taxupindia · 40. First return 226 41. Claim of input tax credit and provisional acceptance thereof...

taxupindia.com

BACKGROUND MATERIAL ON

GST ACTs AND DRAFT RULEs, 2017

The Institute of Chartered Accountants of India (Set up by an Act of Parliament)

New Delhi

taxupindia.com

© The Institute of Chartered Accountants of India

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form, or by any means, electronic, mechanical, photocopying, recording, or otherwise without prior permission, in writing, from the publisher.

DISCLAIMER:

The views expressed in this book are of the author(s). The Institute of Chartered Accountants of India may not necessarily subscribe to the views expressed by the author(s).

The information cited in this book has been drawn primarily from the www.cbec.gov.in and other sources. While every effort has been made to keep the information cited in this book error free, the Institute or any office of the same does not take the responsibility for any typographical or clerical error which may have crept in while compiling the information provided in this book.

First Edition : May, 2017 Updated Edition : June, 2017 Reprint : June, 2017

Committee/Department : Indirect Taxes Committee

E-mail : [email protected]

Website : www.icai.org; www.idtc.icai.org

Price : ` 450/-

ISBN : 978-81-8441-869-9

Published by : The Publication Department on behalf of the Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha Marg, New Delhi - 110 002.

Printed by : Sahitya Bhawan Publications, Hospital Road, Agra - 282 003. June/2017/P2114(Reprint)

taxupindia.com

Foreword

Introduction of GST in India, one of the biggest fiscal and economic reforms since independence, is inching close to its implementation with receipt of presidential assent to the four GST Acts viz. Central Goods & Services Tax Act, Union Territory Goods & Services Tax Act, Integrated Goods & Services Tax Act and the GST (Compensation to States) Act, 2017. To ensure smooth transition, the government and all related nodal agencies like Goods and Services Tax Council, GSTN etc. have been regularly interacting and taking decisions to resolve the issues being faced at various levels. As a partner in nation building, the ICAI also has been proactively providing all necessary support to all agencies at every stage.

The Goods and Services Tax Network, which has developed IT platform for Goods and Services Tax has already started migration of the existing assessees under different indirect taxes regime in a phased manner. With a view to support the Government’s initiative of smooth migration and to assist the assessees, ICAI has launched a short video lecture on the process of GST migration and its benefits, available at https://youtu.be/Cc9UgEIKdFg. Live webcasts that were organized with the Government Officers are now available at https://goo.gl/pv2Rbg for offline viewing.

The Institute has been for the past 9 months taking various initiatives for increasing awareness among its members and public. Indirect Taxes Committee of ICAI (IDTC) has also made suggestions to make the GST law simple and easy for implementation, organizing certificate course, programmes, workshops on GST, live webcasts, releasing new publications etc. One of the efforts in this direction is this ‘Background Material on GST Acts and Rules’ which contains a clause by clause analysis of the four GST acts viz. CGST Act, UTGST Act, IGST Act and the GST (Compensation to States) Act, 2017 along with FAQ’s, MCQ’s, Flowcharts and Illustrations with a note on State GST Act etc. This is primarily meant as a course material for training of the officers of CBEC & VAT.

I appreciate the efforts put in by CA. Madhukar N. Hiregange, Chairman, CA. Sushil Kumar Goyal, Vice-Chairman and other members of the Indirect Taxes Committee of ICAI for undertaking this task and revising the material in a short span of time. I am sure readers will have fruitful and knowledge enriching experience from this material.

Date: 08.05.2017 CA. Nilesh S. Vikamsey Place: New Delhi President, ICAI

taxupindia.com

taxupindia.com

Preface

The 4 GST legislations have received presidential assent, 14 draft GST Rules are in public domain and 8 states have cleared their SGST Acts. In this constantly changing scenario, the Institute has been pro-actively supporting the Government by contributing its suggestions on the one hand and disseminating awareness among the members and other stakeholders on the other hand. The Committee has been organising large number of awareness program covering more than 35,000 members till date. It has also taken up online awareness/ in depth analysis by way of a series of webcasts, hosted Video lectures etc. These are being viewed by many more professionals and non professionals from across the world.

This Background Material is comprehensive containing clause by clause analysis of the GST Law along with FAQ’s, MCQ’s, Flowcharts and Illustrations etc. to make the reading and understanding easier.

We thank CA. Nilesh Vikamsey, President, CA. Naveen ND Gupta, Vice-President, ICAI for support for this initiative. We would like to acknowledge the members of the Committee especially CA. S. Venkatramani for their support as the backbone for the issue of all three editions of this BGM ably supported by CA Jatin Christopher. We also thank the Study Groups of the Indirect Tax Committee located at Delhi, Mumbai, Bangalore Chennai, Kolkata, Bhubaneswar, Guwahati, Pune, Pimpri Chinchwad, Andhra Pradesh, Kerala, Ahmedabad, Surat, Indore, Kanpur, Jaipur, Patna, Telangana, Ranchi and Gurgaon for their effort and contribution. We appreciate the Secretariat for their unstinted support and efforts.

We welcome the readers to an intellectual learning spree. The attending of the 10 day certificate course revision through watching of the web cast series by the end of this month along with this material could provide the most comprehensive learning in GST available in India today. Interested members may join the IDT/ GST update facility and may visit website of the Committee www.idtc.icai.org.We also welcome suggestions at [email protected] and

CA. Madhukar Narayan Hiregange Chairman Indirect Taxes Committee

CA. Sushil Kumar Goyal Vice-Chairman

Indirect Taxes Committee

Date: 08.05.2017

Place: New Delhi

taxupindia.com

taxupindia.com

Contents

THE CONSTITUTION (ONE HUNDRED AND FIRST AMENDMENT) ACT, 2016 A-1–A-11

THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 1–570

CHAPTER I: PRELIMINARY 3–53 1. Short title, extent and commencement 3 2. Definitions 4

CHAPTER II: ADMINISTRATION 54–57 3. Officers under this Act 54 4. Appointment of officers 55 5. Powers of officers 55 6. Authorisation of officers of State tax or Union territory tax as proper officer

in certain circumstances 56

CHAPTER III: LEVY AND COLLECTION OF TAX 58–82 7. Scope of supply 58 8. Tax liability on composite and mixed supplies 58 9. Levy and collection 58 10. Composition levy 70 11. Power to grant exemption from tax 78

CHAPTER IV: TIME AND VALUE OF SUPPLY 83–118 12. Time of supply of goods 83 13. Time of supply of services 92 14. Change in rate of tax in respect of supply of goods or services 100 15. Value of taxable supply 103

CHAPTER V: INPUT TAX CREDIT 119–163 16. Eligibility and conditions for taking input tax credit 119 17. Apportionment of credit and blocked credits 125 18. Availability of credit in special circumstances 131 19. Taking input tax credit in respect of inputs and capital goods sent for job-work 145

taxupindia.com

20. Manner of distribution of credit by Input Service Distributor 148 21. Manner of recovery of credit distributed in excess 162

CHAPTER VI: REGISTRATION 164–179 22. Persons liable for registration 164 23. Persons not liable for registration 167 24. Compulsory registration in certain cases 168 25. Procedure for registration 169 26. Deemed registration 172 27. Special provisions relating to casual taxable person and non-resident taxable

person 172 28. Amendment of registration 173 29. Cancellation of registration 174 30. Revocation of cancellation of registration 176

CHAPTER VII: TAX INVOICE, CREDIT AND DEBIT NOTES 180–195 31. Tax invoice 180 32. Prohibition of unauthorised collection of tax 188 33. Amount of tax to be indicated in tax invoice and other documents 189 34. Credit and debit notes 189

CHAPTER VIII: ACCOUNTS AND RECORDS 196–204 35. Accounts and other records 196 36. Period of retention of accounts 201

