinion that any duty has not
been levied or has been short-levied or erroneously refunded, no order requiring the appellant
to pay any duty not levied, short-levied or erroneously refunded shall be passed unless the
appellant is given notice within the time-limit specified in section 28 to show cause against the
proposed order.
(4) The order of the Commissioner (Appeals) disposing of the appeal shall be in writing and
shall state the points for determination, the decision thereon and the reasons for the decision.
(4A) The Commissioner (Appeals) shall, where it is possible to do so, hear and decide every
appeal within a period of six months from the date on which it is filed.
(5) On the disposal of the appeal, the Commissioner (Appeals) shall communicate the order
passed by him to the appellant, the adjudicating authority and the Chief Commissioner of
Customs.

Appeals to the Appellate Tribunal (section 129A)

(1) Any person aggrieved by any of the following orders may appeal to the Appellate Tribunal
against such order
a) a decision or order passed by the Commissioner of Customs as an adjudicating authority;
b) an order passed by the Commissioner (Appeals) under section 128A;
c) an order passed by the Board or the Appellate Commissioner of Customs under Section
128, as it stood immediately before the appointed day;
d) an order passed by the Board or the Commissioner of Customs, either before or after the
appointed day, under section 130, as it stood immediately before that day:

Provided that no appeal shall lie to the Appellate Tribunal and the Appellate Tribunal shall not
have jurisdiction to decide any appeal in respect of any order referred to in clause (b) if such
order relates to -
a) any goods imported or exported as baggage;
b) any goods loaded in a conveyance for importation into India, but which are not unloaded
at their place of destination in India, or so much of the quantity of such goods as has not
been unloaded at any such destination if goods unloaded at such destination are short of
the quantity required to be unloaded at that destination;
c) payment of drawback, and the rules made there under:

Provided further that the Appellate Tribunal may, in its discretion, refuse to admit an appeal in
respect of an order referred to in clause (b) or clause (c) or clause (d) where –
i. the value of the goods confiscated without option having been given to the owner of the
goods to pay a fine in lieu of confiscation under section 125; or
ii. in any disputed case, other than a case where the determination of any question having
a relation to the rate of duty of customs or to the value of goods for purposes of
assessment is in issue or is one of the points in issue, the difference in duty involved or
the duty involved; or
 iii. the amount of fine or penalty determined by such order, does not exceed fifty thousand
rupees

(1A) Every appeal against any order of the nature referred to in the first proviso to sub-section
(1), which is pending immediately before the commencement of section 40 of the Finance Act,
1984, before the Appellate Tribunal and any matter arising out of or connected with such appeal
and which is so pending shall stand transferred on such commencement to the Central
Government and the Central Government shall deal with such appeal or matter under section
129DD as if such appeal or matter were an application or a matter arising out of an application
made to it under that section.

(2) The Collector of Customs may if he is of opinion that an order passed by –

a) the Appellate Controller of Customs under section 128, as it stood immediately before
the appointed day, or
b) the Collector (Appeals) under section 128A

Orders of Appellate Tribunal (section 129B)

The Appellate Tribunal may, after giving the parties to the appeal, an opportunity of being
heard, pass such orders thereon as it thinks fit, confirming, modifying or annulling the decision
or order appealed against or may refer the case back to the authority which passed such decision
or order with such directions as the Appellate Tribunal may think fit, for a fresh adjudication
or decision, as the case may be, after taking additional evidence, if necessary.

Search, Seizure and Arrest

Power to Search Person/Premises (section 105)

1) If the proper officer has reason to believe that any person to whom this section applies has
secreted about his person, any goods liable to confiscation or any documents relating thereto,
he may search that person.

2) If the Assistant Commissioner of Customs, or in any area adjoining the land frontier or the
coast of India an officer of customs specially empowered by name in this behalf by the Board,
has reason to believe that any goods liable to confiscation, or any documents or things which
in his opinion will be useful for or relevant to any proceeding under this Act, are secreted in
any place, he may authorise any officer of customs to search or may himself search for such
goods, documents or things.
Power to arrest (section 104)

1) If an officer of customs empowered in this behalf by general or special order of the

Commissioner of Customs has reason to believe that any person in India or within the Indian
customs waters has been guilty of an offence punishable under section 135, he may arrest such
person and shall, as soon as may be, inform him of the grounds for such arrest.
2) Every person arrested under sub-section (1) shall, without unnecessary delay, be taken to a
magistrate.
3) Where an officer of customs has arrested any person under sub-section (1), he shall, for the
purpose of releasing such person on bail or otherwise, have the same powers and be subject to
the same provisions as the officer-in-charge of a police-station has and is subject to under the
Code of Criminal Procedure, 1898 (5 of 1898).
4) Notwithstanding anything contained in the Code of Criminal Procedure, 1898 (5 of 1898),
an offence under this Act shall not be cognizable.

Power to Seizure of goods, documents and things (section 110)

1) If the proper officer has reason to believe that any goods are liable to confiscation under this
Act, he may seize such goods:

Provided that where it is not practicable to seize any such goods, the proper officer may serve
on the owner of the goods an order that he shall not remove, part with, or otherwise deal with
the goods except with the previous permission of such officer.

1A) The Central Government may, having regard to the perishable or hazardous nature of any
goods, depreciation in the value of the goods with the passage of time, constraints of storage
space for the goods or any other relevant considerations, by notification in the Official Gazette,
specify the goods or class of goods which shall, as soon as may be after its seizure under sub-
section (1), be disposed of by the proper officer in such manner as the Central Government
may, from time to time, determine after following the procedure hereinafter specified.

1B) Where any goods, being goods specified under sub-section (1A), have been seized by a
proper officer under sub-section (1), he shall prepare an inventory of such goods containing
such details relating to their description, quality, quantity, mark, numbers, country of origin and
other particulars as the proper officer may consider relevant to the identity of the goods in any
proceedings under this Act and shall make an application to a Magistrate for the purpose of -
a) Certifying the correctness of the inventory so prepared; or
b) Taking, in the presence of the Magistrate, photographs of such goods, and certifying
such photographs as true or
 c) Allowing drawing of representative samples of such goods, in the presence of the
Magistrate, and certifying the correctness of any list of samples so drawn.

1C) Where an application is made under sub-section (1B), the Magistrate shall, as soon as may
be, allow the application.

2) Where any goods are seized under sub-section (1) and no notice in respect thereof is given
under clause (a) of section 124 within six months of the seizure of the goods, the goods shall
be returned to the person from whose possession they were seized:

Provided that the aforesaid period of six months may, on sufficient cause being shown, be
extended by the Commissioner of Customs for a period not exceeding six months.

3) The proper officer may seize any documents or things which, in his opinion, will be useful
for, or relevant to, any proceeding under this Act.

4) The person from whose custody any documents are seized under sub-section (3) shall be
entitled to make copies thereof or take extracts therefrom in the presence of an officer of
customs.