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GST - An overview
1.1 Background of GST
The structure of indirect taxes in India (as existing upto 30-6-2017) was based on three lists
in Seventh Schedule to Constitution of India, which came into effect on 26-1-1950. These
lists are mostly based on Government of India Act, 1935.
The provisions were based on situation prevailing in 1935. That structure had become
outdated due to changes in situations, technology etc.
World has moved towards common Goods and Services Tax (GST) long ago. However, so far
as India is concerned, GST is the tax for twenty first century [It is rightly said that India is like
an elephant. It takes time to start, but once started, it is very difficult to stop it].
Finally, India has moved into GST on 1-7-2017.
It is a one way street - now there can be no going back. We have to face the challenges of
GST. There is no other way.
1.1-1 Provisions made effective from 1-7-2017
Following provisions have been notified and made effective on 1-7-2017 -
(a) Central Goods and Services Tax Act, 2017 (CGST) - All provisions of Act made effective
from 1-7-2017, except proviso to section 42(9) and proviso to section 43(9). These
sub-sections provide for refund of interest on account of discrepancy, if liability is
reduced after supplier accepts the invoice and output tax liability is reduced. The
provisos state that amount of interest to be credited shall not exceed the interest
paid by recipient.
This Act imposes 'Central Tax' [In this book, the term used is CGST]
(b) Integrated Goods and Services Tax Act, 2017 (IGST) - All provisions of Act made
effective from 1-7-2017, except section 15 which provides for refund of IGST to
international tourist leaving India.
This Act imposes 'Integrated Tax' [In this book, the term used is IGST]
(c) Union Territory Goods and Services Tax Act, 2017 (UTGST) - All provisions of Act made
effective from 1-7-2017.
This Act imposes 'Union Territory Tax' [In this book, the term used is UTGST]
(d) Taxation Laws (Amendment) Act, 2017 - These sections make changes in provisions
in Central Excise, Customs, CST Act and certain cesses to align them with GST Law. All
the changes are made effective from 1-7-2017.
(e) State Goods and Services Act, 2017 [SGST] - Provisions made effective by respective
State Governments w.e.f. 1-7-2017 except that in case of J&K, the provisions were
made effective on 8-7-2017.
Act of each State imposes 'State Tax' [In this book, the term used is SGST]
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Relevant rules have been issued and notifications have been notified.
CGST Rules, 2017 - CGST Rules, 2017, effective from 1-7-2017, make provisions for various
procedures and forms.
CGST Rules apply to IGST also - CGST Rules shall apply, as far as may be, to IGST also -
Notification No. 4/2017-IT, dated 28-6-2017.
FAQs issued by CBI&C - CBI&C has issued third edition of FAQs on GST on 15-12-2018. CBI&C
has also issued FAQs on banking sector, Insurance and stock brokers sector on 27-12-2018.
Law Committee of GST Council has issued Standard Operating Procedure (SOP) on TDS under
GST - Ready Reckoner for DDOs/Other deductors in GST, updated upto 27-12-2018.
These FAQs broadly state statutory provisions. Highlights of some important FAQs have been
included in this book at appropriate places.
1.1-2 Changes made in Central Excise, Customs and Central Sales Tax Act effective from 1-
7-2017
Following changes have been made in Central Excise Act, Customs Act and CST Act, vide
Taxation Laws (Amendment) Act, 2017, effective from 1-7-2017 :
Definition of customs area [section 2(11) of Customs Act] amended to include
'warehouse' to ensure that IGST is not payable when goods are removed from
customs station to warehouse.
Section 3(7) and 3(8) of Customs Tariff Act inserted to impose IGST on import of
goods.
Section 3(9) and 3(10) of Customs Tariff Act inserted to impose GST (Compensation
to States) Cess on import of goods.
Section 3(11) and 3(12) of Customs Tariff Act inserted to clarify that all provisions of
Customs Act including drawback will apply to IGST and GST Compensation Cess levied
on import of goods.
Central Excise Act amended to provide that the excise duty under these Acts will be
only on petroleum products and tobacco products.
Central Excise Tariff Act omitted.
Central Sales Tax Act (CST Act) amended to provide for CST only on petroleum
products and alcoholic liquor.
Provision of 'declared goods' omitted from CST Act.

Abolition of following cesses - (a) Education Cess and SAHE cess on excise duty
(however, these cesses on customs duty will continue) (b) Automobile Cess (c) Clean
Environment Cess (d) Infrastructure Cess on automobiles (e) Cess on coking and non-
coking coal (f) Cess on Jute manufactured (g) Cess on rubber (h) Cess on Sugar (i) Cess
on tea (j) Cess on tobacco issued for manufacture of biris.
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Cess on crude oil produced in exploration blocks, Cess on tractors and Cess on paper
and paper board seem to be continuing.

1.1-3 Tax Revenue from GST and other major indirect taxes
The tax revenue from major taxes is as follows:
(Figures in Rs. crores)
Revised Budget
Actuals Revised Budget
Description Estimates 2018- Estimates
2018-19 Estimates 2019-20
19 2020-21

Corporation Tax 671,000 663,572 610,500 681,000

Tax on Income 529,000 473,003 559,500 638,000

Customs 130,038 117,813 125,000 138,000

Union Excise duties 259,612 231,982 248,012 267,000

CGST 503,900 457,534 514,000 580,000

IGST 50,000 28,945 - -

GST Compensation Cess 90,000 95,081 98,327 110,500

UTGST 2,530 2,778 2,704 3,000

Taxes of Union Territories

5,342 2,814 4,180 4,500
without legislature

1.1-4 Changes in CGST Act and IGST Act made vide Finance Act, 2021
Nirmala Sitharaman, Minister of Finance, Government of India, presented Budget 2021-22
on 1-2-2021 at 11.00 AM. Finance Bill, 2021 was also presented. The Finance Bill, 2021 has
been passed by Parliament and received assent of President on 28-3-2021. The provisions
will be effective from date to be notified. These may be effective by December 2021 (or may
be even earlier), as all State Governments have to make parallel changes in their respective
State GST Act also.
The changes in CGST Act and IGST Act, made by Finance Act, 2021 are as follows.
Services supplied by association or club to its members taxable w.r.e.f. 1-7-2017
In State of West Bengalv. Calcutta Club Ltd. [2019] 76 GST 614 = 110 taxmann.com 47 (SC
3member bench), it has been held that Clubs cannot be treated as distinct from their
members and there is no sale transaction between a club and its members. Hence, there can
be no sales tax or service tax on supplies by club to its members.
Though this decision was not in respect of provisions under GST Act, the principle could apply
in GST.
There are many decisions of Authority for Advance Ruling (AAR) that GST does not apply to
amounts received by club or associations from its members.
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To get over these decisions and to remove ambiguity, section 7(1)(aa) of CGST Act has been
inserted vide Section 108 of Finance Act, 2021 w.r.e.f. 1-7-2017 to provide that for purposes
of CGST Act, the expression 'supply' includes the activities or transactions, by a person, other
than an individual, to its members or constituents or vice versa, for cash, deferred payment
or other valuable consideration.
To remove any ambiguity or doubt, a 'deeming' provision has been made, vide Explanation
to section 7(1)(aa) of CGST Act inserted vide Section 108 of Finance Act, 2021 w.r.e.f. 1-7-
2017, stating that for the purposes of clause (aa), it is hereby clarified that, notwithstanding
anything contained in any other law for the time being in force or any judgment, decree or
order of any Court, tribunal or authority, the person and its members or constituents shall
be deemed to be two separate persons and the supply of activities or transactions inter se
shall be deemed to take place from one such person to another.
In view of insertion of the deeming provision, paragraph 7 of Schedule II of CGST Act (which
stated that supply of goods by unincorporated association to is member for consideration
shall be treated as supply of goods) has been omitted vide Section 122 of Finance Act, 2021
w.r.e.f. 1-7-2017.
It is true that intention of Parliament has always been to tax transactions between club or
association and its members.
Section 2(84)(f) of CGST Act specifically stated that 'person' includes an association of
persons or a body of individuals, whether incorporated or not, in India or outside India.
Thus, really the amendment as such cannot be faulted. However, the only issue is regarding
its retrospective application.
When BJP came to power, BJP had specifically stated that there will be no retrospective
amendment to tax laws. The most classic and worst example of retrospective amendment is
that of Vodafone. The retrospective amendment was specifically made to overturn decision
of Supreme Court favouring Vodafone. The company went for international arbitration and
the Arbitral Tribunal gave unanimous verdict in favour of Vodafone [which included the
nominee of Central Government]. Government should have gracefully accepted that
decision, but instead, it has gone in appeal. Mostly, in appeal, Government will get another
slap.
Many clubs and associations must have acted upon the judgment of Supreme Court and
orders of Authority for Advance Ruling. At this stage, after three and half years, it may be
difficult for many clubs or associations to collect past dues for over three and half years (with
18% interest) from its members. Many members may refuse to pay and the Associations
(which are not for profit) will be saddled with huge tax liability.
It is true that Parliament has plenary powers and can pass any law with retrospective effect.
However, arbitrary and irrational provision is violative of constitutional provisions.
In Tata Motors v. State of Maharashtra 2004 AIR SCW 3543 = (2004) 5 SCC 783 = 136 STC 1
(SC), a retrospective amendment and validation was held unreasonable and arbitrary, as it
was for withdrawal of benefit only for a particular period, without giving any reason – quoted
with approval in Jayam and Co v. AC (2016) 15 SCC 125 = 96 VST 1 (SC).
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A law cannot be held to be unreasonable merely because it operates retrospectively. The

un-reasonability must be in some other additional factors. The retrospective operation of a
fiscal statute would have to be found to be unduly oppressive and confiscatory before it can
be held to be unreasonable as to violate constitutional norms. Court can strike down a taxing
statute only if it is plainly discriminatory or it is confiscatory – RC Tobacco P Ltd. v. UOI (2005)
7 SCC 725 = 188 ELT 129 (SC).
In Bangalore Club v. ACCT (2010) 27 VST 489 (Karn HC DB), retrospective amendment was
held bad in law as tax cannot be collected in respect of past transactions – relying on
National Agricultural Coop Marketing Federation v. UOI 2003 AIR SCW 1743 = AIR 2003 SC
1329 =260 ITR 548 = 128 Taxman 361 = 2003(5) SCC 23.
Of course, what view Supreme Court will take in this case is unpredictable, but in my view,
making provision retrospective is highly unfair and against specific promise of BLP.
ITC eligible only if supplier uploads details of his outward supply in his GSTR-1 and
recipient accepts the same
ITC will be eligible only if supplier uploads details of his outward supply (invoices, debit note,
credit note and revised invoice) in his GSTR-1. Recipient will get these details in his GSTR-2A
and GSTR-2B. The recipient is required to accept the same as per section 37(2) of CGST Act.
As per section 16(2)(aa) of CGST Act inserted vide Section 109 of Finance Act, 2021 w.e.f.
date to be notified, registered person shall not be entitled to avail input tax credit, unless
the details of the invoice or debit note has been furnished by the supplier in the statement
of outward supplies [GSTR-1] and such details have been communicated to the recipient of
such invoice or debit note in the manner specified under section 37 of CGST Act [in GSTR-2A
and GSTR-2B of recipient].
Provision of Audit report with reconciliation statement omitted
Provision of Audit report with reconciliation statement in form GSTR-9C has been omitted -
section 35(5) of CGST Act omitted vide Section 109 of Finance Act, 2021 w.e.f. date to be
notified. Instead of audited reconciliation statement, self-certified reconciliation will have to
be submitted as per section 44 of CGST Act substituted vide Section 110 of Finance Act, 2021
w.e.f. date to be notified.
Annual return with self-certified reconciliation statement
Annual return with self-certified reconciliation statement will have to be submitted.
Commissioner in Board [not jurisdictional Commissioner] can exempt any class of registered
persons from filing annual return. Department of State Government or Central Government
or local authority whose accounts are subject to C&AG audit are not required to submit such
annual return - section 44 of CGST Act substituted vide Section 111 of Finance Act, 2021
w.e.f. date to be notified.
Interest only on net amount payable in cash i.e. after adjusting ITC
There was controversy whether interest for late payment of GST is payable on net amount
of tax payable (i.e. after adjusting ITC available) or gross amount of tax payable (without
adjusting ITC available). The controversy has been set at rest videproviso to section 50(1) of
CGST Act substituted vide Section 112 of Finance Act, 2021 w.r.e.f. 1-7-2017. It is made clear
that interest for late payment of GST is payable on net amount of tax payable (i.e. after
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adjusting ITC available). The provision is retrospective from 1-7-2017. However, this
provision applies only when return (though belated) is filed and tax with interest is paid on
its own and not when return is furnished after proceedings of notice, demand and recovery
are commenced under section 73 or 74 of CGST Act.
If proceedings commence under section 73 or 74 of CGST Act, tax is paid under GST DRC-03
and not by filing return. However, by that time, time limit for availing Input Tax Credit is
over.
Recovery of tax if outward invoices uploaded in GSTR-1 but liability not shown in GSTR-3B
return
Sometimes, the supplier uploads details of tax invoices and debit notes in his GSTR-1 (so that
recipient can avail ITC) but does not include that turnover in his GSTR-3B return. Hence,
explanation to section 75(12) of CGST Act inserted vide Section 114 of Finance Act, 2021
w.e.f. date to be notified, provides that 'self-assessed tax' includes tax payable on details of
outward supply furnished in GSTR-1 but not included in GSTR-3B and recovery under section
79 of CGST Act can commence, without issuing notice under section 73 or 74. Thus, if
outward invoices are uploaded by taxable person in his GSTR-1 but liability is not shown in
his GSTR-3B return, recovery of tax can be done without issuing demand notice.
Scope of provisional attachment of property and bank accounts for protection of revenue
widened
Scope of provisional attachment of property and bank accounts to protect interests of
Government revenue has been widened and some of decisions of High Courts have been
nullified by amendments made by Finance Act, 2021. The revised provision is as follows –
Where, after the initiation of any proceeding under Chapter XII (Audit by tax authorities and
special audit – sections 65 and 66), Chapter XIV (Inspection, Search, Seizure and arrest –
sections 67 to 72) or Chapter XV (Demands and recovery - sections 73 to 84), the
Commissioner is of the opinion that for the purpose of protecting the interest of the
Government revenue it is necessary so to do, he may, by order in writing, attach
provisionally, any property, including bank account, belonging to the taxable person or any
person specified in section 122(1A) of CGST Act [person who is retaining benefit of specified
transaction and at whose instance the transaction is conducted – transactions relating to
bogus invoices and bogus ITC], in such manner as may be prescribed –section 83(1) of CGST
Act substituted vide Section 115 of Finance Act, 2021 w.e.f. date to be notified.
Thus, property of following can be provisionally attached – (a) person who is availing bogus
Input Tax Credit (b) Person to whom SCN has been issued under section 73 or 74, or recovery
proceedings under section 79 have been commenced (c) Audit, search, seizure or arrest is
under progress.
Such provisional attachment can continue upto one year from date of order - section 83(2)
of CGST Act.
Pre-deposit of 25% of penalty if goods are seized in transit under section 129 of CGST Act
Section 129 of CGST Act makes provisions for detention and seizure of goods in transit.
Penalty equal to 200% of tax payable can be imposed under section 129(3) of CGST Act, if
goods are transported in contravention of provisions of CGST Act and Rules. If appeal is filed
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against order imposing penalty, no appeal shall be filed unless a sum equal to 25% of the
penalty has been paid by the appellant – proviso to section 107(6) of CGST Act inserted vide
Section 116 of Finance Act, 2021 w.e.f. date to be notified.
Really, there is no provision for provisional release of goods seized under section 129 of CGST
Act, as amended by Finance Act, 2021. In fact, there is provision of sale of goods if goods are
not released within 15 days from receipt of order imposing penalty. Thus, the provision of
pre-deposit of 25% penalty seems meaningless. Person has no option but to pay 200%
penalty, get goods released and then file appeal.
Provisions relating to detention, seizure and release of goods and conveyances in transit
are revamped
Provisions relating to detention, seizure and release of goods and conveyances in transit, if
goods are transported in contravention of provisions of CGST Act and Rules, as contained in
section 129 of CGST Act, have been revamped vide Section 117 of Finance Act, 2021 w.e.f.
date to be notified.
The revised provisions, which will be effective from date to be notified, are broadly as
follows.
Proceedings under section 129 of CGST Act have been de-linked from provisions in
sections 73 and 74 of CGST Act, relating to determination of tax not paid or short paid
Goods and conveyance can be detained and seized if goods are being transported in
contravention of provisions of GST Act and Rules [may be any contravention, not
merely relating to eway bill]
If goods are taxable, penalty equal to 200% of tax payable will be imposed. In case of
exempted goods, penalty equal to 2% of value of goods or Rs 25,000 whichever is
lower – section 129(1)(a) of CGST Act [presently, there is provision of payment of tax
plus penalty equal to 100% of tax payable in case of taxable goods].
Provisions of release of seized goods on bond and security as contained in section
67(6) of CGST Act shall not apply to goods seized under section 129 of CGST Act. Thus,
release of goods and conveyance will be as per provisions of section 129 of CGST Act
only
Goods can be released either on payment of entire penalty or on provision of security
for amount equal to penalty (may be in cash or in form of bank guarantee)
Conveyance can be released on payment of penalty of Rs one lakh – first proviso to
section 129(6) of CGST Act as substituted vide section 117 of Finance Act, 2021 w.e.f.
date to be notified.
Notice of seizure of goods or conveyance shall be issued within seven days and order
for penalty shall be issued within seven days from date of notice – section 129(3) of
CGST Act as substituted
Sale or disposal of goods if person fails to pay penalty within 15 days from date of
receipt of order imposing penalty. This period of 15 days can be reduced in case of
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hazardous goods or goods that are likely to deteriorate – section 129(6) of CGST Act
as substituted vide section 117 of Finance Act, 2021 w.e.f. date to be notified. - - The
goods are not confiscated. Hence, balance amount is required to be refunded to
owner of goods.
Appeal can be filed on payment of 25% of penalty imposed. There is provision for
release of seized goods on furnishing security (mere bond is not sufficient). Hence, it
may be advisable to pay 25% penalty and give security of balance amount, as security
in form of bank guarantee costs money in form of bank charges. Banks often insist
on deposit also.
No provision for confiscation of goods or conveyance when goods are seized in
transit. The goods can be sold straight away, if security is not provided or penalty not
paid [section 130 de-linked from section 129].
Provisions of confiscation of goods or conveyances and penalty as contained in
section 130 of CGST Act will not apply to detention and seizure under section 129 of
CGST Act