CHAPTER IX: RETURNS 205–244 37. Furnishing details of outward supplies 205 38. Furnishing details of inward supplies 210 39. Returns 215 40. First return 226 41. Claim of input tax credit and provisional acceptance thereof 226 42. Matching, reversal and reclaim of input tax credit 227 43. Matching, reversal and reclaim of reduction in output tax liability 232 44. Annual return 238 45. Final return 239

taxupindia.com

46. Notice to return defaulters 240 47. Levy of late fee 240 48. Goods and services tax practitioners 241 CHAPTER X: PAYMENT OF TAX 245–268 49. Payment of tax, interest, penalty and other amounts 245 50. Interest on delayed payment of tax 253 51. Tax deducted at source 256 52. Tax Collected at Source 262 53. Transfer of input tax credit 267 CHAPTER XI: REFUNDS 269–285 54. Refund of tax 269 55. Refund in certain cases 279 56. Interest on delayed refunds 280 57. Consumer Welfare Fund 283 58. Utilisation of Fund 284 CHAPTER XII: ASSESSMENT 286–302 59. Self-assessment 286 60. Provisional assessment 287 61. Scrutiny of Returns 292 62. Assessment of non-filers of returns 295 63. Assessment of unregistered persons 298 64. Summary assessment in certain special cases 300 CHAPTER XIII: AUDIT 303–310 65. Audit by tax authorities 303 66. Special audit 307 CHAPTER XIV: INSPECTION, SEARCH, SEIZURE AND ARREST 311–326 67. Power of inspection, search and seizure 311 68. Inspection of goods in movement 316 69. Power to arrest 319 70. Power to summon persons to give evidence and produce documents 321 71. Access to business premises 322 72. Officers to assist proper officers 325

taxupindia.com

CHAPTER XV: DEMANDS AND RECOVERY 327–364 73. Determination of tax not paid or short paid or erroneously refunded or

input tax credit wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of facts 327

74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts 330

75. General provisions relating to determination of tax 334 76. Tax collected but not paid to the Government 339 77. Tax wrongfully collected and paid to the Central or a State Government 342 78. Initiation of recovery proceedings 344 79. Recovery of tax 345 80. Payment of tax and other amount in instalments 352 81. Transfer of property to be void in certain cases 355 82. Tax to be first charge on property 357 83. Provisional attachment to protect revenue in certain cases 359 84. Continuation and validation of certain recovery proceedings 362

CHAPTER XVI: LIABILITY TO PAY IN CERTAIN CASES 365–383 85. Liability in case of transfer of business 365 86. Liability of agent and principal 367 87. Liability in case of amalgamation or merger of companies 368 88. Liability in case of company in liquidation 370 89. Liability of directors of Private Company 371 90. Liability of partners of firm to pay tax 373 91. Liability of guardians, trustees, etc. 375 92. Liability of Court of Wards, etc. 376 93. Special provisions regarding liability to pay tax, interest or penalty in certain cases 378 94. Liability in other cases 382

CHAPTER XVII: ADVANCE RULING 384–404 95. Definition clause – interpretation 384 96. Authority for Advance Ruling 386 97. Application for Advance Ruling 387

taxupindia.com

98. Procedure on receipt of application 389 99. Appellate Authority for Advance Ruling 393 100. Appeal to Appellate Authority 394 101. Orders of Appellate Authority 395 102. Rectification of advance ruling 397 103. Applicability of advance ruling 399 104. Advance ruling to be void in certain circumstances 400 105. Powers of Authority and Appellate Authority 401 106. Procedure of Authority and Appellate Authority 403

CHAPTER XVIII: APPEALS AND REVISION 405–431 107. Appeals to Appellate Authority 405 108. Powers of Revisional Authority 407 109. Constitution of Appellate Tribunal and Benches thereof 409 110. President and Members of Appellate Tribunal, their qualification, appointment,

conditions of service, etc. 412 111. Procedure before Appellate Tribunal 415 112. Appeals to Appellate Tribunal 416 113. Orders of Appellate Tribunal 420 114. Financial and administrative powers of President 421 115. Interest on refund of amount paid for admission of appeal 422 116. Appearance by authorised representative 423 117. Appeal to High Court 426 118. Appeal to Supreme Court 428 119. Sums due to be paid notwithstanding appeal, etc. 429 120. Appeal not to be filed in certain cases 430 121. Non-appealable decisions and orders 431

CHAPTER XIX: OFFENCES AND PENALTIES 432–460 122. Penalty for certain offences 432 123. Penalty for failure to furnish information return 438 124. Fine for failure to furnish statistics 439 125. General penalty 440

taxupindia.com

126. General disciplines related to penalty 441 127. Power to impose penalty in certain cases 443 128. Power to waive penalty or fee or both 444 129. Detention, seizure and release of goods and conveyances in transit 445 130. Confiscation of goods or conveyances and levy of penalty 447 131. Confiscation or penalty not to interfere with other punishments 451 132. Punishment for certain offences 451 133. Liability of officers and certain other persons 455 134. Cognizance of offences 456 135. Presumption of culpable mental state 456 136. Relevancy of statements under certain circumstances 457 137. Offences by companies 458 138. Compounding of offences 459

CHAPTER XX: TRANSITIONAL PROVISIONS 461–515 139. Migration of existing taxpayers 461 140. Transitional arrangements for input tax credit 467 141. Transitional provisions relating to job work 489 142. Miscellaneous transitional provisions 497

CHAPTER XXI: MISCELLANEOUS 516–570 143. Job work procedure 516 144. Presumption as to documents in certain cases 521 145. Admissibility of micro films, facsimile copies of documents and computer

printouts as documents and as evidence 521 146. Common Portal 523 147. Deemed exports 524 148. Special procedure for certain processes 525 149. Goods and services tax compliance rating 525 150. Obligation to furnish information return 526 151. Power to collect statistics 530 152. Bar on disclosure of information 530 153. Taking assistance from an expert 531

taxupindia.com

154. Power to take samples 532

155. Burden of proof 532

156. Persons deemed to be public servants 533

157. Protection of action taken under this Act 534

158. Disclosure of information by a public servant 534

159. Publication of information in respect of persons in certain cases 538

160. Assessment proceedings, etc., not to be invalid on certain grounds 542

161. Rectification of errors apparent on the face of record 544

162. Bar on jurisdiction of Civil Courts 548

163. Levy of fee 549

164. Power of Government to make rules 550

165. Power to make regulations 552

166. Laying of rules, regulations and notifications 553

167. Delegation of powers 554

168. Power to issue instructions or directions 556

169. Service of notice in certain circumstances 557

170. Rounding off of tax, etc. 561

171. Anti-profiteering measure 563

172. Removal of difficulties 564

173. Amendment of Act 32 of 1994 565

174. Repeal and saving 566

SCHEDULE-I 571 SCHEDULE-II 572 SCHEDULE-III 575

THE INTEGRATED GOODS AND SERVICES TAX ACT, 2017 576–662


taxupindia.com

CHAPTER II: ADMINISTRATION 591 3. Appointment of officers 591 4. Authorisation of officers of State tax or Union territory tax as proper officer

in certain circumstances 591 CHAPTER III: LEVY AND COLLECTION OF TAX 592–600 5. Levy and Collection 592 6. Power to grant exemption from tax 597

CHAPTER IV: DETERMINATION OF NATURE OF SUPPLY 601–613 7. Inter-State supply 601 8. Intra-State supply 607 9. Supplies in territorial waters 610

CHAPTER V: PLACE OF SUPPLY OF GOODS OR SERVICES OR BOTH 614–637 10. Place of supply of goods other than supply of goods imported into, or

exported from India 614 11. Place of supply of goods imported into, or exported from India 620 12. Place of supply of services where location of supplier and recipient is in India 622 13. Place of supply of services where location of supplier or location of recipient

is outside India 628 14. Special provision for payment of tax by a supplier of online information and

database access or retrieval services 633

CHAPTER VI : REFUND OF INTEGRATED TAX TO INTERNATIONAL TOURIST 638–639 15. Refund of integrated tax paid on supply of goods to tourist leaving India 638

CHAPTER VII: ZERO RATED SUPPLY 640–648 16. Zero rated supply 640

CHAPTER VIII : APPORTIONMENT OF TAX AND SETTLEMENT OF FUNDS 649–653 17. Apportionment of tax and settlement of funds 649

18. Transfer of input tax credit 651 19. Tax wrongfully collected and paid to Central Government or State

Government 652

CHAPTER IX: MISCELLANEOUS 654–662 20. Application of provisions of Central Goods and Services Tax Act 654

