M.

Com (Final)
Unit – I
IE- ITLP
BACKGROUND
In any Welfare State, it is the prime responsibility of the Government to fulfill the increasing
developmental needs of the country and its people by way of public expenditure. India, being a
developing economy, has been striving to fulfill the obligations of a Welfare State with its limited
resources; the primary source of revenue being the levy of taxes. Though the collection of tax is to
augment as much revenue as possible to the Government to provide public services, over the years it
has been used as an instrument of fiscal policy to stimulate economic growth. Thus, taxes are collected
to fulfill the socio-economic objectives of the Government.
What is a tax?
A tax may be defined as a "pecuniary burden laid upon individuals or property owners to support the
Government, a payment exacted by legislative authority. A tax "is not a voluntary payment or donation,
but an enforced contribution, exacted pursuant to legislative authority". In simple words, tax is nothing
but money that people have to pay to the Government, which is used to provide public services.

DIRECT AND INDIRECT TAXES

Taxes are broadly classified into direct and indirect taxes.
Direct Taxes: A direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly
to the Government by the persons (juristic or natural) on whom it is imposed. A direct tax is one that
cannot be shifted by the taxpayer to someone else. A significant direct tax imposed in India is income
tax.
Indirect Taxes: If the taxpayer is just a conduit and at every stage the tax incidence is passed on till it
finally reaches the consumer, who really bears the brunt of it, such tax is indirect tax. An indirect tax is
one that can be shifted by the assessee to taxpayers (final consumer).

Its incidence is borne by the consumers who ultimately consume the product or the service, while the
immediate liability to pay the tax may fall upon another person such as a manufacturer or provider of
service or seller of goods. Also called consumption taxes, they are regressive in nature because they are
not based on the principle of ability to pay. All the consumers, including the economically challenged
bear the brunt of the indirect taxes equally. Indirect taxes are levied on consumption, expenditure,
privilege, or right but not on income or property.
Earlier, a number of indirect taxes were levied in India, namely, excise duty, customs duty, service tax,
central sales tax (CST), value added tax (VAT), entry tax, purchase tax, entertainment tax, tax on lottery,
betting and gambling, luxury tax, tax on advertisements, etc. However, indirect taxation in India
witnessed a paradigm shift on July 01, 2017 with usherance into a unified indirect tax regime wherein a
large number of Central and State indirect taxes were amalgamated into a single tax – Goods and
Services Tax (GST). The introduction of GST has been a very significant step in the field of indirect tax
reforms in India. Customs duty continues in post-GST regime. Economists world over agree that direct
and indirect taxes are complementary and therefore, a rational tax structure should incorporate in itself
both types of taxes.
FEATURES OF INDIRECT TAXES
(i) An important source of revenue: Indirect taxes are a major source of tax revenues for Governments
worldwide and continue to grow as more countries move to consumption-oriented tax regimes. In India,
indirect taxes contribute more than 50% of the total tax revenues of Central and State Governments.
(ii) Tax on commodities and services: It is levied on commodities at the time of supply or manufacture or
purchase or sale or import/export thereof. Hence, it is also known as commodity taxation. It is also
levied on supply of services.
(iii) Shifting of burden: There is a clear shifting of tax burden in respect of indirect taxes. For example,
GST paid by the supplier of the goods is recovered from the buyer by including the tax in the cost of the
commodity.
(iv) No perception of direct pinch: Since value of indirect taxes is generally inbuilt in the price of the
commodity, most of the time the tax payer/consumer pays the same without actually knowing that he is
paying tax to the Government. Thus, tax payer does not perceive a direct pinch while paying indirect
taxes.
(v) Inflationary: Tax imposed on commodities and services causes an all-round price spiral. In other
words, indirect taxation directly affects the prices of commodities and services and leads to inflationary
trend.
(vi) Wider tax base: Unlike direct taxes, the indirect taxes have a wide tax base. Majority of the products
or services are subject to indirect taxes with low thresholds.
(vii) Promotes social welfare: Higher taxes are imposed on the consumption of harmful products (also
known as ‘sin goods’) such as alcoholic products, tobacco products etc. This not only checks their
consumption but also enables the State to collect substantial revenue.
(viii) Regressive in nature: Generally, the indirect taxes are regressive in nature. The rich and the poor
have to pay the same rate of indirect taxes on certain commodities of mass consumption. This may
further increase the income disparities between the rich and the poor.