Confiscation of goods or conveyance and levy of penalty

Provisions as contained in section 130 of CGST Act have been de-linked from section 129 of
CGST Act [relating to detention and seizure of goods in transit].
Power to call for information
Jurisdictional Commissioner has been empowered to call for information from any person
relating to matter connected with CGST Act - section 151 of CGST Act substituted vide
Section 119 of Finance Act, 2021 w.e.f. date to be notified.
Bar on disclosure of information collected under sections 150 and 151 of CGST Act
As per section 152 of CGST Act (as amended vide section 120 of Finance Act, 2021 w.e.f. date
to be notified), any information collected under sections 150 and 151 of CGST Act will not
be published in such manner so as to identify with a particular person, without his consent.
Further, such information cannot be used for any proceedings under CGST Act without giving
opportunity of being heard to the person concerned.
Supply to SEZ unit or SEZ developer zero rated only if for authorised operations
Supply to SEZ unit or SEZ developer will be zero rated only if supply is for authorised
operations - section 16(1)(b) of IGST Act amended vide Section 122(a) of Finance Act, 2021
w.e.f. date to be notified.
General provision for making payment of IGST on zero rated supply and claiming refund
restricted
Present section 16(3) of IGST Act provides for two options in case of zero rated supply – (a)
Pay IGST on zero rated supply and claim refund of IGST paid through customs procedure (b)
Make zero rated supply under bond and LUT without payment of IGST on outward supply
and claim refund of Input Tax Credit corresponding to input goods contained in supply of
zero rated goods or services.
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The first option is easy and simple with minimum hassles. Moreover, refund of GST paid on
input services and capital goods can be availed by using this route.
The second option is clumsy and getting refund is very difficult. Some excuses are found to
reject refund claim and huge amount is blocked. Further, refund of GST paid on input
services and capital goods cannot be availed by using this route.
However, the first method is being misused by claiming ITC on basis of bogus invoices and
making payment of IGST on zero rated supply and getting refund.
Hence, the general provision for making payment of IGST on zero rated supply and claiming
refund has been restricted.
As per section 16(3) of IGST Act substituted vide Section 123 of Finance Act, 2021 w.e.f. date
to be notified, normally, person making zero rated supply shall follow only second option i.e.
make zero rated supply under bond and LUT without payment of IGST on outward supply
and claim refund of Input Tax Credit corresponding to input goods contained in supply of
zero rated goods or services.
Further, the amount received as refund shall be liable to be paid back, if payment for supply
is not received in foreign exchange, within time specified under FEMA – proviso to section
16(3) of IGST Act substituted vide Section 123(b) of Finance Act, 2021 w.e.f. date to be
notified.
Option of paying IGST on output supply and claiming refund of IGST paid on output supply
will be available only to specified class of persons making zero rated supply and class of
goods or services which may be exported on payment of IGST and claiming refund - section
16(4) of IGST Act inserted vide Section 123(b) of Finance Act, 2021 w.e.f. date to be notified.
GST Laws added to Economic Offences (Inapplicability of Limitation) Act, 1974
Following Acts have been inserted in Schedule to Economic Offences (Inapplicability of
Limitation) Act, 1974, vide section 152 Finance Act, 2021, from date to be notified. Thus,
time limit for filing criminal prosecution shall not apply to offenses under these Acts.
The Prohibition of Benami Property Transactions Act, 1988
The Central Goods and Services Tax Act, 2017
The Integrated Goods and Services Tax Act, 2017

The Union Territory Goods and Services Tax Act, 2017

The Goods and Services (Compensation to States) Act, 2017.

IGST on imports under Advance Authorisation and EPCG and imports by EOU are exempt
upto 31-3-2022
IGST will not be payable on (a) imports under Advance Authorisation and EPCG and (b)
imports by EOU. This exemption is valid upto 31-3-2022.
1.1-5 C form can be issued after 28-3-2021 for petroleum products only for resale or in
manufacture
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As per amendment made in CST Act vide Finance Act, 2021, C form can be issued for
procurement of petroleum products only for resale or in manufacture w.e.f. 28-3-2021. See
para 1.3-8 for details.
1.1-6 General extension of time limit in view of Corona Virus
In view of Corona virus (COVID-19), there was lockdown in India during March 2020 to June
2020. All business activities came to stand still. Hence, general extension has been granted
to various time limits under CGST, IGST and UTGST Act, vide Notification No. 35/2020-CT
dated 3-4-2020 (w.e.f. 20-3-2020 as amended from time to time). The notification has been
issued under powers conferred under section 168A of CGST Act, as introduced w.e.f. 31-3-
2020. The extensions/relaxations are as follows.
Where, any time limit for completion or compliance of any action, by any authority or by any
person, has been specified in, or prescribed or notified under the said Act, which falls during
the period from the 20-3-2020 to the 30-8-2020, and where completion or compliance of
such action has not been made within such time, then, the time limit for completion or
compliance of such action, shall be extended upto the 31-8-2020, including for the purposes
of-- (a) completion of any proceeding or passing of any order or issuance of any notice,
intimation, notification, sanction or approval or such other action, by whatever name called,
by any authority, commission or tribunal, by whatever name called, under the provisions of
the Acts stated above; or (b) filing of any appeal, reply or application or furnishing of any
report, document, return, statement or such other record, by whatever name called, under
the provisions of the Acts stated above.
Such extension of time shall not be applicable for the compliances of the provisions of the
said Act, as mentioned below -
(a) Chapter IV - Time and value of supply [sections 12 to 15]
(b) Section 10(3), sections 25, 27, 31, 37, 47, 50, 69, 90, 122, 129
(c) section 39, except sub-section (3), (4) and (5) [returns]
(d) section 68, in so far as e-way bill is concerned [inspection of goods in movement]; and
(e) rules made under the provisions specified at clause (a) to (d) above

Extension of time limit due to Covid-19 in case of anti-profiteering issue - Where, any time
limit for completion or compliance of any action, by any authority, has been specified in, or
prescribed or notified under section 171 of CGST Act (anti-profiteering), which falls during
the period from the 20-3-2020 to the 30-3-2021, and where completion or compliance of
such action has not been made within such time, then, the time limit for completion or
compliance of such action, shall be extended upto the 31-3-2021 - proviso to Notification
No. 35/2020-CT dated 3-4-2020 amended on 14-12-2020.
General Extension in case of e-way bills where validity expired during lock down due to
Corona virus - Where an e-way bill has been generated under rule 138 of the Central Goods
and Services Tax Rules, 2017 and its period of validity expires during the period 20th day of
March, 2020 to 15th day of April, 2020, the validity period of such e-way bill shall be deemed
to have been extended till the 30th day of April, 2020. - - Where an e-way bill has been
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generated under rule 138 of the Central Goods and Services Tax Rules, 2017 on or before
the 24th day of March, 2020 and whose validity has expired on or after the 20th March, 2020
the validity of such e-way shall be deemed to have been extended till the 30th day of June,
2020- Notification No. 35/2020-CT dated 3-4-2020 amended on 9-6-2020.
Supreme Court extends various timelines in view of Covid-19 - Supreme Court, suo motu,
has extended various timelines in view of Covid-19 as follows - (a) Period of limitation under
Arbitration Act (b) time limit for completion of claim and defence (c) service of notices,
summons and every legal proceeding - Cognizance for Extension of Limitation In re (2020) 9
SCC 468 = 117 taxmann.com 748 (SC 3 member bench) - also (2020) 19 SCC 10 and (2020)
19 SCC 9.
In further order, Supreme Court in In re Cognizance for Extension of Limitation (2021) 125
taxmann.com 151 (SC 3 member bench), has given directions relating to limitation period
for the period 15-03-2020 to 14-03-2021. Supreme Court has held the said period would be
excluded from the period of limitation for filing appeals, etc. Further, where the limitation
had expired during the above period, the time limit of 90 days (or actual balance time
whichever is higher) would be available from 15-03-2021 for filing appeals etc.
In Sagufa Ahmed v. Upper Assam Polywood Products (2021) 2 SCC 317 (SC 3 member bench),
it was held that the extension is only if the limitation had expired after 15-3-2020 and not if
limitation period had already expired on that date.
Relaxations explained through CBIC circulars from time to time - CBIC has issued following
circulars from time to time, explaining relaxations given due to Covid-19 - (a) No.
136/06/2020-GST dated 3-4-2020 (b) No. 137/07/2020-GST dated 13-4-2020 (c) No.
138/08/2020-GST dated 6-5-2020 (d) No. 141/11/2020-GST dated 24-6-2020.
1.1-7 Powers to Central Government to extend time limit prescribed under GST due to
Covid-19
In view of the spread of pandemic COVID-19 (Corona) across many countries of the world
including India, lockdown was declared in India first as janata curfew on 22-3-2020 and then
general lockdown upto 14-4-2020. This was subsequently extended from time to time. Later,
provisions were relaxed, but partial lockdown continues upto 15-4-2021 at least (likely to be
extended further).
Due to lockdown and curfew, normal working of companies and Government was
completely disturbed. Hence, it had become imperative to relax certain provisions, including
extension of time limit, in the taxation and other laws.
The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 was issued
on 31-3-2020 for this purpose. The Ordinance has been converted into Act w.e.f. 29-9-2020
but w.r.e.f. 31-3-2020.
Under the Act (earlier Ordinance), section 168A was introduced in CGST Act w.e.f. 31-3-2020,
empowering Central Government to extend time limits specified under CGST Act. The
provisions are as follows.
Notwithstanding anything contained in this Act, the Central Government may, on the
recommendations of the GST Council, by notification, extend the time limit specified in, or
 12

prescribed or notified under, CGST Act in respect of actions which cannot be completed or
complied with due to force majeure - Section 168A(1) of CGST Act, inserted w.e.f. 31-3-2020.
The power to issue notification under section 168A(1) of CGST Act shall include the power
to give retrospective effect to such notification from a date not earlier than the date of
commencement of CGST Act (which is 1-7-2017, though the section has been introduced
w.e.f. 31-3-2020 only) - Section 168A(2) of CGST Act, inserted w.e.f. 31-3-2020.
Meaning of 'force majeure - For the purposes of section 168A(1) of CGST Act, the expression
"force majeure" means a case of war, epidemic, flood, drought, fire, cyclone, earthquake or
any other calamity caused by nature or otherwise affecting the implementation of any of
the provisions of CGST Act - Explanation to Section 168A(2) of CGST Act, inserted w.e.f. 31-
3-2020.
Doctrine of 'Force majeure' - 'Force majeure' means 'irresistible force or compulsion,
circumstance beyond one's control'. - - The expression 'force majeure' is of wider meaning
than vis major (Acts of God). Strikes, breakdown of machinery which though not normally
included in 'vis major' are included in 'force majeure', the intention is to save the performing
party from the consequences of anything over which he has no control - Dhanrajmal
Gobindram v. Shamji Kalidas AIR 1861 SC 1285.
For example, rise in prices of inputs may not be included in 'force mejeure'. It is only a 'bad
bargain'.
Upsurge in prices of coal in Indonesia could not be a force majeure event as fundamental
nature of contract remains unchanged - Energy Watchdog v. CERC (2017) 14 SCC 80.
Increase in prices of diesel is not covered under 'force majeure' - South East Asia Marine
Engineering v. Oil India Ltd. (2020) 5 SCC 164 (SC 3 member bench).
By virtue of section 56 of Contract Act, occurrence of an event which renders performance
of contract impossible, renders contract void and parties are exempted from performance
thereof. However, in terms of section 32 of Contract Act, parties may choose consequences
that would flow on happening of an uncertain future event. Under section 65 of Contract
Act, limited mechanism exists to ameliorate harsh consequences of frustration of contract.
Parties may choose to mitigate the risk by inserting force majeure clauses - South East Asia
Marine Engineering v. Oil India Ltd. (2020) 5 SCC 164 (SC 3 member bench).
1.1-8 Special provisions under GST relating to companies under Insolvency Process
Notification No.11/2020- CT dated 21-03-2020 (issued under section 148 of CGST Act and
amended on 5-5-2020) makes special provisions relating to companies undergoing CIRP
under Insolvency and Bankruptcy Code, 2016.
These provisions shall not apply to those corporate debtors who have furnished the
statements under section 37 and the returns under section 39 of the CGST Act for all the tax
periods prior to the appointment of IRP/RP - proviso to introductory pars of Notification No.
11/2020-CT inserted w.e.f. 5-5-2020 - confirmed in CBIC circular No. 138/08/2020-GST dated
6-5-2020.
Clarifications vide CBIC circular dated 23-3-2020 - CBIC, vide Circular No.134/04/2020-GST
dated 23-3-2020 has clarified as follows.
 13

The GST tax and other dues of the period prior to the commencement of CIRP will be
treated as 'operational debt' and claims may be filed by the proper officer before the
NCLT in accordance with the provisions of the Insolvency Code. Coercive measures
for recovery of tax dues cannot be taken during moratorium period.
GST Registration should not be cancelled (as company is going concern till final order
of NCLT). If already cancelled, the cancellation may be revoked, if during period of
revocation of cancellation of registration. [However, the IRP/IP is required to obtain
fresh GST registration within 30 days]

The IRP/RP is under obligation to comply with all legal requirements for period after
the Insolvency Commencement Date. Accordingly, IRP/RP are not under an obligation
to file returns of pre-CIRP period.

The corporate debtor who is undergoing CIRP is to be treated as a distinct person of

the corporate debtor and shall be liable to take a new registration in each State or
Union territory where the corporate debtor was registered earlier, within thirty days
of the appointment of the IRP/RP or by 30-6-2020 whichever is later. Further, in cases
where the IRP/RP has been appointed prior to the issuance of notification
No.11/2020-CT dated 21-03-2020, he shall take registration within thirty days of
issuance of the said notification, with effect from date of his appointment as IRP/RP
or by 30-6-2020 whichever is later.
The IRP/RP will be liable to furnish returns, make payment of tax and comply with all
the provisions of the GST law during CIRP period. The IRP/RP is required to ensure
that the first return is filed under section 40 of the CGST Act, for the period beginning
the date on which it became liable to take registration till the date on which
registration has been granted.
The special procedure issued under section 148 of the CGST Act has provided the
manner of availment of ITC while furnishing the first return under section 40 of CGST
Act.
The freshly registered company (under CIRP) shall, in its first return, be eligible to
avail input tax credit on invoices covering the supplies of goods or services or both,
received since appointment as IRP/RP and during the CIRP period but bearing the
GSTIN of the erstwhile registered person, subject to the conditions of Chapter V of
the CGST Act and rule made thereunder, except the provisions of section 16(4) of the
CGST Act and rule 36(4) of the CGST Rules, in terms of the special procedure under
section 148 of the CGST Act issued vide notification No.11/2020- CT dated
21.03.2020. This exception is made only for the first return filed under section 40 of
the CGST Act.

Registered persons who are receiving supplies from such companies under CIRP shall,
for the period from the date of appointment of IRP/RP till the date of registration as
required in this notification or 30 days from the date of this notification (i.e. from 21-
3-2020) whichever is earlier, be eligible to avail input tax credit on invoices issued
 14

using the GSTIN of the erstwhile registered person, subject to the conditions of
Chapter V of the CGST Act and rule made thereunder, except the provisions of rule
36(4) of the CGST Rules [Rule 36(4) provides for restriction on 10% of ITC in case of
invoices].
Any amount deposited in the cash ledger by the IRP/RP, in the existing registration,
from the date of appointment of IRP/RP to the date of notification specifying the
special procedure for corporate debtors undergoing CIRP (i.e. upto 21-3-2020), shall
be available for refund to the erstwhile registration under the head refund of cash
ledger, even though the relevant form GSTR-3B/GSTR-1are not filed for the said
period. The instructions contained in Circular No. 125/44/2019-GST dated 18-11-
2019 stands modified to this extent [This circular provides for electronic refund
procedure]

Fresh GST registration not required if IRP/RP is changed - In CBIC circular No. 138/08/2020-
GST dated 6-5-2020, it has been clarified that If RP/IRP is changed, authorised signatory can
be changed as it is non-core amendment. Fresh registration is not required.
1.1-9 Provisions relating to registration by IRP under GST
- As per press release dated 27-5-2020, Insolvency Resolution Professionals/Resolution
Professionals (IRPs/RPs), appointed to undertake corporate insolvency resolution
proceedings for Corporate Debtors, in terms of Notification. No 11/2020-CT, dated 21-3-
2020 can apply for new registration on GST Portal, on behalf of the Corporate Debtors, in
each of the States or Union Territories, on the PAN and CIN of the Corporate Debtor, where
the corporate debtor was registered earlier, within thirty days of their appointment as
IRP/RP.
They should select the Reason for Registration as "Corporate Debtor undergoing the
Corporate Insolvency Resolution Process with IRP/RP" from the drop down menu.
The date of commencement of business for IRP/RPs will be the date of their appointment.
Their compliance liabilities will also come into effect from the date of their appointment.
The person appointed as IRP/RP shall be the Primary Authorized Signatory for the newly
registered Company.
In the Principal Place of business/Additional place of business, the details as specified in
original registration of the Corporate Debtors, is required to be entered.
The new registration application shall be submitted electronically on GST Portal under DSC
of the IRP/RP.
The new registration by IRP/RP will be required only once. In case of a change in IRP/RP,
after initial appointment, it would be deemed to be change of authorized signatory and not
an appointment of a distinct person requiring a fresh registration.
In cases where the RP is not the same as IRP, or in cases where a different IRP/RP is
appointed midway during the insolvency process, the change in the GST system may be
carried out by a non- core amendment in the registration form.
The change in Primary Authorized Signatory details on the portal can be done either by the
authorised signatory of the Company or by the concerned jurisdictional officer (if the
 15

previous authorized signatory does not share the credentials with his successor) on request
of IRP/RP.
Liquidator selling assets requires GST Registration - In Mansi Oils and Grains (P.) Ltd., In re
[2020] 117 taxmann.com 446 (AAR-WB), it was held that sale of assets of a corporate debtor
by NCLT appointed liquidator is a supply of goods by said liquidator, who is required to take
registration under section 24 of CGST Act.
1.1-10 Removal of Difficulties Order by Central Government
If any difficulty arises in giving effect to provisions of CGST Act, IGST Act, UTGST Act or GST
(Compensation to States) Act, Central Government, with approval of GST Council can issue
order and make provisions not inconsistent with provisions of CGST Act or Rules or
Regulations, as may be necessary or expedient for removing difficulty. Such order shall not
be made after expiry of five years from date of commencement of CGST Act i.e. from 1-7-
2017 - section 172 of CGST Act, section 25 of IGST Act, section 26 of UTGST Act and section
14 of GST (Compensation to States) Act as amended vide Finance Act, 2020, w.e.f. 27-3-2020
and 30-6-2020 [earlier the time limit was three years].
1.2 Constitutional Amendments made effective
The Constitutional Amendments were made fully effective from 16-9-2016.
Section 19 of Constitution (One Hundred and First) Amendment Act, 2016 allowed one year
transition period of one year for switching over to GST. Thus, in any case, GST had to be in
place before 16-9-2017.
Section 20 of Constitution (One Hundred and First) Amendment Act, 2016 empowers
President of India to issue order for removal of difficulties. This power includes adaptation
or modification of any provision of Constitution.
1.2-1 Constitution of GST Council
Article 279A in Constitution of India makes provision for constitution of GST Council.
GST Council is the Apex Constitutional Authority to decide policies of GST.
The GST Council will make recommendations to Union and States relating to GST.
GST Council has been constituted vide Notification No. SO 2957(E) dated 15-9-2016. Union
Finance Minister is Chairman of Council. Following are members of Council - (a) Union
Minister of State in-charge of Revenue or Finance and (b) Minister in-charge of Finance or
Taxation or any other Minister nominated by each State Government.
Vice Chairperson of GST Council will be elected by GST Council from amongst its members.
Decision in GST Council will be taken with at least 75% of weighted average voting in favour
of the decision. Union Government will have 33.33% voting power and States will have
66.67% voting power.
1.3 What is Goods and Services Tax?
Goods and Services Tax means a tax on supply of goods or services, or both, except taxes on
supply of alcoholic liquor for human consumption [Article 366(12A) of Constitution of India
inserted w.e.f. 16-9-2016].
 16