21. Import of services made on or after the appointed day 657

taxupindia.com

22. Power to make rules 658 23. Power to make regulations 650 24. Laying of rules, regulations and notifications 660 25. Removal of difficulties 661

THE UNION TERRITORY GOODS AND SERVICES TAX ACT, 2017 663–680


CHAPTER II: ADMINISTRATION 669–670 3. Officers under this Act 669 4. Authorisation of officers 669 5. Powers of officers 669 6. Authorisation of officers of Central Tax as proper officer in certain

circumstances 669

CHAPTER III: LEVY AND COLLECTION OF TAX 671–680

7. Levy and Collection 671 8. Power to grant exemption from tax 675

THE GOODS AND SERVICES TAX (COMPENSATION TO STATES) Act, 2017 681–684

1. Short title, extent and commencement 681 2. Definitions 681 8. Levy and collection of cess 682 9. Returns, payments and refunds 682 11. Other provisions relating to cess 683

NOTE ON STATE GST LAWS & RULES 685

taxupindia.com

GOODS AND SERVICES TAX RULES 686–780

1. Composition Rules 686 2. Input Tax Credit 690 3. Determination of Value of Supply 701 4. Transitional Provisions 707 5. Registration 714 6. Tax Invoice, Credit and Debit Notes 727 7. Payment of Tax 737 8. Refund 741 9. Return Rules 750 10. Assessment and Audit 764 11. Electronic Way Bill 768 12. Advance Ruling 772 13. Appeals and Revision 773 14. Accounts and Records 777

taxupindia.com

THE CONSTITUTION (ONE HUNDRED AND FIRST AMENDMENT) ACT, 2016 An

ACT Further to amend the Constitution of India.

BE it enacted by Parliament in the Sixty-seventh Year of the Republic of India as follows:— Short title and commencement 1. (1) This Act may be called the Constitution (One Hundred and First Amendment)

Act, 2016. (2) It shall come into force on such date as the Central Government may, by

notification in the Official Gazette, appoint, and different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the commencement of that provision.

Insertion of new article 246A 2. After article 246 of the Constitution, the following article shall be inserted, namely:—

Special provision with respect to goods and services tax "246A.(1)Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State. (2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce. Explanation.—The provisions of this article, shall, in respect of goods and services tax referred to in clause (5), of article 279A, take effect from the date recommended by the Goods and Services Tax Council.’’.

Amendment of article 248 3. In article 248 of the Constitution, in clause (1), for the word "Parliament", the words,

figures and letter "Subject to article 246A, Parliament" shall be substituted. Amendment of article 249 4. In article 249 of the Constitution, in clause (1), after the words "with respect to", the

words, figures and letter "goods and services tax provided under article 246A or" shall be inserted.

Amendment of article 250 5. In article 250 of the Constitution, in clause (1), after the words "with respect to", the

words, figures and letter "goods and services tax provided under article 246A or" shall be inserted.

taxupindia.com

The Constitution (One Hundred and First Amendment) Act, 2016

BGM on GST Act(s) and Draft Rule(s), 2017 A.2

Amendment of article 268 6. In article 268 of the Constitution, in clause (1), the words "and such duties of excise on

medicinal and toilet preparations" shall be omitted. Omission of article 268A 7. Article 268A of the Constitution, as inserted by section 2 of the Constitution (Eighty-

eighth Amendment) Act, 2003 shall be omitted. Amendment of article 269 8. In article 269 of the Constitution, in clause (1), after the words "consignment of goods",

the words, figures and letter "except as provided in article 269A" shall be inserted. Insertion of new article 269A 9. After article 269 of the Constitution, the following article shall be inserted, namely:—

Levy and collection of goods and services tax in course of inter-State trade or commerce. ‘‘269A. (1) 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. Explanation.—For the purposes of this clause, 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.

(2) The amount apportioned to a State under clause (1) shall not form part of the Consolidated Fund of India.

(3) Where an amount collected as tax levied under clause (1) has been used for payment of the tax levied by a State under article 246A, such amount shall not form part of the Consolidated Fund of India.

(4) Where an amount collected as tax levied by a State under article 246A has been used for payment of the tax levied under clause (1), such amount shall not form part of the Consolidated Fund of the State.

(5) Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.’’.

Amendment of article 270 10. In article 270 of the Constitution,—

(i) in clause (1), for the words, figures and letter "articles 268, 268A and article269", the words, figures and letter" articles 268, 269 and article 269A" shall be substituted;

taxupindia.com



(ii) after clause (1), the following clause shall be inserted, namely:— ‘‘(1A) The tax collected by the Union under clause (1) of article 246A shall

also be distributed between the Union and the States in the manner provided in clause (2).

(1B) The tax levied and collected by the Union under clause (2) of article 246A and article 269A, which has been used for payment of the tax levied by the Union under clause (1) of article 246A, and the amount apportioned to the Union under clause (1) of article 269A, shall also be distributed between the Union and the States in the manner provided in clause (2).’’.

Amendment of article 271 11. In article 271 of the Constitution, after the words ‘‘in those articles’’, the words, figures

and letter ‘‘except the goods and services tax under article 246A,’’ shall be inserted. Insertion of new article 279A 12. After article 279 of the Constitution, the following article shall be inserted, namely:— Goods and Services Tax Council ‘‘279A. (1) The President shall, within sixty days from the date of commencement of the

Constitution (One Hundred and First Amendment) Act, 2016, by order, constitute a Council to be called the Goods and Services Tax Council.

(2) The Goods and Services Tax Council shall consist of the following members, namely:— (a) the Union Finance Minister…………………. Chairperson; (b) the Union Minister of State in charge of

Revenue or Finance………………………… Member; (c) the Minister in charge of Finance or Taxation

or any other Minister nominated by each State Government……….. Members.

(3) The Members of the Goods and Services Tax Council referred to in sub-clause (c) of clause (2) shall, as soon as may be, choose one amongst themselves to be the Vice-Chairperson of the Council for such period as they may decide.

(4) The Goods and Services Tax Council shall make recommendations to the Union and the States on— (a) the taxes, cesses and surcharges levied by the Union, the States and the

local bodies which may be subsumed in the goods and services tax; (b) the goods and services that may be subjected to, or exempted from the

goods and services tax;

taxupindia.com



(c) model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the place of supply;

(d) the threshold limit of turnover below which goods and services may be exempted from goods and services tax;

(e) the rates including floor rates with bands of goods and services tax; (f) any special rate or rates for a specified period, to raise additional

resources during any natural calamity or disaster; (g) special provision with respect to the States of Arunachal Pradesh, Assam,

Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and

(h) any other matter relating to the goods and services tax, as the Council may decide.

(5) The Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.

(6) While discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided by the need for a harmonised structure of goods and services tax and for the development of a harmonised national market for goods and services.

(7) One half of the total number of Members of the Goods and Services Tax Council shall constitute the quorum at its meetings.

(8) The Goods and Services Tax Council shall determine the procedure in the performance of its functions.

(9) Every decision of the Goods and Services Tax Council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely:— (a) the vote of the Central Government shall have a weightage of one-third of

the total votes cast, and (b) the votes of all the State Governments taken together shall have a

weightage of two-thirds of the total votes cast, in that meeting. (10) No act or proceedings of the Goods and Services Tax Council shall be invalid

merely by reason of— (a) any vacancy in, or any defect in, the constitution of the Council; or (b) any defect in the appointment of a person as a member of the Council; or

taxupindia.com



(c) any procedural irregularity of the Council not affecting the merits of the case.

(11) The Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute — (a) between the Government of India and one or more States; or (b) between the Government of India and any State or States on one side

and one or more other States on the other side; or (c) between two or more States,

Amendment of article 286 13. In article 286 of the Constitution,—

(i) in clause (1),— (A) for the words "the sale or purchase of goods where such sale or purchase

takes place", the words "the supply of goods or of services or both, where such supply takes place" shall be substituted;

(B) in sub-clause (b), for the word “goods”, at both the places where it occurs the words “goods or services or both” shall be substituted;

(ii) in clause (2), for the words "sale or purchase of goods takes place", the words "supply of goods or of services or both" shall be substituted;

(iii) clause (3) shall be omitted. Amendment of article 366 14. In article 366 of the Constitution,—

(i) after clause (12), the following clause shall be inserted, namely:— ‘(12A) “goods and services tax” means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption;’;

(ii) after clause (26), the following clauses shall be inserted, namely:— ‘(26A) “Services” means anything other than goods; (26B) “State” with reference to articles 246A, 268, 269, 269A and article 279A includes a Union territory with Legislature;’.