CONCEPT OF GST
 Value Added Taxes: GST is a value added tax levied on supply i.e., manufacture or sale of goods
and provision of services.
 Continuous Chain of Tax Credits: GST offers comprehensive and continuous chain of tax credits
from the producer's point/service provider's point upto the retailer's level/consumer’s level
thereby taxing only the value added at each stage of supply chain.
 Burden Born by Final Consumer: The supplier at each stage is permitted to avail credit of GST
paid on the purchase of goods and/or services and can set off this credit against the GST payable
on the supply of goods and services to be made by him. Thus, only the final consumer bears the
GST charged by the last supplier in the supply chain, with set-off benefits at all the previous
stages.
 No Cascading Effect of Taxes: Since, only the value added at each stage is taxed under GST,
there is no tax on tax or cascading of taxes under GST system. The same can be understood
better with the help of the following example:
DUAL GST
India has adopted a Dual GST model in view of the federal structure of the country. Consequently,
Centre and States simultaneously levy GST on taxable supply of goods or services or both, which takes
place within a State or Union Territory. Thus, tax is imposed concurrently by the Centre and States, i.e.
Centre and States simultaneously tax goods and services. Now, the Centre also has the power to tax
intra-State sales & States are also empowered to tax services. GST extends to whole of India including
the State of Jammu and Kashmir.

Definitions
 Goods
‘goods’ means every kind of movable property other than money and securities but includes
actionable claim, growing crops, grass and things attached to or forming part of the land which are
agreed to be severed before supply or under a contract of supply.
 Services
‘services’ means anything other than goods, money and securities but includes activities relating to
the use of money or its conversion by cash or by any other mode, from one form, currency or
denomination, to another form, currency or denomination for which a separate consideration is
charged; [Explanation.–– For the removal of doubts, it is hereby clarified that the expression services
includes facilitating or arranging transactions in securities;]
 Supply
Scope of supply: (1) For the purposes of this Act, the expression supply includes––
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence,
rental, lease or disposal made or agreed to be made for a consideration by a person in the course or
furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business
(c) the activities specified in Schedule I, made or agreed to be made without a consideration.
(d) supply of goods or supply of services as referred to in Schedule II.
(e) Notwithstanding anything contained in
(i) activities or transactions specified in Schedule III; or
(ii) 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,

INTERSTATE AND INTRASTATE SUPPLY

Particulars Intra-State Supply Inter-State Supply
Meaning Location of Supplier & Place of Location of Supplier & Place of
Supply are in Supply are in
(i) Same State (i) Different States
(ii) Same UT (ii) Different UTs
(iii) A State & a UT *MH → A&N+
Applicability CGST + SCGT/(UTGST for UTs) IGST
 Place of Supply
Place of supply deals with which types of GST would be levied on value of supply. For understanding
this, one has to look at location of supplier and location of recipient.
Location of the supplier
(a) where a supply is made from a place of business for which registration has been obtained, the
location of such place of business;
(b) where a supply is made from a place other than the place of business for which registration has been
obtained, that is to say, a fixed establishment elsewhere, the location of such fixed establishment;
(c) where a supply is made from more than one establishment, whether the place of business or fixed
establishment, the location of the establishment most directly concerned with the provision of the
supply; and
(d) in absence of such places, the location of the usual place of residence of the supplier
Location of the recipient
(a) where a supply is received at a place of business for which registration has been obtained, the
location of such place of business;
(b) where a supply is received at a place other than the place of business for which registration has been
obtained, that is to say, a fixed establishment elsewhere, the location of such fixed establishment;
(c) where a supply is received at more than one establishment, whether the place of business or fixed
establishment, the location of the establishment most directly concerned with the receipt of the supply;
and
(d) in absence of such places, the location of the usual place of residence of the recipient

Place of Supply in case of goods

(i) Supply involving movement of goods [Section 10(1)(a)]

In case of supply involving movement of goods, the place of supply is the
location of the goods at the time when the movement of goods terminates
(ends) for delivery to the recipient.
Eg- MA Pvt. Ltd. of Nasik, Maharashtra sells 20 refrigerators to MC Pvt. Ltd. of Ahmedabad,
Gujarat for delivery at place of business of MC Pvt. Ltd. in Ahmedabad. The place of supply is
Ahmedabad.

(ii) Supply involving movement of goods where goods are delivered to

recipient on the instruction of third person – ‘Bill to Ship to’ Supply
[Section 10(1)(b)]
where goods are delivered by the supplier to the recipient at the instruction
of a third person, the place of supply is the principal place of business of such
third person and not of the actual recipient.

Eg- X & Co. (a supplier registered in Uttar Pradesh having principal place of business at Noida) asks Y &
Co. of Ahmedabad, Gujarat to deliver 50 washing machines to its buyer Z & Co. at Jaipur, Rajasthan.
 In this case, two supplies are involved, one between X & Co. and Z & Co. and other between Y & Co.
and X & Co.