Note that the word used is 'supply' and not 'sale'. Thus, stock transfers, branch transfers will
also get covered under GST net.
GST will be payable on free supplies made to related persons. GST will not be payable to free
gifts and free samples to unrelated person, but input tax credit in respect of such goods will
have to be reversed.
IGST will be payable on inter-state stock transfers and branch transfers.
For stock transfers or branch transfer within the State, SGST and CGST will be payable only
where the taxable person has more than one GST registrations within the State. If there is
single registration within State, 'Bill of Supply' (challan) will be sufficient.
Basic scheme of GST is as follows -
Overall structure of Goods and Services Tax
Goods and Services Tax (GST) will be on 'supply' of goods or services or both, in India
w.e.f. 1-7-2017 (including Jammu and Kashmir w.e.f. 8-7-2017). Area upto 200
nautical miles inside sea is 'India' for purpose of GST.
For supplies within the State or Union Territory - (a) Central tax (Central GST i.e. CGST)
will be payable to Central Government and (b) State tax (State GST - SGST) or Union
Territory Tax (UTGST - Union Territory GST) will be payable to State Government or
Union Territory (as applicable). Area upto 12 nautical miles inside sea is part of State
or Union Territory which is nearest.
For inter-state supplies (supply from one State or Union Territory to another State or
Union Territory), Integrated tax (Integrated GST-IGST) will be payable to Central
Government. IGST is payable if supply is beyond 12 nautical miles but upto 200
nautical miles.
In addition, GST Compensation Cess will be payable on pan masala, tobacco products,
coal, aerated waters, motor cars etc.
Basic customs duty, Social Welfare Surcharge, IGST and GST Compensation Cess (on
goods where Compensation Cess is applicable) will be payable on import of goods.
Distinction between goods and services will be mostly eliminated. This will eliminate
problem of dual taxation presently faced by construction industry, works contract,
food related services like restaurant and outdoor catering, leasing and hire services
and software services.
GST is based on Vat concept of allowing input tax credit of tax paid on inputs, input
services and capital goods, for payment of output tax. This will avoid cascading effect
of taxes.
GST is consumption based tax i.e. tax is payable in the State where goods or services
or both are finally consumed.
 17

The rates of IGST - Nil, 0.1%, 0.25%, 3%, 5%, 12%, 18% and 28%. In case of supply
within State, CGST will be 50% of IGST Rates and SGST/UTGST for supply within the
State or Union Territory will be 50% of IGST rates.
General rate of tax is – IGST – 18% or CGST – 9% plus SGST/UTGST – 9%.
Though tax is payable to both Central Government and State Government/Union
Territory Administration, control will be exercised either by State Government/Union
Territory Authorities or Central Government Authorities. This will avoid dual control.
Central Excise duty will continue on petroleum products i.e. petroleum crude, high
speed diesel, motor spirit (commonly known as petrol), natural gas and aviation
turbine fuel. These products are out of GST at present and may be brought under GST
later.
Tobacco products will be subject to excise duty plus GST.
Alcoholic liquor will be subject to State duty. This product is out of GST.
GST Council (Goods and Services Tax Council) is Apex Constitutional body which will
determine policies of GST.

Note - The terms used in CGST, SGST,UTGST and IGST Acts are 'Central Tax', 'State Tax',
'Union Territory Tax' and 'Integrated Tax'. However, in this book, for sake of brevity, the
terms used are CGST, SGST, UTGST and IGST respectively.
1.3-1 Broad definition of 'service'
'Services' means anything other than goods [Article 366(26A) of Constitution of India
inserted w.e.f. 16-9-2016].
Definition of 'service' is risky. As it is presently worded, it can cover even immovable
property. However, sale of land and fully constructed and completed buildings have been
excluded from purview of GST.
The definition of 'service' is so broad that practically sky is the limit for imposing any tax by
Union or State Governments.
General rate of GST on supply of services is 18%. Exemption is available to some services like
health care services, educational services, agriculture related services (upto primary stage)
renting for residential purposes, religious services etc.
Services by employee to employer, services by Courts, funeral related activities etc. are
excluded from definition of 'service' itself.
1.3-2 Dual GST for supply of goods and services within State/Union Territory
There will be dual GST - State GST (SGST) and Central GST (CGST) on supply of goods and
services within the State [Article 246A of Constitution of India inserted w.e.f. 16-9-2016].
Territorial waters (i.e. 12 nautical miles inside the sea) will be part of State so far as GST is
concerned.
SGST will also apply in Union Territories having legislature. These are - Delhi and Puducherry.
In other territories (which have no legislature), UTGST will apply.
 18

Both CGST and SGST/UTGST will be on supply of goods and services within the State/Union
Territory.
1.3-3 IGST for inter-state transactions
In case of Inter-State supply of goods and services, there will be Integrated GST (IGST)
imposed by Government of India [Article 269A(1) of Constitution of India inserted w.e.f. 16-
9-2016].
Equivalent IGST (CVD) will also be imposed on imports [Explanation to Article 269A(1) of
Constitution of India].
The IGST Rate will be double the CGST rate.
IGST and CGST rates will be uniform all over India and will not vary from State to State.
Presently, SGST rates are also uniform all over India and are equal to CGST rate.
Revenue from IGST will be apportioned among Union and States by Parliament on basis of
recommendation of Goods and Service Tax Council [Article 269A(2) and Article 270(1A) of
Constitution of India inserted w.e.f. 16-9-2016].
This apportionment will be required as input tax credit of IGST can be used for SGST and vice
versa.
Since IGST will be on 'supply of goods or services', IGST will be payable on inter-state stock
transfers, branch transfers etc.
However, CGST, SGST, UTGST or IGST will not be payable if goods are sent for job work
outside the premises of taxable person.
1.3-4 GST is destination based tax on consumption
GST is destination based consumption tax i.e. tax would accrue to the State in which goods
or services are finally consumed, which is also termed as 'place of supply' - FAQ on GST
Chapter 1 Q No. 2 issued by CBI&C on 15-12-2018.
GST is based on Vat system of allowing input tax credit for payment of tax on output supply.
The States from which goods or services are supplied will not get any tax as goods or services
are consumed in another State.
In case of inter-State supplies, IGST will be payable. Input Tax Credit of IGST paid in one State
will be available to receiver of goods or services in another State.
1.3-5 Input Tax Credit
Allowability of input tax credit for payment of output tax is one of the key features of GST.
This will avoid cascading effect of taxes.
IGST will ensure seamless movement of goods across the country as taxes will move along
with goods.
1.3-6 Finance Cost will increase
Since IGST will be payable on inter-State branch transfers and stock transfers, finance will be
blocked and interest burden of dealers having inter-state transactions will increase
considerably.
1.3-7 Central Excise duty and sales tax on petroleum and tobacco products and State sales
tax on alcoholic liquor
 19

Central Excise duty will continue on petroleum products and tobacco products [Entry 84 of
List I (Union List) of Seventh Schedule to Constitution of India as amended w.e.f. 16-9-2016].
Tobacco products will be subject to excise duty plus GST.
State Sales tax on petroleum products and alcoholic liquor within State - States will have
powers to impose sales tax on sale within the State on petroleum products and alcoholic
liquor for human consumption [Entry 54 of List II (State List) of Seventh Schedule to
Constitution of India as amended w.e.f. 16-9-2016]
Thus, petroleum products will be presently out of GST.
Petroleum products will be brought in GST network at a later stage on recommendation of
GST Council – section 5(2) of IGST Act.
Meaning of 'petroleum products' - Petroleum Products means petroleum crude, high speed
diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel [Entry
84 of List I of Seventh Schedule to Constitution of India, section 5(2) of IGST Act and section
9(2) of CGST and SGST Act]. Vat and Central Excise will continue on these commodities –
reiterated in FAQ on GST Chapter 1 Q Nos.5 and 6 issued by CBI&C on 15-12-2018.
1.3-8 C form for petroleum products only for re-sale or use by buyer in the manufacture or
processing for sale of goods w.e.f. 28-3-2021
Section 8(3) of Central Sales Tax Act enumerates goods which can be procured at
concessional rate of CST (2%) on submission of C form in inter-State transactions.
Section 8(3)(b) of CST Act has been substituted with following, vide section 150 of Finance
Act, 2021, w.e.f. 28th March, 2021.
'Are goods of the class or classes specified in the certificate of registration of the registered
dealer purchasing the goods as being intended for re-sale by him or subject to any rules
made by the Central Government in this behalf, for use by him in the manufacture or
processing for sale of goods specified under section 2(d) of CST Act'.
Section 2(d) of CST Act states that 'goods' includes all materials, commodities and all other
kinds of movable property, but does not include newspapers, actionable claims, stocks,
shares and securities.
Till 28-3-2021, section 8(3)(b) of CST Act was reading as follows –
are goods of the class or classes specified in the certificate of registration of the registered
dealer purchasing the goods as being intended for re-sale by him or subject to any rules
made by the Central Government in this behalf, for use by him in the manufacture or
processing for sale of goods or in the telecommunication network or in mining or in the
generation or distribution of electricity or any other form of power
Thus, after 28th March, 2021, petroleum products cannot be purchased inter-State against
C form at concessional rate of 2% in the telecommunication network or in mining or in the
generation or distribution of electricity or any other form of power.
Such inter-State purchase of petroleum products at concessional rate will be permissible
only for (a) re-sale (b) use by him (buyer) in the manufacture or processing for sale of goods.
C form can be issued for procurement of petroleum products during 1-7-2017 to 28-3-2021
– In Shree Raipur Cement Plantv.State of Chhattisgarh [2018] 68 GST 665 = 93 taxmann.com
 20

409 (Chhattisgarh HC), it has been held that a dealer who was registered under CST Act can
issue C form for procurement of petroleum products at concessional rate even after 1-7-
2017, or procurement of HSD, if his registration certificate under CST Act has not been
cancelled – same view in Ramco Cements Ltd. v. Commissioner of Commercial taxes [2018]
99 taxmann.com 20 (Madras HC) – followed in Shri Varalakshmi Co v. State of Tamil Nadu
(2019) 74 GST 676 = 107 taxmann.com 410 (Mad HC) – same view in Tata Steel v. State of
Jharkhand (2019) 30 GSTL 3 (Jhar HC DB).
SLP against judgment of Madras High Court has been dismissed - Commissioner of
Commercial Taxes v. Ramco Cements Ltd. [2021] 125 taxmann.com 400 (SC 3 member
bench).
Same view was expressed in Carpo Power v. State of Haryana (2018) 12 GSLT 248 (P&H HC).
SLP against the judgment was dismissed by Supreme Court [SLP to Appeal (C) No. 20572 of
2018]. Hence, Central Government has clarified vide letter dated 1-11-2018 that the
judgment of P&H HC should be complied with, i.e. C form can be issued for procurement of
petroleum products.
However, in Commissioner of Commercial Taxes v. Ramco Cements Ltd. [2021] 124
taxmann.com 66 (SC 3 member bench), stay has been granted to judgment of High Court
allowing issue of C form for procurement of petroleum products.
Now, the issue has been settled by amendment w.e.f. 28-3-2021.
1.3-9 Tax on entertainment only by Municipalities, panchayat, regional council and district
council
Municipality, panchayat, Regional Council and District Council will have powers to impose
tax on entertainment and amusement [Entry 62 of List II (State List) of Seventh Schedule to
Constitution of India as amended w.e.f. 16-9-2016].
District Councils for administration of Tribal Areas in States of Assam, Meghalaya, Tripura
and Mizoram will have powers to impose entertainment tax [paragraph 8(3)(d) of Sixth
Schedule to Constitution of India inserted w.e.f. 16-9-2016].
Municipality can collect entertainment tax in GST regime - Balaji Theatre v. Chief Secretary
[2020] 118 taxmann.com 160 (Madras HC DB).
1.3-10 Provisions applicable to Jammu and Kashmir
State of Jammu and Kashmir had implemented GST w.e.f. 8-7-2017.
State of Jammu and Kashmir was converted into Union Territory with legislature w.e.f. 31-
10-2019 [though presently there is no legislature and President's Rule is in force].
Ladakh has been constituted as Union Territory without legislature w.e.f. 31-10-2019.
In view of bifurcation and change in status from State to Union Territory, new GSTIN
numbers are given for Ladakh and J&K, with separate codes for J&K and Ladakh as Union
Territories. The ITC as on 31-10-2019 may be transferred to J&K and Ladakh GSTIN on basis
of turnover in each area. Transfer of credit should be through return in GSTR 3B. Transition
date is 31-12-2019 - Notification No. 62/2019-CT dated 26-11-2019.
 21

Earlier provisions in respect of J&K - President of India had issued Constitution (Application
to Jammu and Kashmir) Amendment Order, 2017 on 6-7-2017 to amend Constitution
(Application to Jammu and Kashmir) Order, 1954.
Ordinance Nos. 3 and 4, both dated 8-7-2017 were issued extending IGST Act and SGST Act
to J&K w.e.f. 8-7-2017. Now, the State has been converted into Union Territory w.e.f. 31-10-
2019.
In State Bank of India v. Santosh Gupta (2017) 2 SCC 538 = (2017) 140 SCL 216 = 76
taxmann.com 234 (SC), it has been held that State of Jammu and Kashmir has no vestige of
sovereignty outside the Constitution of India and its own Constitution. Constitution of J&K
is subordinate to Constitution of India. Residents of J&K are first and foremost citizen of
India. This is recognized by section 6 of Jammu and Kashmir Constitution. [In this case, it was
held that SARFAESI Act is applicable to J&K. It was held that Section 140 of J&K Transfer of
Property Act has to give way to SARFAESI Act and not the other way round].
1.3-11 Flood Cess in State of Kerala
As a first deviation from 'One nation one tax' slogan, Kerala State has been allowed to impose
flood cess to face the challenges being faced due to heavy floods in 2018.
Kerala Flood Cess is levied to raise the fund required for re-construction of State after the
devastating flood occurred in the State during August 2018.
Kerala Flood Cess is applicable from 1-8-2019 onwards as per notification No. S.R.O.
436/2019 dated 29-6-2019. It is for a period of two years.
Kerala Flood Cess is levied under Section 14 of Kerala Finance Act, 2019. The Kerala Flood
Cess Rules were published vide Notification SRO. No. 359/2019 published as G.O.(P) No.
80/2019/TD dated 25-5-2019.
Kerala Flood Cess is applicable to goods and services or both as per Section 14(2) of Kerala
Finance Act, 2019.
Kerala Flood Cess will be in force for a period two years from the date of commencement.
Kerala Flood Cess is imposed @ 1% on the value of supply of goods or services or both
coming under Schedule II, III & IV of Notification No. 1/2017-CT (Rate) dated 28-6-2017 [No.
SRO. No. 360/2017 Dt. 30-6-2017 of Kerala State. In the case of goods coming under Fifth
Schedule of SRO. No.360/2017 (gold, diamond etc.), the Kerala Flood Cess is applicable at
the rate of 0.25%.
The Flood Cess would apply on the value of intra-state supply by registered dealers at the
last supply point, i.e., to consumers or other unregistered dealers. There will be no input tax
credit. There is no Kerala Flood Cess on inter-state supplies.
Cess on V Schedule goods, including Gold, Silver and Platinum Ornaments would be 0.25%
on the value of supply. Cess on supply of goods coming within the GST tax bracket of 12%,
18% and 28% would be 1% on the value of supply. Cess on supply of all services would be
1% on the value of supply.
There will be no Kerala Flood Cess on - (a) Supplies undertaken by a composition scheme
taxpayer. (b) Supplies of goods or services or both which are exempted or NIL rated under
the Kerala GST Act. (c) Supplies of goods or services or both by a registered person to another
 22

registered person (i.e., B2B) (d) Goods which attract 0.125% SGST, i.e., rough diamonds and
rough precious stones, etc. (e) Goods which attract 2.5% SGST.
GSTIN will be treated as Registration Number for Kerala Flood Cess. The taxpayer has to login
the official website "www.keralataxes.gov.in" to generate user ID and password. After login
to the system, taxpayers shall furnish the details of turnover applicable for Kerala Flood Cess
and make e-Payment of Kerala Flood Cess. Due date for filing GSTR 3B shall be applicable for
the Kerala Flood Cess return. After login to the system, select the return period and enter
the details of turnover of outward supply leviable under Kerala Flood Cess based on GST tax
rates.
Kerala Flood Cess is applicable only for intra-state supply and not for inter-state supply.
Supply to registered taxpayer in Kerala does not attracts Kerala Flood Cess, if the supply is
made in furtherance of business.
Composition taxpayers are exempted from the levy of Kerala Flood Cess including tax payers
who have opted for composition for service as per Section 14(1)(i) of Finance Act, 2019. The
goods or services or both leviable to Kerala Flood Cess are described in Sec.14(2) of Kerala
Finance Act, 2019. All goods or services or both not covered in the above Section shall be
exempted from levy of Kerala Flood Cess.
Kerala Flood Cess can be collected from customers by showing separately in the invoices.
The Tax Invoice shall contain details of Kerala Flood Cess like rate of tax and amount of tax
charged in respect of taxable goods or services.
Purchase of motor vehicles for own use of a taxpayer are not subject to Kerala Flood Cess,
since the supply is not in furtherance of business.
If a supply is made to an unregistered taxpayer, Kerala Flood Cess is to be levied. If the supply
is made to a registered person but not in furtherance of business, Kerala Flood Cess is to be
levied. Transaction between taxpayers in furtherance of business is exempted from levy of
Kerala Flood Cess.
Interest is applicable for delayed payment of Kerala Flood Cess @ 18%.
A person situated outside Kerala having registration outside Kerala and receiving inward
supply of service or goods or both where the place of supply is in Kerala will be chargeable
to Kerala Flood Cess, as the exemption is available only for registered taxable person
purchasing goods or receiving services, having GST registration in Kerala GST.
Payment of cess is to be made along with the details of supplies made in the monthly returns
in FORM KFC-A. Monthly return is to be filed electronically through the official portal
www.keralataxes.gov.in with payment of cess electronically. Monthly return in FORM KFC-
A is to be filed on or before the due date of filing of return in form GSTR-3B.
Kerala Flood Cess is required to be shown separately in the invoice issued for supply of goods
or services or both.
Value for payment of Kerala Flood Cess - Kerala Flood Cess is to be calculated on the value
of supply as per section 15 of CGST Act. The CGST and SGST collection shall not be included
in the value of supply. For example, if the value of supply is Rs. 100 and tax rate of the
commodity is 12% GST, CGST will be Rs. 6, SGST Rs. 6 and Kerala flood cess will be Re 1.
 23