Amendment of article 368 15. In article 368 of the Constitution, in clause (2), in the proviso, in clause (a), for the

words and figures “article 162 or article 241”, the words, figures and letter “article 162, article241 or article 279A” shall be substituted.

Amendment of Sixth Schedule 16. In the Sixth Schedule to the Constitution, in paragraph 8, in sub-paragraph (3),—

taxupindia.com



(i) in clause (c), the word "and" occurring at the end shall be omitted; (ii) in clause (d), the word "and" shall be inserted at the end; (iii) after clause (d), the following clause shall be inserted, namely:—

"(e) taxes on entertainment and amusements.". Amendment of Seventh Schedule. 17. In the Seventh Schedule to the Constitution,—

(a) in List I — Union List,— (i) for entry 84, the following entry shall be substituted, namely:—

"84. Duties of excise on the following goods manufactured or produced in India, namely:— (a) petroleum crude; (b) high speed diesel; (c) motor spirit (commonly known as petrol); (d) natural gas; (e) aviation turbine fuel; and (f) tobacco and tobacco products.";

(ii) entries 92 and 92C shall be omitted; (b) in List II — State List,—

(i) entry 52 shall be omitted; (ii) for entry 54, the following entry shall be substituted, namely:—

"54. Taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of inter-State trade or commerce or sale in the course of international trade or commerce of such goods.";

(iii) entry 55 shall be omitted; (iv) for entry 62, the following entry shall be substituted, namely:— "62. Taxes on entertainments and amusements to the extent levied and collected by a Panchayat or a Municipality or a Regional Council or a District Council.".

Compensation to States for loss of revenue on account of introduction of goods and services tax 18. Parliament may, by law, on the recommendation of the Goods and Services Tax

Council, provide for compensation to the States for loss of revenue arising on account

taxupindia.com



of implementation of the goods and services tax for such period which may extend to five years.

Transitional provisions 19. Notwithstanding anything in this Act, any provision of any law relating to tax on goods

or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be inforce until amended or repealed by a competent Legislature or other competent authority or until expiration of one year from such commencement, whichever is earlier.

Power of President to remove difficulties 20. (1) If any difficulty arises in giving effect to the provisions of the Constitution as

amended by this Act (including any difficulty in relation to the transition from the provisions of the Constitution as they stood immediately before the date of assent of the President to this Act to the provisions of the Constitution as amended by this Act), the President may, by order, make such provisions, including any adaptation or modification of any provision of the Constitution as amended by this Act or law, as appear to the President to be necessary or expedient for the purpose of removing the difficulty: Provided that no such order shall be made after the expiry of three years from the date of such assent.

(2) Every order made under sub-section (1) shall, as soon as may be after it is made, be laid before each House of Parliament.

taxupindia.com



STATEMENT OF OBJECTS AND REASONS (As provided in the Bill introduced in Loksabha on 18th December, 2014)

1. The Constitution is proposed to be amended to introduce the goods and services tax

for conferring concurrent taxing powers on the Union as well as the States including Union territory with Legislature to make laws for levying goods and services tax on every transaction of supply of goods or services or both. The goods and services tax shall replace a number of indirect taxes being levied by the Union and the State Governments and is intended to remove cascading effect of taxes and provide for a common national market for goods and services. The proposed Central and State goods and services tax will be levied on all transactions involving supply of goods and services, except those which are kept out of the purview of the goods and services tax.

2. The proposed Bill, which seeks further to amend the Constitution, inter alia, provides for— (a) subsuming of various Central indirect taxes and levies such as Central Excise

Duty, Additional Excise Duties, Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, Special Additional Duty of Customs, and Central Surcharges and Cesses so far as they relate to the supply of goods and services;

(b) subsuming of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, Taxes on lottery, betting and gambling; and State Cesses and surcharges in so far as they relate to supply of goods and services;

(c) dispensing with the concept of ‘declared goods of special importance’ under the Constitution;

(d) levy of Integrated Goods and Services Tax on inter-State transactions of goods and services;

(e) levy of an additional tax on supply of goods, not exceeding one per cent. In the course of inter-State trade or commerce to be collected by the Government of India for a period of two years, and assigned to the States from where the supply originates;

(f) conferring concurrent power upon Parliament and the State Legislatures to make laws governing goods and services tax;

(g) coverage of all goods and services, except alcoholic liquor for human consumption, for the levy of goods and services tax. In case of petroleum and petroleum products, it has been provided that these goods shall not be subject

taxupindia.com



to the levy of Goods and Services Tax till a date notified on the recommendation of the Goods and Services Tax Council.

(h) compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period which may extend to five years;

(i) creation of Goods and Services Tax Council to examine issues relating to goods and services tax and make recommendations to the Union and the States on parameters like rates, exemption list and threshold limits. The Council shall function under the Chairmanship of the Union Finance Minister and will have the Union Minister of State in charge of Revenue or Finance as member, along with the Minister in-charge of Finance or Taxation or any other Minister nominated by each State Government. Itis further provided that every decision of the Council shall be taken by a majority of not less than three-fourths of the weighted votes of the members present and voting in accordance with the following principles:— (A) the vote of the Central Government shall have a weightage of one-third

of the total votes cast, and (B) the votes of all the State Governments taken together shall have a weightage

of two-thirds of the total votes cast in that meeting. Illustration: In terms of clause (9) of the proposed article 279A, the "weighted votes of the members present and voting" in favour of a proposal in the Goods and Services Tax Council shall be determined as under: —

WT = WC+WS Where,

WT = WC+WS WSTSP

× SF

Wherein— WT = Total weighted votes of all members in favour of a proposal.

WC = Weighted vote of the Union = 13

i.e., 33.33% if the Union is in favour of the proposal

and be taken as "0" if, Union is not in favour of a proposal. WS = Weighted votes of the States in favour of a proposal. SP = Number of States present and voting. WST = Weighted votes of all States present and voting i.e. 2/3 i.e., 66.67% SF = Number of States voting in favour of a proposal.

taxupindia.com



(j) Clause 20 of the proposed Bill makes transitional provisions to take care of any inconsistency which may arise with respect to any law relating to tax on goods or services or on both in force in any State on the commencement of the provisions of the Constitution as amended by this Act within a period of one year.

3. the Bill seeks to achieve the above objects. NEW DELHI; ARUN JAITLEY The 18th December, 2014

taxupindia.com



PRESIDENT’S RECOMMENDATION UNDER ARTICLE 117 OF THE CONSTITUTION OF INDIA

[Copy of letter No. S-31011/07/2014-SO(ST), dated the 18th December, 2014 from Shri Arun Jaitley, Minister of Finance to the Secretary-General, Lok Sabha.] The President, having been informed of the subject matter of the proposed Bill, recommends under clauses (1) and (3) of article 117, read with clause (1) of article 274, of the Constitution of India, the introduction of the Constitution (One Hundred and Twenty-second Amendment) Bill, 2014 in Lok Sabha and also the consideration of the Bill.

FINANCIAL MEMORANDUM Clause 12 of the Bill seeks to insert a new article 279A in the Constitution relating to Constitution of Goods and Services Tax Council. The Council shall function under the Chairmanship of the Union Finance Minister and will have the Union Minister of State in charge of Revenue or Finance as member, along with the Minister in-charge of Finance or Taxation or any other Minister nominated by each State Government. 2. The creation of Goods and Services Tax Council will involve expenditure on office expenses, salaries and allowances of the officers and staff. The objective that the introduction of goods and services tax will make the Indian trade and industry more competitive, domestically as well as internationally and contribute significantly to the growth of the economy, such additional expenditure on the Council will not be significant. 3. At this stage, it will be difficult to make an estimate of the expenditure, both recurring and non-recurring on account of the Constitution of the Council. 4. Further, it is provided for compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for such period which may extend to five years. The exact compensation can be worked out only when the provisions of the Bill are implemented.