While the former supply is covered under clause (a) of section 10(1), the latter one, i.e. between Y & Co.
and X & Co. is covered under clause (b) of section 10(1). Accordingly, in this case, the place of supply of
goods is not the location of delivery of such goods (Jaipur) but the principal place of business of third
person, i.e. principal place of business of X & Co. located at Noida.

(iii) Supply not involving movement of goods [Section 10(1)(c)]

If the supply does not involve movement of goods, the place of supplyis the
location of goods at the time of delivery to the recipient.
Eg- XZ Ltd. (Mumbai, Maharashtra) opens a new branch office at Gurugram, Haryana. It purchases a
building for office from KTS Builders (Gurugram). It also enters into a separate contract with KTS
Builders for purchase of pre-installed office furniture and fixtures in the building.

(iv) Supply involving installation or assembly of goods [Section10(1)(d)]

If the supply involves goods which are to be installed or assembled at site, the
place of supply is the place of such installation or assembly.
Eg- Pure Refineries (Mumbai, Maharashtra) gives a contract to PQ Ltd. (Ranchi, Jharkhand) to supply a
machine which is required to be assembled in a power plant in its refinery located in Kutch, Gujarat.
The place of supply is the site of assembly of machine, i.e. Kutch even though Pure refineries is
located in Maharashtra.

(v) Goods supplied on board a conveyance [section 10(1)(e)]

Place of supply of goods supplied on a board a conveyance like aircraft, train, vessel, motor
vehicle is the location where such goods have been taken on board.
Eg- Mr. X (New Delhi) boards the New Delhi-Kota train at New Delhi. He sells the goods taken on board
by him (at New Delhi), in the train, at Jaipur during the journey. The place of supply of goods is the
location at which the goods are taken on board, i.e. New Delhi and not Jaipur where they have been
sold.

Place of Supply in case of Services

(i) General Rule [Section 12(2)]
The rule is applicable only if the supply of service does not fall in any of the specific cases
provided under section 12. The rule provides that the place of supply of services made
to a registered person is the location of the person receiving the services. Since the
supplier has the GSTIN of the person receiving the service, the location of such GSTIN is
the place of supply.

However, if the services is supplied to an unregistered person, the place of supply is:

a) the location of such unregistered person, if the address of the unregistered person is
available in the records of the supplier
 b) the location of the supplier of services in other cases
Eg - Mr. A, a Chartered Accountant in Gurugram, Haryana, (registered inHaryana) provides consultancy
services to his client Mr. C who is a resident of New Delhi but is not registered under GST. If the
address of Mr. C is available in the records of Mr. A, location of Mr. C, i.e. New Delhi will be the place of
supply, else the location of Mr. A, which is Gurugram, will be theplace of supply.

(ii) Services in relation to an immovable property or lodging

accommodation in a hotel/boat/vessel etc. [Section 12(3)]
location of the immovable property or the boat or the vessel or where such
immovable property or the boat or the vessel is intended to be located, is the
place of supply.
Eg- Mr. Ramesh, a Chartered Accountant, (New Delhi) travels to Mumbai for business and stays in a
hotel there. The place of supply of accommodation service is the place where the hotel is located, i.e.
Mumbai.

(iii) Restaurant and catering service, personal grooming, fitness,beauty and

health services [Section 12(4)]
The place of supply of restaurant and catering services, personal grooming, fitness, beauty
treatment, health service including cosmetic and plastic surgery is the location where such
services are actually performed.

Eg - Mr. Timmy Ferreira, a makeup artist at Kolkata, goes to Jaipur, Rajasthan for doing the
makeup of Ms. Simran Kapoor, a Bollywood actress based in Mumbai. The place of supply is the
location where such service is performed, i.e. Jaipur.

(iv) Training and performance appraisal services [Section 12(5)]

In B2B supply, i.e. where the recipient of service is a
registered person, the place of supply is the location
of such person.
However, in case of B2C supply, i.e. where the recipient of service is unregistered, the
place of supply is the place where the service is actually performed.

In B2B supply, i.e. where the recipient of service is a registered person, the place of supply is the
location of such person.

However, in case of B2C supply, i.e. where the recipient of service is unregistered, the place of supply
is the place where the service is actually performed.

Eg - Mr. Suresh (unregistered person based in Noida) signs up with Excellent Linguistics (New Delhi)
for training on English speaking at their New Delhi Centre. Since the recipient is unregistered,
the place of supplyis the location where services are provided, i.e. New Delhi.
(v) Services by way of admission to events/amusement park/otherplaces
[Section 12(6)]
Place of supply where the event is actually held or where the park or such other place is located.
Eg- Mr. B of New Delhi buys a ticket for an amusement park located in Noida, Uttar Pradesh. The
place of the supply is the location where the park is located, i.e. Noida.