Value for payment of IGST, CGST and SGST in Kerala State would not include Kerala Flood
Cess - As per rule 32A of CGST Rules inserted w.e.f. 28-6-2019, Value for payment of IGST,
CGST and SGST will not include Kerala Flood Cess payable under clause 14 of Kerala Finance
Bill, 2019.
1.4 Rates of GST
The IGST and CGST Acts do not indicate GST rate structure.
As per section 9 of CGST Act, rate of CGST will be as notified by Central/State Government.
The rate shall not exceed 20%. Same provision will be in SGST Act of each State.
Thus, total GST rate for intra-State supplies will not exceed 40% [20% CGST and 20% SGST].
As per section 5 of IGST Act, rate of IGST will be as notified by Central Government. The rate
shall not exceed 40%.
CGST and IGST rates will be common all over India. SGST rates are also expected to be
common all over India. However, since State Governments have sovereign powers to levy
GST, the SGST rates may vary from State to State, though presently they are same.
UTGST Rates will be same as CGST Rates as these rates are within jurisdiction of Central
Government.
The GST rates on goods are notified based on Customs Tariff Act, which is based on HSN
Code. However, though Customs Tariff has eight digit code, only first four digits are used to
notify GST rates. Thus, in many cases, for same four digit item, GST rates may vary depending
on description of goods.
In case of services, service classification code is a 6 digit code. First two digits are always '99'.
Relevant Notifications – The relevant notifications are as follows –
Notification Nos. 1/2017-CT (Rates) and 1/2017-IT (Rates) both dated 28-6-2017 in respect
of goods bearing GST rate of 0.25%, 3%, 5%, 12%, 18% and 28%
Notification Nos. 2/2017-CT (Rates) and 2/2017-IT (Rates) both dated 28-6-2017 in respect
of exempted goods
Notification Nos. 11/2017-CT (Rates) and 8/2017-IT (Rates) both dated 28-6-2017 in respect
of services bearing GST rate of 5%, 12%, 18% and 28%. This notification also contains
provisions relating to service classification.
Notification Nos. 12/2017-CT (Rates) and 9/2017-IT (Rates) both dated 28-6-2017 in respect
of services which are exempt from GST.
These notifications are amended from time to time.
Broadly, the IGST rates are as follows [for supply within State/Union Territory, 50% of IGST
rate is CGST rate and 50% of IGST rate is SGST/UTGST rate]
Nil - Fresh Meat, Fish Chicken, Eggs, fresh Milk, Butter Milk, Live animals live poultry, Curd,
Natural Honey, unpacked wheat, unpacked rice, Fresh Fruits and Vegetables, frozen or
provisionally preserved vegetables, coffee beans, wheat, rye, rice, Flour, Besan, Bread,
jaggery, pappad, Prasad, Salt, Bindi, Sindoor, Stamps, Judicial Papers, Printed Books,
Newspapers, Music (printed or manuscript), Bangles, Handloom, Pooja equipment, jute,
khadi, national flag, raw silk, electrical energy, human blood, human hair, hearing aids,
 24

passenger baggage, Duty credit scrip, sanitary towels or napkins, rakhi (other than made of
gold, silver, platinum, diamonds, pearls, precious stones), rupee notes and coins sold to RBI,
gift items to President, PM, Governor, CM or any public servant which are auctioned later
[Items in italics included in Nil list w.e.f. 1-1-2019].
Duty credit scrips are goods falling under heading 4907 (document of title). GST is not
payable on DFIA as DFIA is duty credit scrip. It is exempt -Spaceage Syntex P Ltd. In re (2019)
104 taxmann.com 418 (AAAR-Maharashtra) [reversing decision in Spaceage Syntex P Ltd. In
re (2018) 99 taxmann.com 234 (AAR-Maharashtra), where it was held that GST is payable on
DFIA].
0.1% - Supply of goods by DTA unit (Domestic Tariff Area i.e. in India) to Merchant Exporter
who is going to export the goods supplied by DTA unit (w.e.f. 23-10-2017).
0.25% - Precious stones (other than diamonds), Semi-precious stones, Rough diamonds,
rough precious or semi-precious stones falling under 7102, 7103 and 7104 [words in italics
inserted w.e.f. 1-10-2019]
3% - Gold, silver and jewellery, platinum, imitation jewellery, pearl, diamonds, synthetic
stone, ['precious stones' removed from 3% and added to 0.25% list w.e.f. 1-10-2019].
5% - Packaged food (wheat, barley, oats, maize, rice, rye, aata, maida, jawar, corn, honey),
Fish Fillet, Cream, Skimmed Milk Powder, Eggs, Branded Paneer, Frozen Vegetables, Coffee,
Tea, Spices, Pizza Bread, Rusk, Cashew nuts, Edible Oils, Sabudana, Kerosene oil PDS, Coal,
Ores, Ethyl alcohol supplied for blending with petrol, Marble and travertine, specified
Medicines, Stent, Life boats, handmade safety matches, newsprint, footwear of sale value
not exceeding Rs 1,000 per pair, Natural cork, sugar, cotton yarn, natural fibre, silk yarn, silk
woven fabric, cotton fabrics, embroidery, articles of apparel i.e. readymade garments, hats,
caps upto Rs. 1,000, fly ash bricks, railway locomotives and parts, renewable energy
devices(value to be taken as 70% if provided with works contract service) [Items in italics
amended/inserted w.e.f. 1-1-2019]
GST rate in case of food and drinks supplied in running trains and on platforms is uniform @
5% without Input Tax Credit - Order No. 2 [F No. 354/03/2018-TRU] dated 31-3-2018.
GST rate in case of goods for petroleum operations and coal bed methane operations is 5%
- Notification No. 3/2017-CT (Rates) and 3/2017 IT (Rates) both dated 28-6-2017 in respect
of exempted goods.
E-waste, Khakhra, plain chapati or roti, Unbranded Namkeens, bhujia, mixture, chabena and
similar edible preparations in ready for consumption form, other than those put up in unit
container - inserted w.e.f. 13-10-2017.
12% - Live horses, Condensed milk, Butter, Cheese, Ghee, Dry Fruits in packaged form,
Animal Fat, Sausage, Fruit Juices, branded namkeens, bhujia in unit containers, Ayurvedic
Medicines, Tooth Powder, Tableware and kitchenware of wood, Colouring Books, Picture
Books, Corrugated paper, cartons, exercise books, calendars, yarn, carpets, textile fabrics,
Umbrella, Sewing Machine, table kitchen articles, knives, LED lamps, Cell-phones,
readymade garments above Rs. 1,000, sprinklers, drip irrigation system including laterals,
agricultural machinery permanent transfer of IPR (except software).
 25

Lateral of sprinklers and sprinklers irrigation system (consisting of nozzles, lateral and other
components will also be taxable @ 12%) - CBI&C circular No. 81/55/2018-GST dated 31-12-
2018.
18% - Flavoured Refined Sugar, Pasta, sugar confectionery, Cornflakes, Pastries and Cakes,
Preserved Vegetables, Jams, Sauces, Soups, Ice Cream, Instant Food Mixes, Mineral Water,
Ethyl alcohol, Slag, Perfumes, fireworks, Steel Products, Printed Circuits, Camera, Speakers
and Monitors, Biscuits, Paints and varnishes, Footwear Rs 1,000 and above per pair (the limit
was Rs 500 upto 27-7-2018), tendu leaves, artificial fibre, synthetic yarn like nylon, polyester,
Computers, hand tools, Machinery for industrial use, machine tools. Refrigerators and
freezers, household and laundry type washing machines, washing machines, shavers,
vacuum cleaners, water heaters, TV sets upto screen size 32 inch, Special purpose motor
vehicles, work trucks, trailers, scent sprays, digital camera, video camera recorders, video
games, Ball bearings and roller bearings, CCTV, Printed circuits, spectacles, clocks, watches,
permanent transfer of IPR of software, All other goods not elsewhere specified [Items in
italics inserted w.e.f. 1-1-2019 taken out of 28% list].
28% - Molasses, Pan Masala, aerated waters, tobacco products, cement, tyres, IC Engines,
Air conditioning machines, dish washers, motor vehicles, motor cycles, TV set of screen size
of 32 inches and above, computer monitors 20 inch and above, motor cycles, aircrafts for
personal use, revolvers, video games, actionable claim in form of betting, gambling, horse
racing in race club. Caffeinated Beverages [words in italics inserted w.e.f. 1-10-2019].
Lottery tickets - GST rate will be 12% in case of State run lotteries and 28% in case of lotteries
authorised by State Government (run by private persons). Tax on lottery will be collected at
first stage under reverse charge. Later, there will be no GST on subsequent sale of lottery
tickets. The valuation will be 100/112 or 100/128 of face value.
GST Compensation Cess - In addition, there will be GST cess of 1% on small cars, 3% on mid-
sized cars and 22% on luxury cars. Motor cycles above 350 cc will attract 3% GST
compensation cess. GST Compensation cess is also payable on aerated waters, cigarettes
and pan masala.
Lower rate in case of handicraft goods - In case of handicraft goods, there is partial
exemption from GST and tax payable will be 5%/12% of IGST (or 2.5% CGST plus 2.5%
SGST/UTGST) as specified in Notification Nos. 21/2018-CT (Rate), 22/2018-IT (Rate), and
21/2018-UT (Rate) all dated 26-7-2018.
Decorative, designer or fancy Rakhi is not 'handicraft' or 'puja samagri'. It has to be classified
on basis of constituent material in accordance with rule 3(c) of Rules of interpretation of
Customs Tariff Act- M D Mohta In re (2018) 68 GST 766 = 95 taxmann.com 69 (AAR-WB).
Tax rate on sale of old and used motor vehicles - The tax rate on motor vehicles falling under
chapter 87 was 28% plus GST Compensation Cess. This was too high for sale of old and used
vehicles. Hence, w.e.f. 25-1-2018, the rates have been reduced as follows Ref - Notification
No. 8/2018-CT (Rate) dated 25-1-2018 and No. 1/2018- Compensation Cess (Rate) dated 28-
6-2017 as amended on 25-1-2018.
The following concessional rates are not available if input tax credit under GST or Cenvat
Credit under Cenvat Credit Rules or ITC under State Vat was availed.
 26

The tax rate will be 18% IGST or 18% [9% CGST plus 9% SGST/UTGST] (no GST Compensation
Cess) for (a) petrol, LPG or CNG driven motor vehicles with engine capacity of 1200 cc or
more and length of 4000 mm or more (b) diesel driven motor vehicles with engine capacity
of 1500 cc or more and length of 4000 mm or more (c) Sports Utility Vehicles and Utility
Vehicles with engine capacity of 1500 cc or more (no GST Compensation Cess).
The tax rate will be 12% IGST or 12% [6% CGST plus 6% SGST/UTGST] for old and used
vehicles other than above (no GST Compensation Cess).
GST is payable on supply of old motor vehicles as scrap - CMS Info Systems Ltd. In re (2018)
68 GST 79 = 93 taxmann.com 95 (AAR - Maharashtra).
Supply of gold, silver or platinum by nominated agencies for exports - Intra-state, intra-
union territory and inter-state supply of gold, silver and platinum by Nominated Agency for
exports against supply by nominated agency is exempt w.e.f. 1-1-2019 - Notification Nos.
26/2018-CT (Rate), 27/2018-IT (Rate) and 26/2018- UT (Rate) all dated 31-12-2018 [The
words 'silver' and 'platinum' inserted w.e.f. 1-10-2019].
Sale of used vehicles, seized and confiscated goods, old and used goods, waste and scrap
supplied by Government- In case of used vehicles, seized and confiscated goods, old and
used goods, waste and scrap supplied by Central Government, State Government, Union
territory or a local authority, the registered person receiving the supply is liable to pay tax
under reverse charge - Notification No. 4/2017-CT (Rate) and 4/2017-IT (Rate) both dated
28-6-2017 amended w.e.f. 13-10-2017.
In case of sale to unregistered person, respective department of Central Government, State
Government, Union territory or a local authority should obtain GST registration and pay GST
- para 1 of CBI&C circular No. 76/50/2018-GST dated 31-12-2018.
Margin in case of taxable persons selling old motor vehicles - The aforesaid tax rates are
applicable to dealers of old vehicles paying tax under margin scheme. These rates are also
applicable to all taxable persons selling old cars which were their business asset. In their
case, the margin will be the consideration received for supply of old and used motor vehicle
and the depreciated value as per depreciation claimed under section 32 of Income Tax Act.
However, the concessional rates are not available if input tax credit under GST or Cenvat
Credit under Cenvat Credit Rules or ITC under State Vat was availed.
Exemptions to goods supplied for petroleum operations - Goods supplied for petroleum
operations have been exempted vide Notification No. 3/2017-CT (Rate) dated 28-6-2017 and
No. 3/2017-IT (Rate) dated 28-6-2017.
50% tax as refund of ITC in case of goods supplied to canteen Stores Department of Defence
- In case of goods supplied to Canteen Stores Department (CSD) under Ministry of Defence,
the supplies are exempt from GST - Notification Nos. 7/2017-CT (Rate) and 7/2017-IT (Rate)
dated 28-6-2017. Out of Input Tax paid on inward supplies, 50% will be refunded to CSD - -
Notification Nos. 6/2017-CT (Rate) and 6/2017-IT (Rate) both dated 28-6-2017.
Procedure for processing of applications filed by Canteen Stores Department has been
specified in CBI&C circular No. 60/34/2018-GST dated 4-9-2018.
Imported Stores for use in Indian Naval ships are exempt - Imported Stores for use in Indian
Naval ships are exempt from GST - CBI&C circular No. 113/32/2019-GST dated 11-10-2019.
 27

Reverse charge in case of Sale of Used vehicles, seized and confiscated goods, old and used
goods, waste and scrap supplied by Government - In case of used vehicles, seized and
confiscated goods, old and used goods, waste and scrap supplied by Central Government,
State Government, Union territory or a local authority, the registered person receiving the
supply is liable to pay tax under reverse charge - Notification Nos. 4/2017-CT (Rate) and
4/2017-IT (Rate) both dated 28-6-2017 amended w.e.f. 13-10-2017.
In case of sale to unregistered person, respective department of Central Government, State
Government, Union territory or a local authority should obtain GST registration and pay GST
- para 1 of CBI&C circular No. 76/50/2018-GST dated 31-12-2018.
Motor vehicles purchased prior to 1-7-2017 and sold or given on financial lease after 1-7-
2017 – If motor vehicles purchased prior to 1-7-2017 and Cenvat credit was not availed, the
tax rate is 65% of normal rate. Similarly, if such vehicle was given on financial lease, tax rate
will be 65% of normal rate – Notification No. 37/2017-CT (Rate) and No. 38/2017-IT (Rate)
both dated 13-10-2017. - - GST Compensation Cess will also be 65% - Notification No.
7/2017- Compensation Cess (Rate) dated 13-10-2017.
1.4-1 Meaning of 'branded goods' in case of food items
In case of some items like chena, paneer, honey, wheat, rice, pulses, cereals, flour of cereals,
GST @ 5% applies if these are supplied in unit container bearing brand name. The exemption
will not be available to goods under brand name registered as on 15-5-2017, even if de-
registered later.
In case of goods sold under brand name which is not registered, exemption will be available
only if the brand owner agrees to surrender actionable claim in respect of unregistered
brand name. This requirement is specified in Annexure to Notification No. 1/2017-CT (Rate)
dated 1-7-2017. The provisions are discussed in a later chapter.
Meaning of 'Unit Container' - See discussions in a later chapter.
1.4-2 GST Rates on services
The CGST and IGST rates are notified in Notification Nos. 11/2017-CT (Rate) and 8/2017-IT
(Rate) both dated 28-6-2017 effective from 1-7-2017.
Exemptions in respect of services are specified in Notification Nos. 12/2017-CT (Rate) and
9/2017-IT (Rate) both dated 28-6-2017 effective from 1-7-2017.
Notification No. 11/2017-CT (Rate) dated 28-6-2017 also specifies six digit service codes for
services.
Parallel notifications are issued under SGST and UTGST Acts also in respect of SGST/UTGST
rates and exemptions.
SGST/UTGST and CGST rates are presently 50% of IGST rates.
General rate of IGST on services is 18%. The IGST rate of 18% will apply to banking and
insurance services, courier and postal services, gas and water distribution services, legal and
accounting services, telecommunication services, R&D services, software.
Some important GST rates on services as on 16-10-2020 are as follows -
Service Nature of service GST Rate
Code
 28

99 Pure labour services (or where material Exempt

content is not more than 25%) to
Government, local authority,
Governmental Authority or Government
Entity relating to constitutional
responsibilities

99 Services provided by Government (where Exempt

reverse charge is not applicable)

99 Specified charitable activities [mainly Exempt

relating to religion, public health,
preservation of environment]

99 Transfer of going concern as a whole or Exempt

independent part thereof

9954 Commercial Apartments (shops, offices, (A) in RREP (Residential Real Estate
godowns etc.) Project) - CGST 2.5% plus SGST/UTGST
2.5% (total 5%) (without ITC). (B) In other
than RREP) - CGST 6% plus SGST/UTGST
6% (total 12%) (with ITC) [where value
includes land value]
9954 Residential apartments (a) CGST 0.5% plus SGST/UTGST 0.5%
(total 1%) (without ITC) for affordable
residential apartments (b) CGST 2.5%
plus SGST/UTGST 2.5% (total 5%)
(without ITC) for other residential
apartments [where value includes land
value]

9954 Works contract of immovable property (A) 18% with full ITC (b) 12% in case of
specified infrastructure related works
contracts.
9954 Supply and erection of solar power 5% on 70% of value and 18% on 30% of
plants, wind mills, waste energy plants, value
bio-gas plants
99631 Accommodation Service Renting of hotels, inns, guest houses,
clubs, campsites, commercial places for
residential or lodging (They can never
charge IGST except in case of SEZ units,
as place of supply is their location)- (a) If
daily value less than or equal to Rs. 1,000
- Nil (b) If value above Rs. 1,000 but less
than or equal to Rs. 7,500 per day - 12%
 29

with full ITC (c) value above Rs. 7,500 -

18% with full ITC [as amended w.e.f. 1-
10-2019].
99633 Food and drinks (1) 5% without ITC in restaurants,
canteens, railway platforms, in trains,
take away at places other than hotels
having declared tariff above Rs. 7,500 (2)
event based outdoor or indoor functions
that are occasional, at places other than
hotels having declared tariff above Rs.
7,500 - 5% without ITC.(3) restaurants or
outdoor catering in hotels having
declared tariff of Rs. 7,500 or above- 18%
with full ITC [amendment w.e.f. 1-10-
2019]

9964 Transport of passengers by air (A) in business class or first class, GST
rate is 12% with full ITC air transport in
North East exempt. (B) Economy class -
5%
9964 Transport of passengers by road or rail (A) 5% (with ITC of input services) in
following cases - (a) Air Conditioned
contract or stage carriage [exemption to
non AC contract carriage, non AC stage
carriage] (b) radio taxi (c) by rail in AC or
first class [metro, second class and
sleeper class exempt] (B) Transport of
passengers in any motor vehicle designed
to carry passengers, where cost of fuel is
included in the consideration charged
from the service recipient is 5% without
ITC (C) If fuel is supplied by recipient of
service, the GST rate will be 18% (9%
CGST and 9% SGST). This is the residual
rate of tax.
9965 Transport of goods by rail and vessel 5% with ITC of input services only. In case
of transport of goods by rail in containers
(by other than Indian Railways), GST rate
12% with full ITC.