MEMORANDUM REGARDING DELEGATED LEGISLATION Clause 12 of the Bill seeks to insert a new article 279A relating to the constitution of a Council to be called the Goods and Services Tax Council. Clause (1) of the proposed new article 279A provides that the President, shall within sixty days from the date of the commencement of the Constitution (One Hundred and Twenty-second Amendment) Act, 2014, by order, constitute a Council to be called the Goods and Services Tax Council. Clause (8) of the said article provides that the Council shall determine the procedure in the performance of its functions. 2. The procedures, as may be laid down by the Goods and Services Tax Council in the performance of its functions, are matters of procedure and details. The delegation of legislative power is, therefore, of a normal character.

taxupindia.com

THE CENTRALGOODS AND SERVICE TAX ACT, 2017 Statement of Objects and Reasons: The Central Government is currently empowered to levy customs duty on imports, excise duty on manufacture, service tax on provision of services and Central Sales Tax on inter-State sale of goods, whereas the State Government is empowered to levy VAT on sale of goods, Entry Tax on entry of goods in the State, Luxury Tax, Entertainment tax, Purchase Tax, Octroi, Local Body Tax (LBT) etc. This has led to a multiplicity of indirect taxes being levied by various authorities. The difficulties faced in the current indirect tax system are: (i) Non-availability of cross-utilization of taxes i.e. utilization of Central Government levies

against State Government levies and vice-versa, leading to cascading of taxes. (ii) Non-availability of certain State Government levies as set off against other State or

Central Government levies. (iii) Formation of separate economic spheres on account of varied VAT laws in the country

with different rates and tax practices. (iv) Creation of tariff and non-tariff trade and tax barriers such as octroi, entry tax, check

posts etc. hindering free flow of trade. (v) High compliance costs in the form of payments, returns etc. due to multiplicity of taxes. Levy of a single tax called Goods and Service Tax is considered necessary on the supply of goods or services or both from the stage of manufacture/ import till the retail level. Goods and Service Tax will be a dual levy where the Central Government will levy Central Tax (CGST) and the State Government will levy State Tax (SGST) on intra-State supply of goods or services or both. This apart, imports and inter-State supplies would attract GST. The new legislation, among others, broadly: (i) Provides for levy of tax on all intra-State supplies of goods or services or both, except

alcoholic liquor for human consumption, at the rates recommended by the GST Council (not exceeding 20%);

(ii) Provides for widening the base to avail tax credits by allowing input tax credits on supply of goods or services or both used in the course/ furtherance of business;

(iii) Provides for collection of TCS at 1% of the net taxable supplies made by electronic commerce operators out of payments to suppliers for supplies made through their portals/ platforms;

(iv) Provides for self-assessment of taxes by registered persons and also audit of registered persons to ensure compliance;

(v) Empowers recovery of tax, interest or penalty payable by a person and remaining unpaid;

(vi) Empowers establishing an Advance Ruling Authority & a GST Appellate Tribunal for hearing appeals against orders by Appellate/ Revisional Authority;

taxupindia.com

(vii) Provides for introduction of anti-profiteering clause to ensure that businesses pass on the benefit of reduced tax incidence to the customers;

(viii) Provides for elaborate transitional provisions for smooth transition of existing taxpayers to GST regime.

taxupindia.com

Chapter I Preliminary

Statutory Provision

1. Short title, extent and commencement (1) This Act may be called the Central Goods and Services Tax Act, 2017. (2) It extends to the whole of India except the State of Jammu and Kashmir. (3) It shall come into force on such date as the Central Government may, by notification in

the Official Gazette, appoint: Provided that different dates may be appointed for different provisions of this Act and

any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision.

Title: All Acts enacted by the Parliament since the introduction of the Indian Short Titles Act, 1897 carry a long and a short title. The long title, set out at the head of a statute, gives a fairly full description of the general purpose of the Act and broadly covers the scope of the Act. The short title, serves simply as an ease of reference and is considered a statutory nickname to obviate the necessity of referring to the Act under its full and descriptive title. Its object is identification, and not description, of the purpose of the Act. Extent: Part I of the Constitution of India states: “India, that is Bharat, shall be a Union of States”. It provides that territory of India shall comprise the States and the Union Territories specified in the First Schedule of the Constitution of India. The First Schedule provides for twenty-nine (29) States and seven (7) Union Territories. Part VI of the Constitution of India provides that for every State, there shall be a Legislature, while Part VIII provides that every Union Territory shall be administered by the President through an ‘Administrator’ appointed by him. However, the Union Territories of Delhi and Puducherry have been Provided with Legislatures with powers and functions as required for their administration. India is a summation of three categories of territories namely – (i) States (29); (ii) Union Territories with Legislature (2); and (iii) Union Territories without Legislature (5). The State of Jammu and Kashmir enjoys a special status in the Indian Constitution in terms of Article 370 of the Indian Constitution. The Parliament has power to make laws only on Defence, External Affairs and Communication related matters of Jammu and Kashmir. As regards the laws related on any other matter, subsequent ratification by the Government of Jammu and Kashmir is necessary to make it applicable to that State.

taxupindia.com

Ch-I : Preliminary Sec. 1-2

CGST Act 4

Therefore, the State of Jammu & Kashmir will have to pass special laws to be able to implement the Goods and Services Tax Acts as its current Constitutional status does not mandate the applicability of the Goods and Services Tax Acts in the State. Once the laws are passed by the State of Jammu & Kashmir, the Union Government will have to amend the Central Goods and Services Act, 2017 to delete the phrase that such provisions do not apply to the State of Jammu & Kashmir. Commencement: The CGST Act will to come into operation on the date appointed by the Central Government by means of a notification in the Official Gazette (tentatively 1st July, 2017). A provision has been made to notify different dates for commencement of different provisions of the Act. It is expected that a notification with a prospective date of commencement of the CGST Act i.e. a specific date succeeding the date of notification in the Official Gazette would be issued. A notification providing for a retrospective date for commencement of the CGST Act cannot be issued, since that would result in simultaneous operation of two laws governing the same subject matter i.e. the existing law (s) and the CGST Act being in force during the period starting from such date of commencement until the date of notification in the Official Gazette. 2. Definitions In this Act, unless the context otherwise requires-

(1) “actionable claim” shall have the same meaning as assigned to it in section 3 of the Transfer of Property Act, 1882;

One may refer to section 130 of Transfer of Property Act, 1882 regarding the manner of ‘transferring’ actionable claims. Transfer of actionable claim can be with consideration or without consideration per the Transfer of Property Act, 1882. Actionable claim represents a debt and the holder of the actionable claim enjoys the right to demand “action” against any person. Acknowledgement of liability by a creditor to honor a claim, when made, does not constitute actionable claim in the hands of such creditor. The following aspects need to be noted: • Assignment of actionable claim without permanently supplanting the holder of the claim

would not be supply. • Under the GST regime, actionable claim relating to lottery, betting and gambling alone

will be regarded as ‘goods’ since the definition of goods includes actionable claim.