(vi) Organisation of events [Section 12(7)]

When such service is provided to a registered person, the place of supply is location
of recipient.
When it is provided to an unregistered person, the place of supply is the location where the
event is actually held and if the event is held outside India, the place of supply is the location of
recipient.

Eg - Mega Events, an event management company at New Delhi, organizes an award function for
Shah Diamond Merchants of Ahmedabad (registered in Gujarat), in Mauritius. Since the recipient is
a registered person, the placeof supply is the location of the recipient, i.e. Ahmedabad.
Eg- Grand Wedding Planners (Chennai) is hired by Mr. Ramesh (unregistered person based in
Hyderabad) to plan and organise his wedding at New Delhi. The recipient being an unregistered
person, the place of supply is the location where the event is held, i.e. New Delhi.
(vii) Transportation of goods including mail or courier [Section 12(8)]
The place of supply of services by way of transportation of
goods, including by mail or courier, etc. provided to a
registered person,is the location of such person. If the goods are
However, where such services are provided to antransported outside
India,
unregistered person, the place of supply is the location at the destination of
which such goods are handed over for theirsuch goods is the place
transportation. of supply.

Eg - Mr. Y, an unregistered person, of New Delhi sends a courier to his brother in Amritsar, Punjab. The
recipient being unregistered person, the place of supply is the location where goods are handed over for
their transportation, i.e. New Delhi.

(viii) Passenger transportation service [Section 12(9)]

Recipient is registered then Location of recipient
Recipient is unregistered then Location where the passenger embarks on the conveyance for a
continuous journey.
Eg - Mr. Shyam, an unregistered person, based in Gurugram, Haryana books a two-way air journey
ticket from New Delhi to Mumbai on 5th December. He leaves New Delhi on 10th December in a
late-night flight and lands in Mumbai the next day. He leaves Mumbai on 14th December in a
morning flight and lands in New Delhi the same day.
 The return journey is treated as a separate journey, even if the tickets for onward and return journey
are issued at the same time. Thus, being an unregistered person, the place of supply for the outward
and return journeys are the locations where the unregistered person embarks on the conveyancefor
the continuous journey, i.e. New Delhi and Mumbai respectively.

(ix) Service supplied on board a conveyance [Section 12(10)]

Place of supply would be location of the first scheduled point of departure that conveyance for the
journey.
Eg - Mr. X is travelling from Delhi to Mumbai in an Airjet flight. He desires to watch an English movie
during the journey by making the necessary payment. The place of supply of such service of showing
‘movie on demand’ is the first scheduled point of departure of the conveyance for the journey, i.e. Delhi.

(x) Telecommunication service [Section 12(11)]

(a) Services provided using a fixed telecommunicationline, leased circuits,internet leased circuit,cable
or dish antenna then place of supply would be location where thetelecommunication line,leased circuit
or cable connection or dish antenna is installed for receipt of services.
(b) Post-paid mobile connectionand internet services then place of supply would be
 Location of billing address of the recipient of services in the records of the supplier of
services
 Location of the supplier of services, if theaddress is not available.
(c) Pre-paid mobile connection, internet services and DTH services (recharge coupon, vouchers, net pack
etc.) then place of supply would be the address of the selling agent/ re-seller/ distributor at the time of
supply
Eg- Mr. D (Mumbai) takes a post-paid mobile connection in Mumbai from Skybel Ltd and gives his
residence address at Mumbai as the address for billing with supplier. The place of supply is the
location of billing addressof the recipient, i.e. Mumbai.
(xi) Financial and stock broking services [Section 12(12)]
The place of supply of banking and other financial services, including stock broking services to any
person is the location of the recipient of services in the records of the supplier of services.
However, if the location of recipient of services is not available in the records of the supplier, the
place of supply is the location of the supplier of services.
Eg- Mr. A (Chennai) buys shares from a broker in BSE (Mumbai). The place of supply is the location of
the recipient of services in the records of the supplier, i.e. Chennai.
(xii) Insurance services [Section 12(13)]
The place of supply of insurance services is the location of recipient when provided to a registered
recipient.
If such services are provided to a person other than a registered person, the place of supply is the
location of the recipient of services inthe records of the supplier of services.
Eg - Ms. B (unregistered resident of Kolkata) goes to her native place Patna, Bihar and buys a medical
 insurance policy for her parents there from Safe Insurers, Patna (registered in Bihar). The place of
supply is the locationof the recipient of services in the records of the supplier, i.e. Patna.
(xiii) Advertisement service to the Government [Section 12(14)]

Advertisement service to the Central Each of such States/ Union

Government/ State Government/ territories where the
Statutory body/ Local authority meant for advertisement is
the State/Union territory identified in broadcasted/ run / played/
contract or agreement disseminated.

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