9965 Multi-modal transport of goods 12%

 30

9965 Satellite Launch Services supplied by exempted from GST w.e.f. 16-10-2020.
ISRO, Antrix and New Space India
99651 Goods transport by road, GTA i.e. Goods 5% without input tax credit. Reverse
Transport Agency and transport of charge in case of GST. The GTA has
household goods) option to pay GST @ 12% under forward
charge with ITC
99653 Air transport of goods (A) General Rate - 18% (B) Air transport
of goods from out of India upto customs
station in India [inward sea transport
upto customs port in India is subject to
GST]

9967 Toll for road or bridge [service of Exempt

collection of toll will be taxable]

9971 Credit card or debit card or charge cards transactions upto Rs. 2,000 exempt
9971 Forman of chit fund 12% with ITC of input services
9971 Interest on loans, deposits or advances Exempt
(other than credit cards)
9972 Renting of precincts of religious place by Exempt upto limit
charitable trust
9972 Renting of residential dwelling for use as Exempt
residence
9972 Lease of land for 30 or more years, TDR or (A) Exempt if for residential apartments
Transfer of Development Rights for sale before completion/occupancy
certificate (B) In other cases - 18%
9973 or Leasing of motor vehicles purchased and Tax rate will be 65% of rate of supply of
9971 leased prior to 1-7-2017 like motor vehicles involving transfer of
title in goods
9973 or Leasing or renting of goods (other than Same GST rate and GST compensation
9971 aircrafts, vessels and leasing of vehicles cess applicable on supply of like goods
purchased prior to 1-7-2017) involving transfer of title in goods to
similar goods [Rate will be as applicable
to goods but value for purpose of GST
will be only on amount charged for such
transfer]
99732 Leasing of aircraft 5% with ITC of input services.

99733 Right to use intellectual property (A) Temporary or permanent transfer of

IPR related services (except software)-
 31

12% with full ITC. In case of copyright,

there is reverse charge. (B) software
service - 18%. Software in physical form
is 'goods'.
9982 Legal services (A) Exempt if supplied to another
advocate, non-business entity,
Government or business entity with
turnover less than Rs. 20/10 lakhs (B)
18% in other cases - here reverse charge
applies.
99836 Sale of space for advertisement in print 5% with full ITC.
media
99855 Tour operator services 5% without ITC if bill is for gross amount
including accommodation and
transportation charges [tour operator
services provided to foreign tourist
wholly outside India are exempt]
9986 Support services to Agriculture, forestry, Nil
fishing, animal husbandry upto first stage
9987 Maintenance, repair and installation 18%
(except construction) services, other than
house keeping where tax is paid by
electronic commerce operation @ 5%
without ITC
9987 Maintenance, repair or overhaul service 5% (w.e.f. 1-4-2020)
in respect of aircrafts, aircraft engines
and other aircraft components or parts
supplied to a person for use in course or
furtherance of business
9988 Job work (A) Printing of newspapers and books,
textile items including garments,
precious stones, jewellery, handicrafts,
food items - 5%. (B) Job work on
diamonds - 1.5% (C) Printing of
newspapers, books and periodicals with
own paper - 12% (D) tailoring - 5% (E) Bus
body building - 18% (F) Other job work
when inputs received from registered
person - 12% (G) Other job work when
 32

inputs received from unregistered person

- 18% [amendment w.e.f. 1-10-2019]
9992 Services by recognized educational Exempt
institutions to students, faculty and staff
9993 Health care and medical services Exempt
9994 Public Conveniences Exempt

999591 Conducting of Religious ceremony Exempt

999598 Services of housing society and Resident Exempt upto Rs. 7,500 per member per
Welfare Association to members month.
9996 Recreational, cultural and sporting Services by way of right to admission to-
services where consideration not more (a) circus, dance, or theatrical
than Rs. 500 performance including drama or ballet;
(b) award function, concert, pageant,
musical performance or any sporting
event other than a recognised sporting
event (c) recognised sporting event (d)
planetarium, where the consideration for
admission is not more than Rs. 500 per
person - Exempt
9996 Recreational, cultural and sporting (A) Admission to amusement parks
services including theme parks, water parks, joy
rides, merry-go rounds, go-carting and
ballet -18% (B) Admission to
entertainment events or access to
amusement facilities including casinos,
race club, any sporting event such as
Indian Premier League and the like -
28%(C) Admission to exhibition of
cinematograph films where price of
admission ticket is more than one
hundred rupees - 18% (D) Admission to
exhibition of cinematograph films where
price of admission ticket is one hundred
rupees or less - 12% (E) Admission or
access to circus, Indian classical dance
including folk dance, theatrical
performance, drama or planetarium, -
18% (CGST 9% and SGST 9%) or IGST rate
18% w.e.f. 1-7-2017 [The words in italics
inserted w.e.f. 22-8-2017] [for exemption
 33

when admission fee is less than Rs. 500,

see below].(F) All other recreational,
cultural and sporting service - 18%
99969 Race course and gambling (A) Race course and services of
totalizator or licenses bookmaker - 28%
with full ITC (B) Gambling - 28% with full
ITC.

1.4-3 GST rates in other Countries

In Europe, the EU VAT system is regulated by various European Union (EU) Directives. The
most important is Sixth VAT directive.
GST rate in Europe varies between 18% to 25%.
GST was introduced in Singapore in April, 1994. Initially, the rate was 3%. GST rate is 7% in
Singapore w.e.f. 1-7-2007.
GST rate in Japan is 5%.
In New Zealand, GST was introduced in October, 1986. The rate w.e.f. October 2010 is 15%
average rate.
National average rate in some other countries is as follows - (a) Austria - 20% (b) Jordan -
16% (c) Australia - 10% (d) Malaysia - 6% (e) Canada - 5%.
USA has not introduced GST.
1.5 Switch over to GST from earlier tax regime
Some nomenclatures have changed. We have to get tuned to the new nomenclature - (a)
Taxable person (not dealer or assessee) (b) Supply of goods (not sale of goods) (c) Supply of
service (not provision of service) (d) Place of Supply of Service (not place of provision of
service) (e) Time of supply of service (not point of taxation of service) (f) Registered person
(not registered dealer) (g) Unregistered person (not URD i.e. Unregistered Dealer) (h) Proper
Officer (and not Vat Officer or Central Excise Officer).
New terminology - Taxable person is required to get familiar with new terminology like
reverse charge, mixed supply, composite supply, business vertical, GSTIN, GSTN, Electronic
Credit Ledger, Electronic Cash Ledger, Electronic Liability Register, fixed establishment, Input
Service Distributor, Valid Return etc.
Change in some concepts - The term 'works contract' now applies only to contract of work
relating to immovable property.
1.6 GST Compensation Cess on goods and services
Section 8 of Goods and Services Tax (Compensation to the States) Act, 2017 [GST Cess Act
for short] makes provision for levy of GST Compensation Cess on supplies of goods and
services. This cess will be in addition to GST payable. The ceiling on GST Compensation cess
is 15% though higher cess is leviable on pan masala and tobacco products.
Thus, all what is achieved by GST can be lost through such cess. Only solace is that this cess
can be levied by Central Government. Further, such cess will be only on luxury or SIN goods,
though legally, such cess can be imposed on all goods and services.
 34

Let us hope that it will not be imposed on other goods and services. If such cess is imposed
on all goods and services, the basic purpose of GST will be defeated.
1.7 Abolition of other duties and taxes
Earlier central excise duty (except of petroleum products), service tax, duties of excise on
medical and toilet preparations have been subsumed in CGST and SGST w.e.f. 1-7-2017.
State Vat, Central Sales Tax, Octroi, Entry Tax, Entertainment Tax, Luxury Tax, Tax on
lotteries, betting and gambling have been subsumed in SGST [Of course, CGST will also be
payable].
CVD and Special CVD on imported goods has been replaced by IGST w.e.f. 1-7-2017. Input
tax credit of this IGST is available.
Basic customs duty on import goods (which is generally 10%) is continuing after 1-7-2017.
Stamp duties, tolls and motor vehicle taxes are also continuing.
However, road checks to check e-way bills have been introduced. Tax and penalty is levied
even for minor lapses. Thus, what is going on is official highway robbery.
Cesses abolished - Following cesses have been abolished - Education Cess, SAHE Cess, Mica,
salt, Textile, Limestone, Tobacco, Iron ore mines, Manganese Ore mines, Cine Workers
Welfare, Cement, Strawboard, R&D Cess, Rubber Cess.
State and Central Taxes subsumed in GST for purpose of compensation cess - A detailed
list of taxes and duties subsumed in GST for purpose of section 5(4) of GST Compensation
Cess have been notified vide Notification No. 1/2018-C dated 14-11-2018. These include CST,
Medical and Toilet Preparations (Excise Duties) Act, 1955, State Vat, State Entertainment
Tax, State Entry Tax, State Amusement and Betting Tax, State Luxury Tax, Forest
development etc.
Check posts at State borders abolished - Check posts at borders have been abolished in 22
States. Another 8 States are in process of abolishing border check posts - PIB press release
dated 4-7-2017.
1.7-1 Definition of 'deemed sale' to continue
Interestingly, Article 366(29A) which defines 'deemed sale of goods' is being retained (may
be to avoid disputes and litigation).
This definition covers transactions of works contract, sale of food article in restaurants,
transfer of right to use goods (operating lease), financial lease and hire purchase etc.
There seems no reason to continue this definition as these transactions will get covered
under GST. It seems the provision is retained to be on safe side.
Interestingly, some activities which have been defined as deemed sale of goods have been
defined as 'services' in para 5 of Schedule II of IGST Act.
There is no legal bar in adopting definition in GST Law, which is different from definition
contained in the Constitution of India, so long as the levy is within the limits of Constitution
of India. However, such differences can be source of confusion and litigation.
1.7-2 Taxation powers of district council
 35

District Councils for administration of Tribal Areas in States of Assam, Meghalaya, Tripura
and Mizoram will have powers to imposed entertainment tax [paragraph 8(3)(d) of Sixth
Schedule to Constitution of India inserted w.e.f. 16-9-2016].
1.7-3 Budgetary support to units covered under Area based exemptions under Central
Excise
Area based exemptions were granted under Central Excise to units set up in States of Jammu
and Kashmir, Uttarakhand, Himachal Pradesh and North East, including Sikkim.
On introduction of GST, these units have become liable to pay GST at normal rates. Thus, the
benefits granted to them to set up units in the backward areas are not available. However,
this would be unfair as the taxable persons had set up units in these area only to these
incentives.
Hence, a provision for budgetary support to these units have been made vide Notification
dated 5-10-2017 issued by Department of Industrial Policy and Promotion (DIPP), Ministry
of Commerce and Industry, Government of India.
The scheme and procedures have been explained vide CBI&C circular No. 1060/9/2017-CX
dated 27-11-2017.
Under this scheme, Central Government will grant refund to such units. The refund will be
limited to share of Central Government in CGST and IGST. It will be 58% of CGST and 29% of
IGST.
Refund will be granted on quarterly basis.
The eligible units have to register for budgetary support in prescribed form. Later, they have
to apply for budgetary support on quarterly basis
The manner of disbursal of budgetary support by DIPP to DDO has been specified in CBI&C
circular No. 1061/9/2017-CX dated 30-11-2017.
The progress of implementation of scheme of budgetary support was reviewed and fresh
clarificatory circular No. 1068/1/2019-CX dated 10-1-2019 has been issued. It has been
stated that claim should be settled within two weeks and in any case not beyond 30 days. It
has been clarified that this is budgetary support in nature of grant and not refund of duty
under tax law. Hence, there is no requirement of appellate forum. It is also clarified that
there is no requirement of audit by departmental officers.
1.7-4 Fees can be charged by Government even under GST regime
In Imarti Lakdi Vyapari Sansthan, Jodhpur v. State of Rajasthan [2018] 100 taxmann.com 47
(Rajasthan HC DB), it has been held that even under GST regime State Government can
charge market fee.
1.8 Goods and Services Tax Network (GSTN)
Robust information technology network is vital for administration of GST to ensure proper
compliance and avoid misuse of input tax credit.
The GSTN is Government company, wholly owned by Central Government and State
Governments.
 36

The Company has been set up primarily to provide IT infrastructure and services to the
Central and State Governments, taxpayers and other stakeholders for implementation of the
Goods and Services Tax (GST).
GSTN has been entrusted with the responsibility of building Indirect Taxation platform for
GST to help the taxable persons prepare, file, rectify returns and make payments of indirect
tax liabilities. GSTN will be a one stop solution for all indirect tax requirements, due to which
business will be able to manage tax easily. It will become lot easier for the taxable persons
and government to track the status of returns and payments with the help of GSTN.
GSTN has developed front end (GST portal services). In case of 27 States, back end modules
are also developed by GSTN. In case of CBI&C and 9 States, they have developed their own
back-end modules.
GSTN has engaged Infosys as a single managed service provider (MSP) for design,
development and deployment of GST system, including application, software, tools and
infrastructure for operating and maintaining the system for five years - FAQ on GST Chapter
23 Q No. 8 issued by CBI&C on 15-12-2018.
Mr. Ajay Bhushan Pandey has been appointed as interim Chairman of GSTN w.e.f. 8-9-2017.
Mr. Naveen Kumar was Chairman, GSTN upto 29-8-2017.
Persons authorised to access GSTN protected system - Persons who are authorised to
access protected GSTN system have been notified in Notification No. GSR 84(E) dated 4-2-
2020.
Complete failure of GSTN - Biggest hurdle in smooth implementation of GST is failure of
GSTN. Taxable persons face any number of difficulties in filing returns, migrating from earlier
tax to GST, filing refund claims etc. Exporters were the biggest sufferers.
It is irony that India develops software for the world but could not develop a robust and
workable system for its own use.
1.8-1 GSTN is master - it acts in high handed manner not envisaged in law - and taxable
person is helpless
In GST, system is master. GSTN is often programmed in a way not envisaged in law. E.g. law
never states that GST return cannot be filed unless tax is paid or late fee is paid. However,
the system just does not accept return without payment of taxes and late fees. Law
envisages that refund claim can be filed for any period - month, quarter or even year, but
system accepts only monthly refund claim, which is impractical.
In A & M Design & Print Production v. Union of India [2018] 91 taxmann.com 193 = 66 GST
390 (Delhi HC), it was held that as per section 146 of CGST Act, mandate of Common Goods
and Services Tax Electronic Portal is to facilitate registration, payment of tax, furnishing of
its returns, etc. Thus, it could not be programmed so as to deny utilization of CGST and SGST
credit in a manner not envisaged either under section 49(5) or rules made under section
49(4) of CGST Act.
1.9 Central Clearing Agency to adjust IGST credit
 37

As per IGST Act, CGST Act, UTGST Act and SGST Act, the input tax credit of IGST paid on inter-
state transactions is expected to be available for subsequent supply of goods and services in
following sequence - (a) IGST (b) CST (c) SGST/UTGST (if balance left).
If IGST is utilized for payment of SGST/UTGST, the amount will be credited to that State
Government/Union Territory, as the State Government/Union Territory will get less revenue
to that extent.
Input tax credit of IGST, CGST, UTGST and SGST can be utilised (in that sequence) for
payment of IGST.
If SGST/UTGST is utilized for payment of IGST, the corresponding amount will be debited to
the concerned State Government/Union Territory. The reason is that actual IGST paid to
Union Government will be less to that extent.
The debit and credit transactions will be carried out with help of dedicated national
computer based network by Central Clearing Agency.
1.10 Unique features of GST - Game Changers in GST
IGST is a novel idea in the GST structure.
Concept of IGST, tax incidence on 'supply' instead of on 'sale' and elimination of distinction
between goods and services are key concepts in GST. These are game changers.
These will completely alter the present tax scenario.
Inter-state movement of goods will be smooth and hassle free.
Distinction between goods and services will be considerably reduced, except in cases
relating to place of supply and time of supply. This will considerably reduce present
ambiguities and litigation.
1.10-1 Taxes will move with goods
Advantage of IGST is that taxes will move along with goods and services, ensuring seamless
movement of goods. IGST will eliminate need for obtaining refund of taxes in case of inter-
state transactions.
In IGST, the question of refund will be only in case of (a) physical export of goods or supplies
to SEZ, international bidding etc. (b) Inverted tax structure i.e. output tax is less than input
tax on raw material.
In other cases, the taxable person will pay IGST in one State and its input tax credit will be
available to customer in other State.
Earlier, in view of peculiar features of CST and State Vat, goods were moving from one State
to other State but taxes remained within the State. Partial refund was allowed but such
refund was not easy at all.
1.10-2 Distribution network will be simpler
At present, if a taxable person wants to do business in multi-States, he has to maintain stocks
in each State and movement of goods from one State to another means further blockage of
funds, besides corruption and harassment.
Under IGST, a taxable person can establish hub and spoke approach for distribution of his
final products. He can maintain depots at few strategic locations in country and from those
 38

locations, he can distribute goods to nearby States. This will be very cost effective
distribution network.
1.10-3 Ways of doing business will change
Whole procurement policies and distribution policies will have to be restructured and re-
oriented to get maximum benefit from the new GST tax structure.
Accounting policies will have to adapt to suit GST requirements.
It is projected that GDP of India will improve by 1% to 2% by introduction of GST.
1.10-4 Uniform SGST Law all over India
One more unique feature of GST is uniform State GST Law all over India (including J&K). SGST
Act of each State is be just copy of CGST Act passed by Central Government, except changing
reference from Central Tax to State Tax on Central Authorities to State authorities.
Forms and procedures are same all over India. GST rates are also expected to be uniform all
over India. This will make it very easy for taxable persons having businesses in more than
one States.
In fact, they can comply with tax laws of all States by sitting in their Head Office as all
compliances will be now done electronically.
1.10-5 Avoidance of dual control
See para 35.2-5 for details how dual control has been avoided.
1.11 Reply to queries
Taxmann has formed a query board on GST. It is open only to all paid subscribers of
Taxmann's website. There is no charge. You can go to gst.taxmann.com, log in with your
subscriber password and then on home page, go to link 'Ask queries on GST' and click on V
S Datey. For queries on Company Law, you can visit corporate laws.taxmann.com, log in with
your subscriber password and then click on icon reading 'Q & A on Companies Act - Ask V S
Datey'.
I endeavour to reply within 48 hours.
There is one request - Please don't rush your query without going through this book.
1.11-1 Some important and useful sites
www.gstcouncil.gov.in - This website is official website of GST Council. It will give
consolidated information about Central and State GST Laws - free website.
www.gst.gov.in - This is common portal managed by GSTN to file all returns, pay taxes etc.
www.cbic.gov.in - Good site of Central Board of Excise and Customs (CBI&C), giving
notifications and circulars and general information on excise, customs law and service tax
(free website).
www.taxmann.com - Information on changes in corporate laws and taxation (paid website
but some portion free).
www.india.gov.in - National portal of India [Also see www.goidirectory.nic.in (free website)]
www.judis.nic.in - SC and HC judgments. (Free website)
1.11-2 Helpline of Government
 39

Government is trying to help taxable persons in various ways.