(2) “address of delivery” means the address of the recipient of goods or services or both indicated on the tax invoice issued by a registered person for delivery of such goods or services or both;

“Address of delivery” is relevant to determine Place of Supply of goods (other than imports/ exports). It is understood that the address of delivery would be a crucial pointer towards the location of goods at the time of delivery to the recipient. The place of supply of goods or services or both

taxupindia.com


CGST Act 5

(other than imports/ exports) would primarily be the location of the goods or services or both at the time of delivery to the recipient. (3) “address on record” means the address of the recipient as available in the records of the supplier; ‘Address on record’ is relevant to determine Place of Supply in case of supplies made by a registered person to an un-registered person in relation to services. In such cases, where the Place of Supply has not been specifically Provided for under the law, the address on record available in the records of the supplier would be regarded the Place of Supply. (4) “adjudicating authority” means any authority, appointed or authorised to pass any order or decision under this Act, but does not include the Central Board of Excise and Customs, the Revisional Authority, the Authority for Advance Ruling, the Appellate Authority for Advance Ruling, the Appellate Authority and the Appellate Tribunal; The following authorities are not permitted to pass an order/ decision under the GST laws: (a) The Central Board of Excise and Customs (b) Revisional Authority (c) Authority for Advance Ruling (d) Appellate Authority for Advance Ruling (e) Appellate Authority (f) Appellate Tribunal Under the Act, the Revisional Authority, Appellate Authority and the Appellate Tribunal are empowered to pass/ issue order as they think fit, after giving the affording the parties a reasonable opportunity of being heard. However, such powers are limited to cases where an order has been passed by an authority of a lower rank, before it becomes a subject matter of revision/ appeal. (5) “agent” means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another; This definition appears to illustrate the principle of agency defined in Section 182 of the Indian Contract Act, 1872. Agency is a relationship that can be formed validly even without consideration in terms of Section 185 of the Indian Contract Act, 1872. Agent can work purely on commission basis. Even e-commerce companies like Flipkart, Amazon and Uber may be covered in some fact situations. (6) “aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess;

The phrase “aggregate turnover” is widely used under the GST laws. Aggregate Turnover is

taxupindia.com


CGST Act 6

an all-encompassing term covering all the supplies effected by a person having the same PAN. It specifically excludes: Inward supplies effected by a person which are liable to tax under reverse charge

mechanism, However, it is not to be understood that the value of such inward supplies is to be reduced from the value of outward supplies to arrive at aggregate turnover; and

Various taxes under the GST law, Compensation cess. There is a certain amount of ambiguity as to whether the value of inward supplies would form part of ‘aggregate turnover’ since the definition covers all taxable supplies and excludes only inward supplies to the extent liable to tax under reverse charge mechanism. The different kinds of supplies covered are: (a) Taxable supplies; (b) Exempt Supplies:

supplies that have a ‘NIL’ rate of tax; supplies that are wholly exempted from UTGST, CGST or IGST; and supplies that are not taxable under the Act (alcoholic liquor for human

consumption); (c) Export of goods or services or both, including zero-rated supplies. The following aspects among others need to be noted: Aggregate turnover is relevant to a person to determine:

o Threshold limit to opt for composition scheme: Rs. 50 Lakhs in a financial year; o Threshold limit to obtain registration under the Act: 20 Lakhs (or 10 Lakhs in case

of supplies effected from Special Category States, as explained in our analysis on Section 22) in a financial year.

Inter-State supplies between units of a person with the same PAN will also form part of aggregate turnover.

For an agent, the supplies made by him on behalf of all his principals would have to be considered while analysing the threshold limits.

For a job-worker, the following supplies effected on completion of job work would not be included in his ‘aggregate turnover’:

Goods returned to the principal Goods sent to another job worker on the instruction of the principal Goods directly supplied from the job worker’s premises (by the principal): It would be

included in the ‘aggregate turnover’ of the principal.

taxupindia.com


CGST Act 7

(7) “agriculturist” means an individual or a Hindu Undivided Family who undertakes cultivation of land— (a) by own labour, or (b) by the labour of family, or (c) by servants on wages payable in cash or kind or by hired labour under personal

supervision or the personal supervision of any member of the family;

An individual or HUF undertaking cultivation of land, whether own or not, would be regarded as an agriculturist. The cultivation should be undertaken by own labour/ family labour/ servants on wages or hired labour. The following aspects need to be noted: An agriculturalist is not liable to obtain registration under the Act to the extent of supply

of produce out of cultivation of land. Therefore, if he effects supplies other than what would qualify as ‘a produce from the cultivation of land’, he would be liable to obtain registration in which case, the aggregate turnover would exclude the produce out of cultivation of land;

The scope of the definition is restricted to an Individual or a Hindu Undivided Family. Any other “person” as defined in section 2(84), carrying on the activity of agriculture will not be considered as an Agriculturist and hence will not be exempted from registration provisions as Provided in section 23 (1)(b), of the Act.

(8) “Appellate Authority” means an authority appointed or authorised to hear appeals as referred to in section 107;

It refers to an authority before whom a person aggrieved by a decision/ order under the CGST/ SGST/ UTGST Act may appeal. An order passed by the Appellate Authority would be final and binding on all the parties. If a person is further aggrieved by the order passed by the Appellate Authority, he may prefer an appeal before the Appellate Tribunal or Courts.

(9) “Appellate Tribunal” means the Goods and Services Tax Appellate Tribunal constituted under section 109;

It refers to an authority before whom a person aggrieved by a decision/ order under the CGST/ SGST/ UTGST Act passed by the Appellate Authority/ Revision Authority may appeal. An order passed by the Appellate Tribunal would be final and binding on all the parties. If a person is further aggrieved by the order passed by the Appellate Tribunal, he may prefer an appeal before the High Court.

(10) “appointed day” means the date on which the provisions of this Act shall come into force;

The provisions of the CGST Act are expected to be implemented with effect from 1st July 2017 with powers vested to notify different dates for effective date of commencement of different provisions of the Act.

taxupindia.com


CGST Act 8

(11) “assessment” means determination of tax liability under this Act and includes self-assessment, re-assessment, provisional assessment, summary assessment and best judgment assessment; The types of assessment covered under the Act are: (a) Self-assessment (Section 59) (b) Provisional assessment (Section 60) (c) Summary assessment (Section 62) including best judgement assessment The CGST Act also provides for determination of tax liability by: (a) Scrutiny of returns filed by registered persons (Section 61) (b) Assessment of non-filers of returns (Section 62) (c) Assessment of un-registered persons (Section 63) It may, however, be noted that there is no provision permitting a Proper Officer to re-assess the tax liability of taxable person. As such, reference to such re-assessment in the definition may have to be suitably read down. (12) “associated enterprises” shall have the same meaning as assigned to it in section 92A of the Income-tax Act, 1961; ‘Associated enterprise’ is referred to only in the context of time of supply of services where the supplier is an associated enterprise (located outside India) of the recipient. In such cases, the time of supply will be the date of entry in the books of account of the

recipient of supply or the date of payment, whichever is earlier. This in turn means that provision entries made at the time of closure of books of

account for a year (on accrual basis) may trigger GST liability in the hands of the recipient, under reverse charge mechanism.

It may be noted that in addition to associated enterprise, the Act also defines ‘related person’, the reference to which is made in the context of deemed supply (Schedule I) and valuation. (13) “audit” means the examination of records, returns and other documents maintained or furnished by the registered person under this Act or the rules made thereunder or under any other law for the time being in force to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess his compliance with the provisions of this Act or the rules made thereunder; The definition of ‘audit’ under the Act is a wide term covering the examination of records, returns and documents maintained/ furnished under this Act or Rules and under any other law in force. Any document, record maintained by a registered person under any law can thus be called upon and audited. It becomes critical for the person to maintain true documents/ records to ensure correctness and smooth conduct of audit. (14) “authorised bank” shall mean a bank or a branch of a bank authorised by the Government to collect the tax or any other amount payable under this Act;

taxupindia.com


CGST Act 9

The date of credit to the account of the Government (i.e., the Central Government in respect of CGST, IGST and UTGST or the relevant State Government in respect of SGST) in the authorized bank will be considered as the date of deposit in electronic cash ledger. (15) “authorised representative” means the representative as referred to in section 116; An authorized representative is a person authorized on one’s behalf to appear before an Officer of the Act, Appellate Authority or Appellate Tribunal in connection to proceedings under the Act. Any of the following persons can act as authorized representatives: (a) His relative/ regular employee; (b) Practicing advocate who is not debarred; (c) Practicing Chartered Accountant, Cost Accountant or Company Secretary who is not

debarred; (d) Retired Officer of the Commercial Tax Department of any State/ Union Territory not

below the post of Group-B Gazetted Officer of 2 years’ service; (e) GST practitioner The following persons cannot act as authorized representatives: (a) Who is dismissed/ removed from Government service; (b) Who is convicted of an offence under any law dealing with imposition of taxes; (c) Who is guilty of misconduct by the prescribed authority; (d) Who is adjudged as an insolvent. (16) “Board” means the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963; (17) “business” includes–– (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other

