Module-5

A) Levy of GST

(I) Levy and Collection of GST Under CGST

Act

1. Levy of central goods and service tax:

Under CGST Act, central tax called as the central

goods and services tax (CGST) shall be levied on all
intra-State supplies of goods or services or both,
except on the supply of alcoholic liquor for human
consumption. It shall be levied on the value
determined under section 15 and at such rates, not
exceeding 20%, as may be notified by the
Government on the recommendations of the
Council and collected in such manner as may be
prescribed and shall be paid by the taxable person.
[Similar rates have been prescribed under
SGST/UTGST]
 2. Central tax on petroleum products to
be levied from the date to be notified:

The central tax on the supply of petroleum crude,

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

3. Tax payable on reverse charge basis:

The Government may, on the recommendations of

the Council, by notification, specify categories of
supply of goods or services or both, the tax on
which shall be paid on reverse charge basis by the
recipient of such goods or services or both. Further,
all the provisions of this Act shall apply to such
recipient as if he is the person liable for paying the
tax in relation to the supply of such goods or
services or both.
 4. Tax payable on reverse charge if the
supplies are made to a registered
person by unregistered person:

The central tax in respect of the supply of taxable

goods or services or both by a supplier, who is not
registered, to a registered person shall be paid by
such person on reverse charge basis as the
recipient and all the provisions of this Act shall
apply to such recipient as if he is the person liable
for paying the tax in relation to the supply of such
goods or services or both.

(II) Levy and Collection of GST Under IGST Act

The provisions under section 5 of the IGST Act are

similar to section 9 of CGST Act except:

1. The word CGST has been substituted

by IGST under IGST Act.
 2. Under IGST Act, tax called integrated
tax is to be levied on all inter State
supplies and on goods imported into
India.

3. Maximum rate under section 5(1) of

the IGST Act is 40% (i.e. 20% CGST
+20% UTGST)

(III) Levy and Collection of GST Under UTGST

Act

The provisions under section 7 of the UTGST Act are

similar to section 9 of CGST Act.
 B) Reverse Charge Mechanism

Reverse charge under GST is a process in which the

recipient is liable to pay the tax instead of the
supplier. The responsibility for paying tax is
deliberately shifted from the supplier to the
recipient.

The primary objective behind introducing the

reverse charge mechanism under GST was to
increase compliance. Another goal of RCM in GST is
to prevent tax avoidance. Therefore, the
commodity recipient must be registered under GST
to become liable for reverse charge.

Please note that RCM in GST is applicable for

specific goods and services as predefined by the
government. Here, the recipient has to self-invoice
the transaction and pay the tax to the government.
 • When does reverse charge apply under GST?

1. Specific goods and services

The Government of India has already determined

and notified certain goods and services where the
reverse charge system is applicable under GST.
Some include legal services provided by advocates,
goods transportation agencies, services provided
by personal advocates to business entities, etc.

2. Buy from unregistered dealer

When a registered person purchases a commodity

from an unregistered dealer, the registered person
should pay tax under RCM in GST.

3. Import of services

When a person registered in India receives services

from someone outside India, the recipient has to
pay tax under RCM in GST.
You should note that the reverse charge mechanism
is applicable only if the recipient is registered under
GST. If the recipient is not registered, RCM is not
applicable in GST. Additionally, the recipient will
have to self-invoice his transactions and pay taxes
to the government as required.

C) Input Tax Credit

Input tax credit or ITC, is a tax that a business pays

on its purchases and is later used to offset its tax
liability at the time of sale. Businesses can reduce
their tax burden by claiming credit for GST paid on
their purchases.

• Who can claim ITC?

To claim input tax credit under GST, a registered

person must fulfill all the following conditions:

(i) Possession of a valid tax bill

 (ii) Receipt of services and goods

(iii) Filing of returns

(iv) Payment of tax charged by the supplier to the

government

(v) ITC can be claimed only for goods purchased

in installments on receipt of the final lot.

(vi) If depreciation is claimed on the taxable

component of capital, ITC will not be allowed.

• What can be claimed as ITC?

Institute of Information Technology is claimable

only for any business purpose. It may not be used
for services or goods specifically operated by:
 (i) Supply discount

(ii) Personal use

(iii) Supplies where ITC is not clearly available

D)Exemptions under GST

GST exemptions are specific goods or services that

are exempt from the application of GST. In other
words, there are certain goods and services that are
not covered under the ambit of GST Act. These
exemptions change from time to time and vary
from country to country. The government can grant
exemptions for various reasons like alleviating the
tax burden on essential goods and services or
supporting specific sectors.
Types of GST Exemptions

There are three types of GST exemptions available

in India:

(I) Absolute: Absolute exemptions are those

exemptions that are provided on the full
amount and do not come with any
conditions or restrictions, whatsoever. A
good example is the exemption on the
services of RBI.