Reply on twitter - Queries can be sent to askGST_GoI on twitter, which is official handle
where replies are given by Government.
Grievance and complaints - Government has launched a website
https://selfservice.gstsystem.in/termed as 'grievance redressal portal'. It carries monogram
of Government but otherwise from that website, it is not clear who has developed that site
e.g. CBI&C, GSTN or GST Council. However, Web Link for www.selfservice.gstsystem.in is
provided on www.gst.gov.in under head of "Log/Track Your Issue: Grievance Redressal
Portal for GST". That website is of GSTN.
You can lodge grievance on that portal. It is better to keep your grievance on record. If for
no other use, you can use that as 'disclosure' and 'lodging of protest' for claiming any relief
from penalty or claiming refund.
Helpline of GSTN - GSTN also has a helpline. If you are lucky, you can get connected to
helpline and if you are very lucky, you will get proper answer also.
1.12 Conclusion
GST as introduced w.e.f. 1-7-2017 is not an ideal GST. However, considering the present
political situation and limitations, this is the best that could be achieved.
GST as implemented is not an eight lane super national highway as was originally envisaged.
It is a typical Indian road with encroachments, potholes and diversion.However, the road is
motorable and surely better than existing situation. The GST as planned will surely be much
better than the present provisions.
The way of doing business will drastically change on introduction of GST. In any case,
distribution costs and procurement costs of every assessee will certainly be lower in GST. On
the other hand, compliance costs will increase substantially.
IGST, concept of 'supply' and elimination of distinction between goods are services are the
game changers. It will help in developing a national market and considerably reduce the
cascading effect of taxes.
 40

IGST, CGST, SGST and UTGST

2.1 IGST for inter-state transactions
In case of Inter State supply of goods and services, there will be Integrated Goods and
Services Tax (IGST) imposed by Government of India [Article 269A(1) of Constitution of India
inserted w.e.f. 16-9-2016].
'Integrated tax' means the integrated goods and services tax levied under Integrated Goods
and Services Tax Act - section 2(12) of IGST Act [In this book, the tax is termed as IGST and
Act is termed as IGST Act for sake of brevity].
Equivalent IGST (CVD) will also be imposed on imports [Explanation to Article 269A(1) of
Constitution of India].
The IGST Rate is presently double the CGST rate, though there is no such statutory
requirement.
IGST and CGST rates will be same all over India and will not vary from State to State.
Otherwise there will be utter chaos.
Revenue from IGST will be apportioned among Union and States by Parliament on basis of
recommendation of Goods and Service Tax Council [Article 269A(2) and Article 270(1A) of
Constitution of India inserted w.e.f. 16-9-2016].
This apportionment will be required as input tax credit of IGST can be used for SGST and vice
versa.
Since IGST will be on 'supply of goods or services', IGST will be payable on inter-state stock
transfers, branch transfers etc.
2.1-1 IGST is intermediary tax
IGST is imposed under IGST Act. The basic aspects of IGST are as follows -
IGST (Integrated GST) is payable on supply of goods or services or both in inter-State
supplies.
IGST is intermediary tax mainly on B2B (Business to Business) transactions. It is not
envisaged as final tax since input tax credit of IGST will be available to recipient in
another State.
If IGST is paid on B2C transaction (Business to Customer), the State where goods or
services or both are consumed will get their share of SGST.
IGST Rate is presently double the CGST rate and will be uniform all over India.
IGST will ensure that goods or services or both and taxes move together across the
country, which will ensure seamless and tax free movement of goods and services
within the country.
In view of IGST, there will be no need to claim refund of input taxes, except in case
of physical exports and supplies to SEZ.
 41

Exports and supplies to Special Economic Zones (SEZ) are zero rated i.e. input tax
credit will be available even if tax is not paid on output. This will make exports and
supplies to SEZ really tax free.
IGST, concept of 'supply' instead of sales and removal of distinction between goods
and services are game changers in GST.
IGST is a unique concept nowhere else been tried in the World.

2.1-2 Overview of IGST Act

The contents of IGST Act are as follows. These are discussed in this book at appropriate
places :
IGST Act is small but very important Act [It can be compared with Central Sales Tax
Act].
'Integrated tax' means the integrated goods and services tax levied under Integrated
Goods and Services Tax Act - section 2(12) of IGST Act [In this book, the tax is termed
as IGST and Act is termed as IGST Act for sake of brevity].
The IGST Act carries important definitions relating to export and import of goods,
export and import of services, location of supplier and recipient of services, taxable
territory and zero rated supply [section 2 of IGST Act].
Imposition of tax on inter state supply of goods or services - As per Article 246A(2)
of Constitution of India as amended w.e.f. 16-9-2016, Parliament will have exclusive
powers to make laws with respect of 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. Under this Constitutional Authority, section 5(1) of IGST Act imposes tax
on inter-state supply.
Inter-state supply of aircraft engines, parts and accessories by airlines to own
branch -Inter-state supply of aircraft engines, parts and accessories by airlines to own
branch in another State will be subject to IGST. The Input Tax Credit can be availed
for payment of tax on inter-state supply even if the airlines are not allowed to take
input tax credit for supply of services of transport of passengers by air in economy
class - MF(DR) circular No. 16/16/2017-GST dated 15-11-2017.
Section 5(3) of IGST Act make provisions in respect of reverse charge in case of
notified services. Section 5(4) of IGST Act provides for reverse charge when supplies
are received from registered person.
Determination of place of supply and when supply is inter-state - Parliament may,
by law, formulate principles for determining (a) place of supply of goods or services
(b) when supply of goods or services or both are in the course of inter-State trade or
commerce - Article 269A(2) of Constitution of India inserted w.e.f. 16-9-2016. Under
this constitutional authority - (a) Sections 7, 8 and 9 define inter-State and intra-State
supply (b) Sections 10 to 13 of IGST Act make provisions of place of supply.
 42

Section 15 of IGST Act makes provision for refund of IGST to international tourists.
Section 16 of IGST Act defines exports and supplies to SEZ as 'zero rated supply'.
Apportionment of IGST between Union and States - As per Article 269A(1) (inserted
w.e.f. 16-9-2016), IGST collected by Union will be apportioned between Union and
States as per law made by Parliament on the recommendation of GST Council.
Sections 17 and 18 of IGST Act make provisions for such apportionment under this
constitutional authority.
Section 20 of IGST Act provides that provisions of CGST Act shall mutatis mutandis
apply to IGST Act.

2.1-3 CGST Act and Rules apply to IGST also

Most of provisions of CGST Act shall apply to IGST - section 20 of IGST Act.
CGST Rules shall apply, as far as may be, to IGST also - Notification No. 4/2017-IT dated 28-
6-2017.
In following cases, the amount in IGST will be double than that mentioned in CGST Act =
TDS @ 2% under IGST [instead of 1% CGST plus 1% SGST/UTGST].
TCS @ 2% under IGST [instead of 1% CGST plus 1% SGST/UTGST].
Penalty under IGST will be equal to penalty under CGST plus penalty under
CGST/UTGST
Pre-deposit for appeal under IGST will be maximum Rs 50 crores in case of appeal
before Appellate Authority and Rs 100 crores in case of appeal before Appellate
Tribunal – fifth proviso to section 20 of IGST Act inserted vide IGST (Amendment) Act,
2018, w.e.f. 1-2-2019.

2.1-4 Apportionment of tax and settlement of funds

Section 17 of IGST Act provides for apportionment of tax and settlement of funds between
Central Government and State Governments of IGST. The section has been amended vide
IGST (Amendment) Act, 2018, w.e.f. 1-2-2019. [Not discussed as this is matter of adjustment
between Central Government and State Governments/UnionTerritories].
Section 18 of IGST Act make provisions for transfer of Input Tax Credit of CGST, SGST and
UTGST used for IGST and vice versa.
Goods and Service Tax Settlement of Funds Rules, 2017 specify detailed mode of such
settlement. Reports of cross utilisation and apportionment of taxes will be sent by GSTIN in
prescribed forms.
2.2 Union Territory Goods and Services Tax (UTGST)
In case of Union Territories which do not have legislature, UTGST (Union Territory Goods and
Services Tax) will be payable.
UTGST Act has been passed by Parliament.
 43

These Union Territories are as follows [section 2(8) of UTGST Act and section 2(114) of CGST
Act] - (a) Andaman and Nicobar Islands (b) Lakshadweep (c) Dadra and Nagar Haveli and
Daman and Diu (d) Ladakh (e) Chandigarh; and (f) other territory [as amended w.e.f. 26-1-
2020 vide Regulation 1 and 2 of 2020 dated 24-1-2020, issued by President of India] [Also
amended vide Finance Act, 2020 w.e.f. 30-6-2020].
Dadra and Nagar Haveli and Daman and Diu have been merged w.e.f. 26-1-2020 under Dadra
and Nagar Haveli and Daman and Diu (Merger of Union Territories) Act, 2019. Till 26-1-2020,
(i) Dadra and Nagar Haveli (ii) and Daman and Diu were separate Union Territories.
The special procedure to be followed by registered persons in Dadra and Nagar Haveli and
Daman and Diu has been specified in Notification No. 10/2020 - CT dated 21-3-2020.
For the purposes of CGST Act and UTGST Act, each of the territories specified in sub-clauses
(a) to (f) shall be considered to be a separate Union territory.
Delhi and Puducherry have their own legislatures and they have passed their own SGST Act.
Jammu and Kashmir is Union Territory with legislature w.e.f. 31-10-2019 [though presently
there is no legislature and President's Rule is in force].
Section 1(2) of IGST Act and section 1(2) of CGST Act state the Act does not apply to J&K but
it has been extended to J&K by Ordinance dated 8-7-2017.
Ladakh is Union Territory without legislature w.e.f. 31-10-2019.
In view of bifurcation and change in status from State to Union Territory, new GSTIN
numbers are given for Ladakh and J&K, with separate codes for J&K and Ladakh as Union
Territories. The ITC as on 31-10-2019 may be transferred to J&K and Ladakh GSTIN on basis
of turnover in each area. Transfer of credit should be through return in GSTR 3B. Transition
date is 31-12-2019 - Notification No. 62/2019-CT dated 26-11-2019.
For the purposes of CGST Act and UTGST Act, each of the territories specified in sub-clauses
(a) to (f) shall be considered to be a separate Union territory.
Delhi and Puducherry have their own legislatures and they have passed their own SGST Act.
Jammu and Kashmir is Union Territory with legislature w.e.f. 31-10-2019 [though presently
there is no legislature and President's Rule is in force].
Ladakh is Union Territory without legislature w.e.f. 31-10-2019.
In view of bifurcation and change in status from State to Union Territory, new GSTIN
numbers are given for Ladakh and J&K, with separate codes for J&K and Ladakh as Union
Territories. The ITC as on 31-10-2019 may be transferred to J&K and Ladakh GSTIN on basis
of turnover in each area. Transfer of credit should be through return in GSTR 3B. Transition
date is 31-12-2019 - Notification No. 62/2019-CT dated 26-11-2019.
'Other Territory' - 'Other Territory' includes territories other than those comprising in a
State and those referred to in sub-clauses (a) to (e) of section 2(114) - section 2(81) of CGST
Act.
This will cover Exclusive Economic Zone (except territorial waters). Thus, 'other territory'
means area inside sea between 12 nautical miles to 200 nautical miles inside the sea.
UTGST will apply for supply of goods and services within that area.
 44

Notifications issued under CGST Act apply to UTGST Act also in respect of matters under
section 21 - Notifications issued under CGST Act apply to UTGST Act also in respect of
matters under section 21 of UTGST Act also w.e.f. 22-6-2017 i.e. retrospectively –
Notification No. 17/2017-UTT dated 24-10-2017.
Section 21 of UTGST Act covers all issues relating to scope of supply, registration, returns,
assessments, refunds, demand, recovery, audit, appeals, tax invoices, returns etc.
2.2-1 New Central Sector Scheme for Industrial Development of Union Territory of Jammu
& Kashmir
The Government of India has announced New Central Sector Scheme for Industrial
Development of Union Territory of Jammu & Kashmir vide Notification F. No. 1(1)/2020-SSS
dated 19-2-2021. The Scheme will cover the Union Territory of Jammu & Kashmir.
It will be effective from 01.04.2021 and will remain in force up to and inclusive of 31.03.2037.
Registration shall commence from 01.04.2021 and will continue till 30.09.2024. The scheme
is for new units or for substantial expansion of existing units.
The following incentives are provided under this scheme.
(i) Capital Investment Incentive (CII).
(ii) Capital Interest Subvention (CIS).
(iii) Goods & Services Tax Linked Incentive (GSTLI).
(iv) Working Capital Interest Subvention (WCIS).

2.3 CGST Act

Central Goods and Services Tax Act, 2017 (CGST) is the main Act which covers all important
provisions relating to GST, like tax liability, input tax credit, valuation for payment of tax,
procedures, appeals, penalties, offences, transitory provisions etc.
Provisions of this Act are discussed at appropriate places in this book.
2.4 SGST Act
Each State has passed its own State Goods and Services Tax Act, 2017 (SGST). The SGST Act
of each State virtually copy of CGST Act. Even section numbers and sub-section numbers are
same. Rules and notifications are also identical. The only change is in respect of mention of
State Authority instead of Central Authority and State Tax instead of Central Tax.
The notifications under CGST Act and SGST Act are expected to be issued simultaneously.
However, most of States do not do that at all or do after considerable time.
Presently, all taxable persons are blindly following notifications, rules and circulars issued by
Central Government under CGST Act. This is technically and even legally incorrect.
 45

Taxable event in GST

3.1 Meaning of taxable event
'Taxable event' is that on happening of which the charge is fixed. It is that event, which on
its occurrence creates or attracts the liability to tax. Such liability does not accrue at any
earlier or later point of time. Even though taxable event happens to be at a particular point
of time, the levy and collection of such tax may be postponed for administrative
convenience, to a later date - Goodyear India Ltd. v. State of Haryana (1990) 76 STC 71 (SC)
= 188 ITR 402 = 1990 UPTC 198 = AIR 1990 SC 781 - - quoted with approval in State of Kerala
v. Alex George 2004 AIR SCW 6552 (SC 3 member bench).
Tax becomes payable when liability to pay tax arises and liability to pay tax arises by the
happening of the taxable event - Kalwa Devadallain v. UOI (1963) 49 ITR 165 (SC) * M A Co.
v. Asstt Commissioner (1964) 15 STC 487 (All HC).
Tax can be imposed only on 'taxable event'. However, all taxable events are not covered in
legislative entries in Seventh Schedule to Constitution - Godfrey Philips India v. State of UP
AIR 2005 SC 1103 = 139 STC 537 (SC 5 member Constitution Bench).
3.1-1 'Supply of goods or services or both' is 'taxable event' in GST
Goods and Services Tax means a tax on supply of goods or services, or both, except taxes on
supply of alcoholic liquor for human consumption [Article 366(12A) of Constitution of India
inserted w.e.f. 16-9-2016].
Note that the word used is 'supply' and not 'sale' or 'manufacture'. 'Consideration' is not
required for supply.
3.1-2 Charging section in CGST, SGST, UTGST and IGST
Section 9(1) of CGST Act is the charging section for CGST. The section reads as follows -
Subject to section 9(2) of CGST Act (which states that GST on petroleum products will be
levied at a later stage), there shall be levied a tax called the Central Goods and Services Tax
(CGST) on all intra-State supplies of goods or services or both, except on supply of alcoholic
liquor for human consumption, on the value determined under section 15 of CGST Act and
at such rates not exceeding 20% as may be notified by Central Government, on the
recommendation of GST Council and collected in such manner as may be prescribed.
CGST, SGST, UTGST and IGST on petroleum products at later stage - The CGST 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 GST Council - section 9(2) of CGST Act.
Section 5(1) and 5(2) of IGST Act have parallel provisions in respect of IGST.
Thus, CGST is on - (a) intra-State supplies (b) of goods or services or both (except on supply
of alcoholic liquor for human consumption). Value will be as per section 15. Rate of GST will
be notified by Central Government - maximum 20%.
There is parallel provision in SGST Act.
3.2 General Meaning of 'supply'
Supply - provide or furnish (a thing needed), provide, meet or make up for (a deficiency or
need etc.) - Concise Oxford Dictionary
 46

Supply - 'Supply' is that which is or can be supplied, available aggregate of things needed or
demanded, an amount sufficient for a given use or purpose - Law Lexicon - P Ramanatha
Aiyar
Supply - furnish, substitute for - Collins Gem Dictionary.
Thus, 'Supply' is a very broad word.
'Supply' does not need 'consideration'. Further, two separate legal entities are not required.
One branch or division or depot can 'supply' goods or services to another branch, division or
depot.
3.2-1 Supply as per GST law
Section 7(1) of CGST Act as amended vide CGST (Amendment) Act, 2018, but with
retrospective effect from 1-7-2017, states that for the purpose of CGST Act, the expression
'supply' includes -
(a) all forms of supply of goods or services or both such as sale, transfer, barter,
exchange, license, rental, lease or disposal made or agreed to be made for a
consideration by a person in the course or furtherance of business
(aa) the activities or transactions, by a person, other than an individual, to its members or
constituents or vice-versa, for cash, deferred payment or other valuable
consideration – clause (aa) inserted vide section 108 of Finance Act, 2021 w.r.e.f. 1-
7-2017.
For the purposes of this clause (aa), it is hereby clarified that, notwithstanding
anything contained in any other law for the time being in force or any judgment,
decree or order of any Court, tribunal or authority, the person and its members or
constituents shall be deemed to be two separate persons and the supply of activities
or transactions inter se shall be deemed to take place from one such person to
another – Explanation to section 7(1)(aa) of CGST Act inserted vide section 108 of
Finance Act, 2021 w.r.e.f. 1-7-2017.
(b) importation of services, for a consideration whether or not in the course or
furtherance of business and
(c) the activities specified in Schedule I, made or agreed to be made without a
consideration

Activities or transactions to be treated as supply of goods or supply of services - Where

certain activities or transactions, constitute a supply in accordance with the provisions of
section 7(1) of CGST Act, they shall be treated either as supply of goods or supply of services
as referred to in Schedule II of CGST Act – section 7(2A) of CGST Act inserted vide CGST
(Amendment) Act, 2018, with retrospective effect from 1-7-2017.
This seems to be only correcting a drafting mistake, as what was earlier stated in section
7(1)(d) of CGST Act has now been stated separately and specifically. [section 7(1)(d) of CGST
Act was reading as follow – Supply includes the activities to be treated as supply of goods or
supply of services as referred to in Schedule II].
 47

Earlier section 7(1) - The section 7(1) was earlier reading as follows -
Section 7(1) of CGST Act, stated that for the purpose of CGST Act, the expression 'supply'
includes -
(a) all forms of supply of goods or services or both such as sale, transfer, barter,
exchange, license, rental, lease or disposal made or agreed to be made for a
consideration by a person in the course or furtherance of business
(b) importation of services, for a consideration whether or not in the course or
furtherance of business
(c) the activities specified in Schedule I, made or agreed to be made without a
consideration and
(d) the activities to be treated as supply of goods or supply of services as referred to in
Schedule II. [clause (d) omitted with retrospective effect from 1-7-2017 vide CGST
(Amendment) Act, 2018].