similar activity, whether it is for a pecuniary benefit; (b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a); (c) any activity or transaction in the nature of sub-clause (a), whether or not there is

volume, frequency, continuity or regularity of such transaction; (d) supply or acquisition of goods including capital goods and services in connection with

commencement or closure of business; (e) provision by a club, association, society, or any such body (for a subscription or any

other consideration) of the facilities or benefits to its members; (f) admission, for a consideration, of persons to any premises; (g) services supplied by a person as the holder of an office which has been accepted by

him in the course or furtherance of his trade, profession or vocation; (h) services Provided by a race club by way of totalisator or a licence to book maker in

such club; and (i) any activity or transaction undertaken by the Central Government, a State Government

or any local authority in which they are engaged as public authorities;

taxupindia.com


CGST Act 10

Excise / Service tax laws do not define the term ‘business’. However, it is defined under the CST Act / State VAT laws. The definition in the GST law is a modified version of the definition under CST / VAT laws, in as much as the scope is substantially expanded to include among others wager, profession and vocation. This definition is very wide and covers all the transactions that are currently subjected to various taxes that are being subsumed in the GST Laws. This definition assumes significance as the proposed levy is on supplies undertaken in the course or furtherance of business. The definition may be understood in two parts, namely: (a) General activity - trade, commerce, etc., including incidental activities whether or not

there is volume, frequency, continuity or regularity of such transactions. Principle of ejusdem generis provides that similar activity would be determined by the previous enumerated ones.

(b) Specific activity – acquisition of goods including capital goods, supply by association/ club, admission of persons to a premises and services by a race club.

The following aspects need to be noted: ‘Wager’ is also included in the definition of business to impose GST on betting

transactions; Educational services would be covered under profession or business; Charitable or religious activities are not specifically covered; Clause (g) may require understanding of employment as differentiated from profession.

For instance, if a CA in practice provides CFO or Independent Director services, the service Provided by him may be treated as ‘business’ and not ‘employment’.

(18) “business vertical” means a distinguishable component of an enterprise that is engaged in the supply of individual goods or services or a group of related goods or services which is subject to risks and returns that are different from those of the other business verticals. Explanation––For the purposes of this clause, factors that should be considered in determining whether goods or services are related include–– (a) the nature of the goods or services; (b) the nature of the production processes; (c) the type or class of customers for the goods or services; (d) the methods used to distribute the goods or supply of services; and (e) the nature of regulatory environment (wherever applicable), including banking,

insurance, or public utilities;

A person having multiple business verticals in a State/ Union Territory is permitted to obtain separate registrations for each such business vertical. Therefore, the person will have an option to avail a single registration (covering all business verticals in a State or Union Territory) or separate registration for each business vertical in a State or Union Territory.

taxupindia.com


CGST Act 11

The following aspects need to be noted:

The component must be a distinguishable component of the person, which is capable of being transferred or to function without affecting any other business of that person. A component cannot become a ‘business vertical’ merely based on geographical differentiation;

The supplies made one business vertical unit should be: (a) individual goods or services or a group of related goods or services; and (b) subject to risks and returns different from those of the other business verticals;

The risk and returns of supplies forming part of a business vertical should be same;

Supplies between business verticals are deemed to be taxable supplies;

Lastly, the option to avail composition scheme is PAN-based and hence, a person has to opt for composition scheme for all the business verticals across India. He cannot opt for the scheme only in a particular business vertical;

(19) “capital goods” means goods, the value of which is capitalised 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;

An attempt has been made to align the meaning of capital goods to the generally accepted standards of accounting. Goods will be regarded as capital goods if the following conditions are satisfied: (a) The value of such goods is capitalised 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. The following aspects need to be noted: (a) Assuming that the value of capital goods was not capitalised in the books of account,

the person purchasing the capital goods would still be eligible to claim input tax credit on such capital goods since the definition of ‘input tax’ applies to goods as a whole (including capital goods).

(b) Capital goods lying at the job-workers premises would also be considered as ‘capital goods’ in the hands of the purchaser as long as the said capital goods are capitalized in his books of account.

(20) “casual taxable person” means a person who occasionally undertakes transactions involving supply of goods or services or both in the course or furtherance of business, whether as principal, agent or in any other capacity, in a State or a Union territory where he has no fixed place of business;

A person would be regarded as a casual taxable person if he undertakes supply of goods or services or both:

taxupindia.com


CGST Act 12

(a) Occasionally, and not on a regular basis; (b) Either as principal or agent or in any other capacity; (c) In a State/ Union Territory where he has no fixed place of business. A trader, businessman, service provider, etc. undertaking occasional transactions like supplies made in trade fairs would be treated as a ‘casual taxable person’ and will have to obtain registration in that capacity and pay tax. E.g., A jeweller carrying on a business in Mumbai, who conducts an exhibition-cum-sale in Delhi where he has no fixed place of business, would be treated as a ‘casual taxable person’ in Delhi. The following aspects need to be noted: The threshold limits for registration would not apply and he would be required to obtain

registration irrespective of his turnover; He is required to apply for registration at least 5 days prior to commencement of

business; The registration would be valid for 90 days or such period as specified in the

application, whichever is shorter; An advance deposit of the estimated tax liability is required to be made along with the

application for registration.

(21) “Central tax” means the central goods and services tax levied under section 9;

Tax levied under this Act is referred to as “Central tax” as opposed to “CGST” as used in the model GST laws. It refers to the tax charged under this Act on intra-State supply of goods or services or both (other than supply of alcoholic liquor for human consumption). The rate of tax is capped at 20% and thereafter, the rates for goods and services will be notified by the Central Government based on the recommendation of the Council.

(22) “cess” shall have the same meaning as assigned to it in the Goods and Services Tax (Compensation to States) Act;

It refers to the ‘cess’ levied on certain supplies (inter-State or intra-State) as may be notified, for the purposes of providing compensation to the States for loss of revenue arising on account of implementation of GST, for a period of five years (or extended period, as may be prescribed).

(23) “chartered accountant” means a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949; (24) “Commissioner” means the Commissioner of central tax and includes the Principal Commissioner of central tax appointed under section 3 and the Commissioner of integrated tax appointed under the Integrated Goods and Services Tax Act; (25) “Commissioner in the Board” means the Commissioner referred to in section 168;

It refers to the Commissioner or Joint Secretary posted in the Central Board of Excise and

taxupindia.com


CGST Act 13

Customs. Such a Commissioner or Joint Secretary is empowered to exercise the function of the Commissioner with the approval of the Board.

(26) “common portal” means the common goods and services tax electronic portal referred to in section 146;

The Common Goods and Service Tax Electronic Portal (“GST portal”) is a common electronic portal set up by the Goods and Service Tax Network (GSTN) that facilitates among others registration, payment of tax, filing of returns, computation and settlement of IGST, electronic way-bill and other functions under the Act.

(27) “common working days” in respect of a State or Union territory shall mean such days in succession which are not declared as gazetted holidays by the Central Government or the concerned State or Union territory Government;

Common working days refer to such days in succession which are not a declared holiday for the Centre as well as State/ Union Territory. The relevance of working days primarily arises in relation to registration provisions. Every person obtaining a registration under the Act is required to make an online application in the GST portal. The application for registration, along with the accompanying documents will be examined by the Proper Officer and if found in order, the registration will be granted within 3 working days. If the proper officer fails to take any action within 3 working days, the application is deemed approved. Since the reference to ‘common workings days’ has been replaced by ‘working days’, it remains to be seen whether the applicant will be granted a deemed registration after 3 working days in case of inaction by the Proper Officer even if the third day was a holiday for a particular State.

(28) “company secretary” means a company secretary as defined in clause (c) of sub-section (1) of section 2 of the Company Secretaries Act, 1980; (29) “competent authority” means such authority as may be notified by the Government;

In terms of Explanation to entry 5(b) of the Schedule II to the Act, “Competent Authority” in relation to construction of a complex, building, civil structure covers: (a) Authority authorised to issue completion certificate (local municipal authorities like BDA/

BBMP in Bangalore, PMC in Pune) (b) Architect (c) Chartered Engineer (d) Licensed Surveyor

(30) “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;

taxupindia.com


CGST Act 14

Illustration– Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.