(II) Conditional: Conditional exemptions are

those exemptions that have a certain
limit, condition, or restriction on the
nature and extent of the exemption. For
example, hotel services are exempt up to
a certain extent and not exempt fully.

(III) Partial: Unregistered people who supply

goods within the state to a registered
person are exempt from GST under
reverse charge only if the aggregate
value of supply is not more than Rs.5000
per day.

a) Goods exempted:

1. Live animals- Asses, cows, sheep,

goats, poultry, etc.

2. Meat- Fresh and frozen meat of

sheep, cows, goats, pigs, horses,
etc.

3. Fish- Fresh or frozen fish

4. Dry fruits- Cashew nuts, walnuts,

etc.

5. Sugar- Sugar, jaggery, etc.

b) Services exempted:

1. Educational Services:
Transportation of faculty or
students, mid-day meal scheme,
examination services, services
offered by IIMs, etc.

2. Organizational Services: Services

offered by exhibition organizers for
international business exhibitions,
tour operators for foreign tourists,
etc.

3. Judicial Services: Services offered

by the arbitral tribunal, partnership
firm of advocates, senior advocates
to an individual or business entity
whose aggregate turnover is up to
INR 40 lakhs.

4. Governmental Services: Postal

service, transportation of people or
 goods, services by a foreign
diplomat in India, services offered
by the Reserve Bank of India,
services offered to diplomats, etc.

c) GST exemption for businesses

Small and medium-scale businesses can enjoy GST

exemptions if their aggregate turnover is up to a
specified limit. These limits are as follows –

1. Businesses and individuals who are

supplying goods can claim GST
exemption if their aggregate
turnover is less than INR 40 lakhs in
a financial year.and also not fall in
the category of compulsory
registration.

2. For the hilly and north-eastern

States of India, the limit has been
revised to INR 20 lakhs.
 3. For businesses and individuals
involved in the supply of services,
the limit for claiming GST
exemption is INR 20 lakhs

4. In the case of hilly and north-

eastern States, if the aggregate
turnover is up to INR 10 lakhs,
businesses and individuals
supplying services can claim GST
exemptions.

Hilly and north-eastern States would include

Arunachal Pradesh, Jammu and Kashmir, Himachal
Pradesh, Uttarakhand, Tripura, Nagaland, Sikkim,
Meghalaya, Mizoram, Assam, and Manipur.
 d) GST Exemption on services

Just like specific goods, specific services are also

GST exempt. There are three types of supply of
services that qualify for GST exemption. These
include the following –

1. Supplies that have a 0% tax rate

2. Supplies which do not attract CGST

or IGST due to the provisions stated
in a notification that amends either
Section 11 of CGST Act or Section 6
of IGST Act.

3. Supplies which are defined under

Section 2(78) of the GST Act which
are not taxable.
 E) Composition Scheme

Composition Scheme is a simple and easy scheme

under GST for taxpayers. Small taxpayers can get
rid of tedious GST formalities and pay GST at a fixed
rate of turnover. This scheme can be opted by any
taxpayer whose turnover is less than Rs. 1.5 crore.
The composition scheme allows eligible taxpayers
to pay GST at subsidised rates of 1%, 5%, or 6%,
depending on whether they are involved in the
manufacturing, trading, restaurant services, or
brick manufacturing sectors.

• Who cannot opt for Composition Scheme

The following people cannot opt for the scheme-

1. Manufacturer of ice cream, pan masala, or

tobacco.

2. A person making inter-state supplies.

 3. A casual taxable person or a non-resident
taxable person.

F) Structure of Custom Laws in India including

custom cess

The Customs Act of 1962

The Customs Act of 1962 is the most crucial Act

that provides for the implementation and collection
of duty on goods imported and exported in the
country. This Act also deals with the Import and
Export procedures, Prohibitions on importation and
exportation of goods, penalties, offences and much
more.

The Customs Tariff Act of 1975

The Customs Tariff Act of 1975 contains two

schedules. Schedule-1 gives the classification and
rate of duties for imports. On the other hand,
Schedule-2 gave classification and rated of duties
for exports. In addition to these two schedules, the
Customs Tariff Act makes provisions for duties like
additional duty (CVD), special duty, anti-dumping
duty and protective duties.