3.2-2 Activities which are neither supply of goods nor supply of services
Irrespective of anything contained in section 7(1) of CGST Act, following will not be treated
as supply of goods or services -
(a) activities or transactions specified in Schedule III; or
(b) activities or transactions undertaken by the Central Government, a State
Government or any local authority in which they are engaged as public authorities,
as may be notified by Central Government - section 7(2) of CGST Act.

3.2-3 Changes in scope of supply of goods or services by notification

Section 7(3) of CGST Act states that the Central Government may specify, by notification,
the transactions that are to be treated as— (a) a supply of goods and not as a supply of
services; or (b) a supply of services and not as a supply of goods; or (c) neither a supply of
goods nor a supply of services.
Section 7(3) is subject to section 7(1), 7(1A) and 7(2) of CGST Act. Thus, notification issued
under section 7(3) of CGST Act cannot override any provision of section 7(1) or section 7(2)
of CGST Act. [Reference to section 7(1A) inserted vide CGST (Amendment) Act, 2018. Since
section 7(1A) has been given retrospective effect, this insertion will also have retrospective
effect].
3.2-4 Coverage of 'supply' is very wide as definition is 'inclusive'
The definition of 'supply' in section 7(1) of CGST Act is 'inclusive' definition. Thus, any supply
of goods or services would get covered, even if not specified in any of sub-sections of section
7(1) of CGST Act.
3.2-5 Main part of definition covers all supplies for consideration
Main part of definition in section 7(1)(a) of CGST Act makes it clear that all supplies made
for consideration in course of business are subject to GST.
 48

Import of services for consideration will be subject to GST even if not made in course of
business. Thus, even import for charity activities will get covered, even if they are not in
course of business - section 7(1)(b) of CGST Act.
3.2-6 Supply to be in course of business of supplier and not of recipient
The term 'supply' is from the point of view of person who is supplying and not person who
is receiving the supply. Thus, if supplier is not in the business of supplying the goods or
services, GST is not applicable (and consequently, the recipient will not be liable to pay tax
under reverse charge).
Really, even otherwise, GST cannot apply as the individual selling his old goods is not it is in
the course of business (as selling of old goods is not the business of an individual).
In PIB press release dated 13-7-2017 18:57 IST (CBE&C press release No. 78/2017 dated 13-
7-2017), it has been clarified that an individual selling old jewellery is not in business of
selling such jewellery. Hence, GST will not be payable by recipient under reverse charge.
Though the view is in respect of old jewellery, principle applies to all supplies made by
individual in his individual capacity.
3.3 Transactions that will be taxable as 'supply' even if no consideration
A supply specified in Schedule I, made or agreed to be made without a consideration is
'supply' for purpose of CGST Act- section 7(1)(c) of CGST Act.
Thus, these transactions will be subject to GST, even if there is no consideration. The
valuation for purpose of GST will be as per GST Valuation Rules.
The Schedule I of CGST Act reads as follows -
Schedule I [section 7] - Activities to be treated as supply even if made without
consideration
(1) Permanent transfer/disposal of business assets where input tax credit has been availed
on such assets.
(2) Supply of goods or services or both between related persons, or between distinct persons
as specified in section 25, when made in the course or furtherance of business [section 25(4)
of CGST Act states that establishments of same person with distinct GST Registration
Numbers will be treated as 'distinct persons']
(3) Supply of goods— (a) by a principal to his agent where the agent undertakes to supply
such goods on behalf of the principal, or (b) by an agent to his principal where the agent
undertakes to receive such goods on behalf of the principal.
(4) Import of services by a (*) person from a related person or from any of his other
establishments outside India, in the course or furtherance of business. [ * - The word was
'taxable'. This word has been omitted vide CGST (Amendment) Act, 2018 [This amendment
has been made effective on 1-2-2019]. Thus, import by any person from a related person
outside India shall be 'import', but it should be in the course or furtherance of business.
Service supplied by establishment of person in India to own establishment out of India
exempt - Service supplied by establishment of person in India to own establishment out of
India is exempt, if place of supply is out of India – Sr. No. 10E of Notification No. 9/2017-IT
(Rate) dated 28-6-2017 as inserted w.e.f. 27-7-2018.
 49

Complimentary free tickets issued taxable under GST, even if no consideration? - In KPH
Dream Cricket P Ltd. In re (2018) 98 taxmann.com 243 (AAR - Punjab), it has been held that
complimentary tickets issued free for cricket matches (IPL) is 'supply' and taxable [seems
debatable since such supply is not to related person or distinct person as defined in section
25 of CGST Act. In my view, tax should not apply but ITC of common input services should
be reversible on proportionate basis].
3.3-1 Permanent transfer/disposal of business assets
Permanent transfer/disposal of business assets (even without consideration) will be subject
to GST only where input tax credit (ITC) has been availed on such assets - clause 1 of Schedule
I to CGST Act.
As per clause 4(a) of Schedule II of CGST Act, where goods forming part of assets of a business
are transferred or disposed of, with or without consideration, such transfer will be supply of
goods.
By combined reading, in my view, transfer of business assets without consideration will
attract GST only in respect of those goods where ITC has been availed.
This clause also has to be read with clause 4(c) of Schedule II, which states that transfer of
business as going concern is not a 'supply'. Thus, transfer of entire business as a going
concern cannot be subject to GST.
Further, services by way of transfer of a going concern, as a whole or an independent part
thereof is exempt from GST - Notification Nos. 12/2017-CT (Rate) and 9/2017-IT (Rate) both
dated 28-6-2017, effective from 1-7-2017 [This exemption has been included in 'services', as
anything which is not 'goods' is 'service'. Otherwise, in normal trade understanding, this
activity cannot be termed as 'service'].
Thus, transfer of business asset as whole an independent part is not subject GST.
Transfer of business as going concern as a whole or of one of the units is not subject to GST
- Rajashri Foods (P.) Ltd. In re [2018] 93 taxmann.com 417 (AAR-Kar.).
Transfer of business as a going concern with assets and liabilities as slum sale is exempt from
GST - Innovative Textiles Ltd. In re (2019) 73 GST 714 = 104 taxmann.com 436 (AAR-
Uttarakhand). *Rajeev Bansal and Sudershan Mittal In re (2020) 81 GST 329 = 116
taxmann.com 158 (AAR-Uttarakhand).
In Shilpa Medicare Ltd. In re (2021) 84 GST 68 = 117 taxmann.com 806 (AAR-AP), it was held
that transfer of business as a 'going concern' would fall under 'supply of services' (as anything
other than 'goods' is 'service'). It is covered under Sr No. 99 of Chapter 99 of Notification No.
12/2017-CT dated 28-6-2017 and hence not taxable. GST ITC-02 return can be filed and
unutilised ITC can be transferred to transferee unit.
However, in Merck Life Science P Ltd. In re [2019] 72 GST 1 = 100 taxmann.com 321 (AAR-
Maharashtra), transfer of business as slump sale on going concern basis was held as supply
of service covered in para 5(e) of Schedule II. It was held that even if there is no
consideration, since parties are related, GST is payable on notional consideration [This may
be justified on basis of specific facts of the case, Otherwise, the fact whether or not parties
are related should not make any difference. In fact, the appellant unnecessarily invited
trouble by applying for advance ruling].
 50

3.3-2 Supply between related persons and distinct persons

Supply of goods or services or both between (a) related persons, or (b) between distinct
persons as specified in section 25, when made in the course or furtherance of business will
be subject to GST, even if there is no consideration - clause 2 of Schedule I to CGST Act.
Supply of goods to own branch or division with distinct GSTIN - Section 25(4) of CGST Act
states that establishments of same person with distinct GST Registration Numbers will be
treated as 'distinct persons'.
Thus, inter-state stock transfers or branch transfer will be subject to GST - same view in
Specsmakers Opticians (P.) Ltd., In re [2020] 82 GST 283 = 113 taxmann.com 25 (AAAR - Tamil
Nadu).
Even intra-state stock transfer or branch transfer will be subject to GST if there are separate
GST registrations.
Supply of service by HO or one branch/division to another - On the basis of aforesaid
principle, even supply of service by one branch/division to another will be subject to GST if
there are distinct GST registration numbers, as held in Cummins India Ltd. In re (2019) 73
GST 517 = 103 taxmann.com 126 (AAR-Maharashtra), where it was held that in such cases,
valuation should be as per rule 30 of CGST Rules i.e. 110% of cost [really, in my view, it can
be on basis of rule 31 of CGST Rules also, for which principles as applicable to distribution by
Input Service Distributor can apply].
In Sanghvi Motors Ltd. In re (2020) 82 GST 248 = 113 taxmann.com 24 (AAAR-TN), cranes
were transferred from HO to branch in different State on payment of IGST on hire charges.
It was held that branch (with distinct GSTIN) can take ITC of IGST charged to it by HO, as HO
and branch are distinct persons as per GST law.
In Tata Sia Airlines Ltd., In re [2021] 124 taxmann.com 93 (AAR - Haryana), Head Office was
charging Branch Offices for costs incurred in relation to upkeep and maintenance of aircrafts.
It was held that this is supply of service and GST is payable on the charges recovered from
Branch Offices.
Services supplied by HO of Bank to branch with separate GSTIN is taxable supply even if there
is consideration. Valuation can be done on cost basis on basis of certificate of CA/CMA - FAQ
Nos. 55 and 56 issued by CBI&C on banking sector on 27-12-2018.
In fact, unless specific notification is issued under rule 32(7) of CGST and SGST Rules, such
services should be subject to GST.
In Columbia Asia Hospitals (P.) Ltd.,In re [2018] 69 GST 427 = 96 taxmann.com 245 (AAR-
Karnataka), it has been (indeed rightly) held that Corporate office and units are distinct
persons under CGST Act. Hence, activities performed by employees at corporate office such
as accounting, other administrative and IT system maintenance for units located in other
states as well i.e. distinct persons as per section 25(4) of Central Goods and Services Tax Act,
2017 (CGST Act) shall be treated as supply as per Entry 2 of Schedule I of CGST Act and will
be subject to IGST (if located in other State) - view upheld in Columbia Asia Hospitals (P.)
Ltd., In re [2018] 100 taxmann.com 501 (AAAR-Karnataka).
 51

In my view, this judgment is valid in case of common input services and services (other than
services of employees) supplied by one branch/division to another or by HO to
division/branches.
However, in case of services of employees, the services supplied by employee to employer
are neither goods nor services as per Sr No. 1 of Schedule III of CGST Act. Though branch or
division is separate taxable person for purpose of GST with 15 digit GSTIN, the 'employer' is
same i.e. having 10 digit PAN. Hence, services of employee of one branch/division to another
branch/division are neither supply of goods nor supply of services and hence should not be
subject to GST.
Of course, if another division/branch is in position to avail Input Tax credit, it would be
advisable to pay tax and avail ITC instead of entering into possible litigation.
Service supplied by establishment of person in India to own establishment out of India
exempt - Service supplied by establishment of person in India to own establishment out of
India is exempt, if place of supply is out of India - Sr. No. 10E of Notification No. 9/2017-IT
(Rate) dated 28-6-2017 as inserted w.e.f. 27-7-2018.
Maintaining liaison office/branch office in India is not supply of service - If liaison office in
India does not render any consultancy or other services directly/indirectly, with or without
any consideration and liaison office does not have significant commitment powers, except
those which are required for normal functioning of office, on behalf of head office, then
reimbursement of expenses and salary paid by head office to liaison office, established in
India, is not liable to GST and head office is not required to get itself registered under GST -
Habufa Meubelen B.V.,In re [2018] 95 taxmann.com 120 (AAR- Rajasthan). * Takko Holding
GMBH In re [2018] 98 taxmann.com 334 (AAR - Tamil Nadu).
In Wilhelm Fricke Se In re (2021) 123 taxmann.com 277 (AAR-Haryana), the liaison office in
India was acting as communication channel between Head Office located out of India and
Indian companies. HO was reimbursing the expenses incurred by liaison office in India. The
liaison office in India has no income like commission fees etc. It was held that HO and liaison
office are not two separate persons. No GST is payable on reimbursement of expenses.
In a contrary decision, in Fraunhofer-Gessellschaft Zur Forderung In re (2021) 83 GST 652 =
120 taxmann.com 352 (AAR-Karnataka), it was held that liaison office is promoting business
of HO, which is 'supply' and taxable.
Inter-state supply of aircraft engines, parts and accessories by airlines to own branch -
Inter-state supply of aircraft engines, parts and accessories by airlines to own branch in
another State will be subject to IGST. The Input Tax Credit can be availed for payment of tax
on inter-state supply even if the airlines are not allowed to take input tax credit for supply
of services of transport of passengers by air in economy class - MF(DR) circular No.
16/16/2017-GST dated 15-11-2017.
3.3-3 Supply to Related persons without consideration
Supply to related person in course of business is liable to GST, even if there is no
consideration.
The term 'Related person' has been defined in section 15(9) of CGST Act. This definition is
for all purposes of CGST Act and hence will apply to Schedule I also.
 52

The definition is discussed in chapter on GST Valuation.

Free Samples - Free samples to unrelated persons will not be subject to GST but input tax
credit will have to be reversed. However, free samples given to related persons will be
subject to GST (and then ITC will be available) - Para A of CBI&C circular No. 92/11/2019-GST
dated 7-3-2019.
3.3-4 GST on fringe benefits to employees
Employer and employee have been defined as 'related persons'. Hence, a view is clearly
possible that fringe benefits provided to employees will be subject to GST.
It has been clarified that fringe benefits are in relation to employment and hence outside
GST– PIB press release dated 10-7-2017:09 IST and CBI&C press release No. 73/2017 dated
10-7-2017.
However, in FAQ No. 43 on 'Levy' issued by CBI&C on 28-8-2017, it has been stated that tax
is payable on fringe benefits are supply of goods or services and are liable to tax, if not
exempted.
In my view, strictly legally, GST will be payable on fringe benefits supplied to employees even
if no recovery is made.
Canteen facilities to employees - Meals supplied in canteen should be subject to GST @ 5%
(CGST 2.5% plus SGST/UTGST 2.5%) on open market value - a view expressed in Caltech
Polymers In re (2018) 98 taxmann.com 355 = 70 GST 582 (AAR-Ker).
In case of canteen in factories employing more than 250 workmen, canteen is a statutory
requirement. As per section 46 of Factories Act, if 250 or more workers are employed,
provision of canteen facility is mandatory. Since this is mandatory, Input Tax Credit of
canteen services provided to employees should be available in view of proviso to section
17(5)(b) of CGST Act. This clause is inserted vide CGST (Amendment) Act, 2018, w.e.f. 1-2-
2019.
In such case, GST should be payable on amount recovered from employees.
In Amneal Pharmaceuticals (P.) Ltd., In re [2021] 123 taxmann.com 245 (AAR - Gujarat),
applicant was providing canteen facilities through third party canteen services at its factory.
Canteen services which was obligatory under section 46 of Factories Act, 1948. Company
was providing food to its employees on subsidized rate. Employee's share of cost was being
deducted from their salary by assessee. It was held that such recovery of amount by
applicant from its employee would come under definition of 'outward supply' as defined in
section 2(83) and, therefore, taxable as a supply under GST.
Free or subsidised transport to employees - If free transport, free car or free telephones
(for personal use) is supplied as perquisite, GST should be payable on basis of open market
value. Its input tax credit is not available as actually it is output service of the taxable person.
Insuring employees/their relatives and recovering part premium from employees is not
supply of insurance service - In Jotun India P Ltd. In re (2019) 76 GST 691 = 110 taxmann.com
184 (AAR-MH), applicant was taking group insurance policy for parents of employees and
was recovering 50% of premium from employees. It was held that insuring employees/their
relatives and recovering part premium from employees is not supply of insurance service
 53

and is not in course of business of applicant. Hence, no GST is payable on amount recovered
from employees - following decision in Posco India Pune Processing Centre P Ltd. In re (2019)
102 taxmann.com 21 (AAR - MH).
No GST on Transport facility provided to employees by hiring vehicle and nominal amount
recovered? - In Tata Motors Ltd., In re [2020] 119 taxmann.com 106 (AAR - Maharashtra),
applicant had hired buses for transport of their employees. Applicant was charging nominal
amount from its employees on monthly basis. It was held no services are provided by
employer to its employees and in view of (Schedule III, Section 7) GST is not applicable on
the nominal amounts recovered by employer from their employees in the subject case.
[Different view is possible - Service supplied by employer to employee are not exempt - only
service supplied by employee to employer are exempt].
3.3-5 Transaction between principal and agent
Supply of goods— (a) by a principal to his agent where the agent undertakes to supply such
goods on behalf of the principal, or (b) by an agent to his principal where the agent
undertakes to receive such goods on behalf of the principal, will be subject to GST, even if
there is no consideration - clause 3 of Schedule I of CGST Act.
'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 -
section 2(6) of CGST Act.
'Principal'means a person on whose behalf an agent carries on the business of supply or
receipt of goods or services or both - section 2(88) of CGST Act.
Liability only of C&F Agents, not of commission agents - As per aforesaid clause (a), the
agent will be liable for GST on value goods or services only if he undertakes to supply any
goods or services or both on behalf of any principal (like consignment agent). However, if
the agent does not supply goods or services, he is not liable for GST on value of goods or
services. In case of commission agent, he does not undertake supply of goods or services.
He will be liable for GST only on his commission.
Clause (b) will cover cases where agent returns goods to Principal.
Commission Agent is not required to register if his receipts of commission are less than Rs.
20/10 lakhs per annum - Persons who supply goods or services or both on behalf of other
taxable persons whether as an agent or otherwise require registration under GST even if his
turnover is below Rs. 20/10 lakhs per annum- section 24(1)(vii) of CGST Act.
There was misunderstanding that all commission agents require mandatory registration
under GST irrespective of his commission income (i.e. even if income from commission is
below 20/10 lakhs per annum).
Now it has been clarified that such registration is required only by C&F agents who stock and
sale goods on behalf of Principal. Registration is not required by ordinarily commission
agents who do not deal in goods or services themselves, if their annual turnover is less than
Rs. 20/10 lakhs - CBI&C Circular No. 57/31/2018-GST dated 4-9-2018.
 54