A supply will be regarded as a ‘composite supply’ if the following elements are present: (a) The supply should consist of two or more taxable supplies; (b) The supplies may be of goods or services or both; (c) The supplies should be naturally bundled; (d) They should be supplied in conjunction with each other in the ordinary course of

business; (e) One of the supplies should be a principal supply (Principal supply means the

predominant supply of goods or services of a composite supply and to which any other supply is ancillary).

The following aspects need to be noted: The way the supplies are bundled must be examined. Mere conjoint supply of two or

more goods or services does not constitute composite supply. The two (or more) supplies must appear natural when bundled and presented to the

recipient. The ancillary supply becomes necessary only because of the acceptance of the

predominant supply. The method of billing, assignment of separate prices etc. may not be relevant. The tax treatment of a composite supply would be as applicable to the principal supply. Illustrations of composite supply are as follows: (a) Supply of laptop and carry case; (b) Supply of equipment and installation of the same; (c) Supply of repair services on computer along with requisite parts; (d) Supply of health care services along with medicaments. (31) “consideration” in relation to the supply of goods or services or both includes–– (a) any payment made or to be made, whether in money or otherwise, in respect of, in

response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

taxupindia.com


CGST Act 15

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

The following aspects need to be noted: It refers to the payment received by the supplier in relation to the supply, whether from

the recipient or any other person. Therefore, a third party to a contract can also contribute towards consideration;

Consideration, therefore, is not the amount that the recipient pays but the amount that the supplier collects whether from the recipient or any third party. This would be particularly relevant in dealing with complex arrangements in digital economy and new-age business;

Consideration can be in the form of money or otherwise. E.g.: Under a JDA model, the flats handed by the developer to the landowner will be considered as ‘consideration’ for the development rights given to the developer by the landowner;

Deposits, as such, are not liable to tax. However, where such deposits have been applied as consideration for the supply it would tantamount to masking of advances and in such cases, will be liable to tax. Merely altering the nomenclature of the payment as ‘deposit’ would not change the nature of the receipt. However, trade practices and the terms, used play an important role in identifying whether an amount is a ‘deposit’ or an ‘advance’ or any payment as consideration for the supply;

The suppliers may have to park the deposits in a separate bank account in case of refundable deposits, to comply with this provision. However, whether the amount is refundable or not is not a criterion to determine whether such amount is a ‘deposit’;

This is an inclusive definition.

(32) “continuous supply of goods” means a supply of goods which is Provided, or agreed to be Provided, continuously or on recurrent basis, under a contract, whether by means of a wire, cable, pipeline or other conduit, and for which the supplier invoices the recipient on a regular or periodic basis and includes supply of such goods as the Government may, subject to such conditions, as it may, by notification, specify; It refers to supply of goods continuously or on recurrent basis under a contract, with periodic payment obligations. The following aspects need to be noted: It should be a contract for supply on a recurrent basis and cannot be a one-time supply

contract; The contract should be a case of periodic billing and periodic payments - viz., the billing

and receipts thereto should be on a periodic basis (e.g.: every fortnight; every Monday etc.) and not one-time. Further, the contract should specify this periodicity/ frequency of billing/ payment;

taxupindia.com


CGST Act 16

The mode of supply would not be relevant - viz., such supply may be through a wire, cable, pipeline or other conduit or any other mode;

The Government is empowered to notify certain supplies as continuous supply of goods.

Examples of continuous supply of goods are: (a) Open purchase orders with an understanding of fortnightly billing; (b) VMI (vendor managed inventory) where the agreed periodicity for billing is, say,

monthly/ fortnightly etc.; (c) Supply of gases through pipeline with a weekly billing schedule; (d) Supply of say, 5 litre water cans on an as and when required basis with a frequency of

monthly billing under a contract.

(33) “continuous supply of services” means a supply of services which is Provided, or agreed to be Provided, continuously or on recurrent basis, under a contract, for a period exceeding three months with periodic payment obligations and includes supply of such services as the Government may, subject to such conditions, as it may, by notification, specify;

It refers to supply of services continuously or on recurrent basis under a contract for a period exceeding 3 months, with periodic payment obligations. The determination of stage of completion of services is an abstract one, unless specifically defined by contract, unlike in the case of goods where the volume of goods supplied can be easily tracked/ identified. Hence, a contract for supply of service spanning over a definite period has been treated as a continuous supply, so that the tax dues are collected periodically. The law categorically provides for time limit to issue invoices as under: (a) where due date of payment is ascertainable: On or before the due date of payment; (b) where the due date of payment is not ascertainable: Before or at the time of receipt of

payment; (c) where the payment is linked to the completion of an event (milestones): On or before

the date of completion of that event. The following aspects need to be noted: It should be a contract for supply on a recurrent basis and cannot be a one-time supply

contract; The period of contract of supply should be more than 3 months - viz., services should

be supplied on a recurring basis for at least 3 months; The contract should be a case of periodic billing and periodic payments - viz., the billing

and receipts thereto should be on a periodic basis (say for e.g.: every fortnight; every

taxupindia.com


CGST Act 17

Monday etc.) and not one-time. Further, the contract should specify this periodicity/ frequency of billing/ payment;

The Government is empowered to notify certain supplies as continuous supply of goods.

Examples of continuous supply of services: (a) Annual maintenance contracts; (b) Licensing of software or brand names; (c) Renting of immovable property (34) “conveyance” includes a vessel, an aircraft and a vehicle; It can be understood as a medium of transportation. (35) “cost accountant” means a cost accountant as defined in clause (c) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959; (36) “Council” means the Goods and Services Tax Council established under article 279A of the Constitution; GST Council is an authority constituted under the Constitution of India and will be the governing body responsible for the administration of the GST across India. The administrative powers will be vested with this authority for taxing goods and services. The Council will consist of the Union Finance Minister (as Chairman), the Union Minister of State in charge of Revenue or Finance, and the Minister in charge of Finance or Taxation, or any other nominated by each State government, thereby ensuring a proper blend of the Central and State ministry. The GST Council will be the body responsible for the following (primarily): (a) Administration of the GST laws (b) Specify the taxes to be levied and collected by the Centre, States and Union Territories

under the GST regime (c) Specify the goods or services or both that will be subjected/ exempted under the GST

regime (d) Specify the GST rates (e) Specify the threshold limits for registrations and payment of taxes (f) Apportionment of IGST between Centre and States/ Union Territories (g) Approval of compensation to be paid to the States (for loss on account of

implementation of GST) (h) Levy of any special rate or rates of tax for a specified period, to raise additional

resources during any natural calamity or disaster. (i) Resolution of disputes arising out of its recommendations (j) Imposition of additional taxes in times of calamities and disasters

taxupindia.com


CGST Act 18

(37) “credit note” means a document issued by a registered person under sub-section (1) of section 34; A credit note can be issued by a supplier only in the following circumstances: (a) The taxable value shown in the invoice exceeds the taxable value of the supply; (b) The tax charged in the invoice exceeds the tax payable on the supply; (c) The goods supplied are returned by the recipient; (d) The goods/ services are found to be deficient. The following aspects need to be noted: Where there is no change in the taxable value/ tax amount, a credit note need not be

issued unlike existing business practices; A credit note has to be issued by the supplier. A credit note issued by a recipient, say

for accounting purposes, is not a relevant document for GST purposes; Once a credit note is issued, the details of the credit note should be declared by the

supplier in the return of the month of the issue of credit note. However, if not declared in that month, it can be declared in any return prior to September of the year following the year in which the original tax invoice was issued (or filing of annual return, whichever is earlier);

The supplier will not be permitted to claim reduction in the output tax liability if the incidence of tax and interest has been passed on to any person, or if the recipient fails to declare the details of the credit note in his returns;

The issuance of credit note would not be relevant if the recipient treats the return of goods as an outward supply and raises a tax invoice in this regard.

(38) “debit note” means a document issued by a registered person under sub-section (3) of section 34;

A debit note should be issued by a supplier in

taxupindia · 40. First return 226 41. Claim of input tax credit and provisional acceptance thereof...

Documents

Transcript of taxupindia · 40. First return 226 41. Claim of input tax credit and provisional acceptance thereof...