Note: The Customs Act of 1962 regulates the levy

of duties of customs while the Customs Tariff Act of
1975 fixes the rates of the taxes.

Custom Cess

Cess is in addition to the Basic & additional customs

duty. Cess is chargeable @ 2% on the aggregate of
duties of customs (certain items are exempted vide
notifications issued from time to time) leviable on
such goods.

If goods are fully exempted from duty or are

chargeable to nil duty or are cleared without
payment of duty under prescribed procedure such
as clearance under bond, no cess would be levied.
 G) Territorial Waters

Territorial waters means that portion of sea which

is adjacent to the shores of a country.

Territorial water extend upto 12 nautical miles from

the base line on the coast of India and include any
bay, gulf, harbour, creek or tidal river.

Customs Act and Customs Tariff Act has been

extended to whole of Exclusive Economic Zone
(EEZ) and continental shelf of India for the purpose
of:

(i) Processing for extraction or production of

mineral oils and

(ii) Supply of any goods in connection with

activities mentioned in clause (i).
[NOTE: Indian Customs Waters’ means the waters
extending into the sea up to the limit of Exclusive
Economic Zone]

H) Goods under Customs Act, 1962

Customs duty is on ‘goods’ as per section 12 of

Customs Act. The duty is payable on goods
belonging to Government as well as goods not
belonging to Government.

Section 2(22) gives inclusive definition of ‘goods’ as

follows – ‘Goods’ includes

(a) vessels, aircrafts and vehicles

(b) stores

(c) baggage

(d) currency and negotiable instruments and

(e) any other kind of movable property.

Ships or aircrafts brought for use in India or for

carrying cargo for ports out of India, would be
dutiable.

Main two tests for ‘goods’ are:

(a] they must be movable and

(b) they must be marketable.

The very fact that goods are transported by

sea/air/road means that they are ‘movable’. Since
most of imports are on payment basis, test of
‘marketability’ is obviously satisfied.

I) Types of Custom Duties

(i) Basic Customs Duty

Basic custom duty is the duty imposed on the value

of the goods at a specific rate. The duty is fixed at a
specified rate of ad-valorem basis. This duty has
been imposed from 1962 and was amended from
time to time and today is regulated by the Customs
Tariff Act of 1975. The Central Government has the
right to exempt any goods from the tax.

(ii) Countervailing Duty (CVD)

This duty is imposed by the Central Government

when a country is paying the subsidy to the
exporters who are exporting goods to India. This
amount of duty is equivalent to the subsidy paid by
them. This duty is applicable under Sec 9 of the
Customs Tariff Act.

(iii) Additional Customs Duty or Special CVD

In order to equalize imports with locals taxes like

service tax, VAT and other domestic taxes which
are imposed from time to time, a special
countervailing duty is imposed on imported goods.
Hence, is imposed to bring imports on an equal
track with the goods produced or manufactured in
India. This is to promote fair trade & competition
practices in our country.
(iv) Safeguard Duty

In order to make sure that no harm is caused to the

domestic industries of India, a safeguard duty is
imposed to safeguard the interest of our local
domestic industries. It is calculated on the basis of
loss suffered by our local industries.

(v) Anti Dumping Duty

Often, large manufacturer from abroad may export

goods at very low prices compared to prices in the
domestic market. Such dumping may be with
intention to cripple domestic industry or to dispose
of their excess stock. This is called ‘dumping’. In
order to avoid such dumping, Central Government
can impose, under section 9A of Customs Tariff Act,
anti-dumping duty up to margin of dumping on
such articles, if the goods are being sold at less than
its normal value. Levy of such anti dumping duty is
permissible as per WTO agreement. Anti dumping
action can be taken only when there is an Indian
industry producing ‘like articles’.
(vi) Education Cess on Customs Duty

At the prescribed rate is levied as a percentage of

aggregate duties of customs. If goods are fully
exempted from duty or are chargeable to nil duty or
are cleared without payment of duty under
prescribed procedure such as clearance under
bond, no cess would be levied.

(vii) Protective Duties

Tariff Commission has been established under

Tariff Commission Act, 1951. If the Tariff
Commission recommends and Central Government
is satisfied that immediate action is necessary to
protect interests of Indian industry, protective
customs duty at the rate recommended may be
imposed under section 6 of Customs Tariff Act. The
protective duty will be valid till the date prescribed
in the notification.