In case of commission agent of agricultural produce, the commission agent is not a taxable
person and agriculturist is also not a taxable person. Hence, the commission agent does not
require registration under GST. However, if he is liable to pay GST under reverse charge, he
will be liable to be registered under section 24(iii) of CGST Act - - CBI&C Circular No.
57/31/2018-GST dated 4-9-2018, as amended vide corrigendum dated 5-11-2018.
Position in respect of del credere agent - Del credere agent is similar to commission agent.
The only difference is that he guarantees payment to supplier of goods or services, if
recipient does not pay. In some cases, the del credere agent himself pays to supplier and
then recovers amount from recipient. In some case, the del credere agent advances short
term loan to buyer and then buyer pays to the supplier.
CBI&C, vide circular No. 73/47/2018-GST dated 5-11-2018, has clarified that if del credere
agent is like ordinary commission agent, there is no impact on GST liability.
However, if the del credere agent (DCA) received the goods and then supplies as per para 3
of Schedule I of CGST Act (i.e. he is C&F Agent), the value of interest will be included in the
value of supply of goods by DCA to the recipient as per section 15(2)(d) of CGST Act. [Note
that in this case, there are two separate transactions and tax invoices. The first transaction
is when supplier raises tax invoice on DCA (who is similar to C&F Agent in this case) and
second is when the DCA (who is similar to C&F Agent in this case) issues tax invoice on buyer].
Supply of goods to Agent for further sale by auction - In Tata Coffee Ltd., In re [2020] 116
taxmann.com 733 (AAAR-KARNATAKA), depots are set up by State Governments in terms of
Karnataka Forest Act for purchase and sale of timber, as timber could only be purchased and
sold by State Government. Sale of timber by Depot was done by way of auction. Sale of
timber happened through GTD (Government Timber Depot) and not to GTD. Proceeds of
timber sold through auction process by GTD were given to appellant on completion of
auction process. It was held that GTD acts in capacity of agent of appellant and this
transaction of depositing timber by appellant in GTD amounts to supply in terms of Schedule
I of CGST Act. (Tata Coffee Ltd., In re [2019] 110 taxmann.com 342 (AAR - Karnataka)
affirmed).
3.3-6 No tax on free food supplied in religious institutions
There will be no GST on free food supplied in anna kshetras run by religious institutions.
Further, prasadam supplied by religious places like temples, mosques, churches, gurudwaras
attracts Nil rate of tax. However, ITC will not be available - - PIB press release dated 11-7-
2017 15:44 IST and CBE&C press release No. 75/2017 dated 11-7-2017.
3.3-7 Donations and grants received are not subject to tax as no consideration
Donations or grants received without any condition are not subject to tax.
Amounts received as charitable donations out of free will and public/Government grants for
activities of society are not related to services provided by Society. These are excludible from
taxable value for charging service tax (as mandap service) - Cultural Society of Angamally v.
CCE (2008) 13 STT 227 (CESTAT).
Donations and grants-in-aid received by charitable institution received from different
sources for conducting training courses is not 'consideration received' for coaching service
provided - MF(DR) circular No. 127/9/2010-ST dated 16-8-2010.
 55

However, in Indian Institute of Corporate Affairs In re (2019) 107 taxmann.com 413 (AAR-
New Delhi), amount under Corporate Social Responsibility was paid for a particular purpose
of installation of solar pumps, construction of toilets etc. It was held that this is
'consideration' and GST is payable.
Distinction between sponsorship and donation - In donation or grant, there is no
consideration. However, in sponsorship, consideration is involved as name of sponsor is
announced, which is indirect advertisement.
Mere putting name of donor without any reference or mention of business activity is not for
advertisement. The recipient institutions place a name plate only as expression of gratitude
and is not aimed at giving publicity to the donor in such manner as would be an advertising
or promotion of business of donor. In that case, there is no supply of service for a
consideration in the form of donation. In that case, there is no GST liability on such donations
received - CBI&C circular No. 116/35/2019-GST dated 11-10-2019.
Thus, if the donor is getting some business advantage by putting his name as donor, that
would be 'consideration'. In that case it will be 'sponsorship' and the donor will be liable to
pay GST under reverse charge. If reverse charge is not applicable, the recipient receiving the
sponsorship will be liable to pay GST under forward charges.
Supply of goods by Government entity against grants received are exempt - Supply of
goods by Government entity against grants received Government and supplied to
Government or any person specified by Government are exempt from GST – Sr No. 150 of
Notification No. 2/2012-CT (Rate) dated 28-6-2017 – noted and exemption allowed in Tamil
Nadu Textbook and Educational Services Corporation In re (2021) 84 GST 264 = 121
taxmann.com 1 (AAR-TN).
Earlier departmental clarification in respect of service tax - Para 2.2.2 of CBE&C's 'Taxation
of Services : An Education Guide' published on 20-6-2012 illustrates what are activities
without consideration, as follows -
Activity carried out without any consideration like donations, gifts or free charities
are outside the ambit of service. For example grants given for a research where the
researcher is under no obligation to carry out a particular research would not be a
consideration for such research.
An act by a charity for consideration would be a service and taxable unless otherwise
exempted.
Conditions in a grant stipulating merely proper usage of funds and furnishing of
account also will not result in making it a provision of service.
Donations to a charitable organization are not consideration unless charity is
obligated to provide something in return e.g. display or advertise the name of the
donor in a specified manner or such that it gives a desired advantage to the donor.

This clarification also fully supports the view that donation is not 'consideration'.
3.4 Business
Section 2(17) of CGST Act defines 'Business' as follows—
 56

"Business" includes -
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any
other similar activity, whether or not it is for a pecuniary benefit.
(b) any activity or transaction in connection with or incidental or ancillary to (a) above.
(c) any activity or transaction in the nature of (a) above, 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 personsto 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) activities of a race club including by way of totalisator or a license to book maker or
activities of a licensed book maker in such club [The words in italics substituted vide
CGST (Amendment) Act, 2018. [This amendment is notified and made effective on 1-
2-2019]. Till Amendment Act, the words were as follows – 'services provided by a race
club by way of totalisator or a licence to book maker in such club. In my view, this is
only correcting a drafting mistake. The activities were even otherwise taxable, as the
definition of 'business' is inclusive. Further, 'services' includes anything other than
goods as per section 2(102) of CGST Act.
(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.

3.4-1 Broad definition of 'Business'

The definition of 'business' is inclusive definition.
Following points emerge from the definition of 'business' -
Profit motive irrelevant - Profit motive is immaterial.
Occasional transactions are subject to GST - Business normally implies something done on
regular basis. However, since business includes 'Adventure', occasional transactions may
also be covered. Adventure implies some 'speculation'.
Incidental or ancillary activities taxable - Incidental or ancillary business is also covered.
For example, sale of used car, sale of scrap, sale of old machinery, sale of old furniture etc.
is subject to GST, though normally the taxable person may not be in business of selling cars,
furniture or machinery.
In Member, Board of Revenue v. Controller of Stores AIR 1989 SC 1468 = (1989) 74 STC 5 (SC),
it has been held that any activity which is incidental or ancillary to the main business also
 57

constitutes business and thereby the person engaged in such business becomes a dealer
('taxable person' under GST Act).
In following cases, transaction was held as incidental to business.
Sale of unserviceable parts by transport undertaking - In State of Orissa v. Orissa Road
Transport Co. Ltd. 107 STC 204 = 1997 AIR SCW 3489 = AIR 1997 SC 3409 (SC 3 member
bench), it was held that State transport undertaking is liable to tax on sale of its un-
serviceable, old and obsolete parts. - similar view in Controller of Stores, Northern Railway
v. ACTO - AIR 1976 SC 489 = (1976) 37 STC 423 (SC).
Sale of scrap - In State of Tamilnadu v. Burmah Shell Oil Co AIR 1973 SC 1045 = 31 STC 426
(SC), it was held that sale of scrap as well as sale of advertisement material at cost price was
connected with business of assessee and turnover in respect of these commodities was
exigible to tax.
Sale of old machinery and scrap by manufacturer - Sale of old unserviceable machinery and
scrap by manufacturer is incidental to his business - State of Orissa v. Steel Authority of India
Ltd. (2011) 44 VST 50 = 7 GST 552 (Ori HC DB).
Sale in store for employees - In State of Tamilnadu v. Binny Ltd. (1982) 49 STC 17 (SC), sale
effected in stores maintained by company as a welfare measure for employees was held as
incidental to main business and hence taxable.
Sale of pledged goods by Banks - Sale of pledged goods by Bank is in the course of banking
business - Federal Bank Ltd. v. State of Kerala (2007) 6 VST 736 (SC).
Sale of old newspaper and waste paper - In Indian Express P Ltd. v. State of Tamilnadu
(1987) 67 STC 474 (SC), it was held that sale of old and unsold copies of newspaper by
newspaper publisher is 'incidental' to main business.
In The Hindu v. State of Tamil Nadu (1987) 67 STC 477 (SC), it was held that sale of glazed
newsprint (during the period publication was stopped), old newspapers, print waste and cut
waste are sales 'incidental or ancillary' to the main business of printing and publishing and
liable to sales tax.
Sale of spiritual goods, providing accommodation and food by charitable organization is
'business' and hence taxable - Sale of spiritual goods (like booklets, DVD, MP3), providing
accommodation and food by charitable organization is 'business' and is taxable under GST –
Shrimad Rajchandra Adhyatmik Satsang Sadhana Kendra, In re (2018) 69 GST 627 = 97
taxmann.com 20 (AAR). - view confirmed in Shrimad Rajchandra Adhyatmik Satsang
Sadhana Kendra In re [2019] 71 GST 541 = 101 taxmann.com 2 (AAAR).
3.4-2 Government activities subject to GST
Section 2(17)(i) of CGST Act states that 'business' includes any activity or transaction
undertaken by the Central Government, a State Government or any local authority in which
they are engaged as public authorities.
Thus, excluding sovereign activities of State, all activities of Government is 'business'.
However, some of their activities as public authority will be specifically excluded from scope
of GST by issuing notification under section 7(2)(b) of CGST Act on recommendation of GST
Council.
 58

Thus, unless specifically excluded by a notification, their activities will be liable to GST.
Sovereign activities not subject to GST - Activities like Dispensing Justice, maintaining
armed Forces, conducting audit by C&AG, elections to Parliament or State Legislatures are
'sovereign activities' as no other person can do it.
In CCE v. Ankit Consultancy (2007) 8 STT 84 (CESTAT), it was held that preparation of voters
list for Chief Electoral Officer is a sovereign activity of State. It is not a business activity.
Hence this activity cannot be incidental or auxiliary to any 'business activity' - relying on
Baktawar Singh Balkrishan v. UOI (1988) 2 SCC 293, where it was held that maintaining
armed forces is a part of sovereign activity of State and it cannot be termed as 'business
activity' with an eye on profit.
The decision was followed in CCE v. CS Software Enterprises (2008) 16 STT 187 (CESTAT).
The decision was followed in CCE v. CMC Ltd. (2007) 11 STT 146 = 12 VST 335 (CESTAT) in
respect of activity of preparation of voter's identity card for Election Commission.
[Really, election itself is sovereign activity. Incidental activity like preparing voting list etc.
cannot be sovereign activity].
3.4-3 Main activity should be business
Though definition of 'business' is wide and inclusive, the ancillary activities can get covered
under 'business' only when main activity is 'business'.
In State of Tamilnadu v. Board of Trustees 1999 AIR SCW 1262 = AIR 1999 SC 1647 = (1999)
4 SCC 630 = 114 STC 520, it was held that main activity of port trust is not 'carrying on
business of buying, selling, supplying or distribution of goods'. 'Carrying on business' requires
something more than merely selling or buying etc. It depends on volume, frequency,
continuity and regularity of transactions. Even if 'profit motive' is statutorily excluded from
definition of 'business', but still the person may (must ?) be 'carrying on business'. Hence, if
main activity is not 'business', the sales made in connection with or incidental or ancillary to
the main activity would not be business - followed in Vishakhapatnam Port Trust v. CTO
(2002) 127 STC 393 (AP HC DB).
In CST v. Sai Publication Fund (2002) 4 SCC 57 = 258 ITR 70 = 122 Taxman 437 = 126 STC 288,
a trust set up to spread message of Saibaba of Shirdi was selling publications for spreading
his message. Sale of proceeds went to trust which can be utilised only for objects of trust. It
was held that irrespective of profit motive, trust is not a 'dealer' and main activity of trust to
spread message of Saibaba does not amount to business. It was held that only those persons
who 'carry on business of buying and selling goods' are the dealers. The main activity of
person should be 'business' [confirming CST v. Sai Publication Fund (1995) 98 STC 388 (Bom
HC)].
In Tirumala Tirupati Devasthanam v. State of Madras (1972) 29 STC 266 (Mad HC), it was
held that as the devasthanam is not indulging in commercial activity, it is not a dealer.
This was followed in Sri Velur Devasthanam Vaitheeswaran Koil Dharmapuram Adhinam v.
State of Tamil Nadu (2012) 53 VST 235 (Mad HC DB). In this case, it was held that sale by
Devasthanam of gold bullion offered by devotees by public auction is not a business or
trading activity. The devasthanam is not a dealer.
 59

In Sulabh International Social Service Organisation v. State of Tamilnadu (2012) 53 VST 248
(Mad HC DB), it was held that a charitable organisation undertaking constructions of latrines
is not a 'dealer'.
In Indian Institute of Technology (IIT) v. State of UP (1976) 38 STC 428 (All HC), it was held
that IIT is not a dealer as its principal activity is academic and not commercial.
In Institute of Chartered Accountants of India v. DGIT (2013) 217 Taxman 152 = 35
taxmann.com 140 (Del HC DB), it was held that dominant objective of ICAI is to regulate
Chartered Accountancy profession in India. Conducting extensive educational programs,
conducting coaching classes and campus placements, for fees, cannot be held as 'business'
but only as in aid of its objects. It cannot be said that assessee is involved in carrying on any
business, trade or commerce.
In DCCT v. South India Textile Research Association (1978) 41 STC 197 (Mad HC DB), it was
held that when an organisation is constituted solely and exclusively for carrying on research,
purchase of goods for purpose of carrying on research and sale of resulting products and
waste is not 'business'.
In State of AP v. Sri Bhramaramba (1989) 73 STC 321 (AP HC DB), it was held that if dominant
activity of an institution such as a religious or charitable institution is not a business activity,
the secondary activity which has elements of commerce or trading activity, will be exempt
from tax if it is integral part of main activity. In this case, it was held that (a) sale of food in
canteen run by temple was not taxable as it was for supply of foodstuffs to visiting pilgrims
at reasonable prices. It was integral to main activity and is not taxable. (b) Similarly, the
temple was running motor vehicles for transporting pilgrims at reasonable rates. Hence, sale
of unserviceable parts is not taxable as it has character of functional integrity. (c) Sale of
human hair offered by pilgrims to the temple is not a commercial activity.
Sale of publications by University is not business - University is not a dealer. Activity of
publishing brochure/admission forms does not constitute business - Mahatma Gandhi Kashi
Vidyapeeth v. State of Uttar Pradesh (2013) 64 VST 271 (All HC DB).
Principal activity of University is to impart education. Activity of providing meals to students
is a minor, subordinate and insignificant part. It would be unreasonable to lend business
colour to the University - University of Delhi v. Ram Nath AIR 1963 SC 1873.
However, in Manipal University v. State of Karnataka (2014) 45 GST 278 = 45 taxmann.com
6 = 71 VST 442 (Karn HC DB), it was held that sales tax is payable on sale of prospectus and
application forms [It was held that assessee was making huge profit out of this sale and
hence is indulging in business] [really arguable case].
Education is not 'business' - Education is not 'business'. Sale of prospectus cannot be
subjected to sales tax - CTO v. Banasthali Vidyapith (2015) 79 VST 282 (Raj HC).
Distribution of food in temple is not business - In Arumigu Dhandayuthapani Swami
Thirukkoil v. CTO (1998) 108 STC 114 (Mad HC DB), the appellant (a temple) used to offer
'prasadam' to devotees after 'pooja'. It was purchasing ingredients for distributing prasad.
It was held that the activity of temple is not 'business'. - same view in Tirumala Tirupati
Devasthanam v. State of Madras (1972) 29 STC 266 (Mad HC) * Temple Sri Bankey Bihari Ji
v. CST (1972) 29 STC 685 (All HC).
 60

Providing accommodation to devotees by a trust of temple without profit motive is not

'business'. - Sri Palani Dhandayuthabani Devasthanam v. CTO (2001) 124 STC 553 (Mad HC
DB).
School providing food in hostel to students is not 'dealer' - Principal activity of the school is
predominantly academic or charitable. Main activity is imparting education. It is not
'business' - Scholars Home Senior Secondary School v. State of Uttarakhand (2011) 42 VST
530 (Uttarakhand HC) - same view in Indian Institute of Technology, Kanpur v. State of Uttar
Pradesh (1976) 38 STC 428 (All HC).
Purchase of food stuff by educational institutions for supply to students in their hostels is
not 'business'. It is not taxable - Gowtham Residential Junior College v. CTO (2009) 19 VST
305 (AP HC DB).
Printing of forms by Government press is not business - Government of India Press printing
forms, registers and other printed matter to various departments of Central Government is
not carrying on any trade. Activity is not commercial and Central Government is not carrying
on any business. The Press is not liable to sales tax. - State of Haryana v. Government of India
Photolitho Press (2002) 126 STC 253 (P&H HC DB).
3.5 Deemed supply of goods and services
Section 7(1)(d) of CGST Act states that supply includes activities to be treated as supply of
goods or supply of services referred to in Schedule II to CGST Act.
Thus, these are 'deemed supply of goods' or 'deemed supply of service', subject to GST.
The distinction between goods or service will also be relevant to determine place of supply
and time of supply.
3.5-1 Schedule II of CGST Act
Schedule II of CGST Act is as follows. The comments in bracket are my comments on each
entry.
Schedule II [section 7] – Activities or Transactions to be treated as supply of goods or
supply of services
[The words 'or transactions' inserted with retrospective effect from 1-7-2017 vide CGST
(Amendment) Act, 2018]
1. Transfer
(a) Any transfer of the title in goods is a supply of goods [This covers sale, barter,
exchange etc. In fact, it should cover gift of goods also, as this clause does not talk of
consideration].
(b) Any transfer of goods or of right in goods or of undivided share in goods without the
transfer of title thereof, is a supply of services [This covers renting or operating lease
of goods. 'Undivided share' means that exclusive possession is not required to be
transferred e.g. renting of one locker by bank, share taxi].
(c) Any transfer of title in goods under an agreement which stipulates that property in
goods will pass at a future date upon payment of full consideration as agreed, is a
supply of goods [This covers financial lease and hire purchase].
 61

2. Land and Building

(a) Any lease, tenancy, easement, licence to occupy land is a supply of services [The lease of
tenancy of land can be of any period - even 99 or 999 years].
(b) Any lease or letting out of the building including a commercial, industrial or residential
complex for business or commerce, either wholly or partly, is a supply of services [This covers
renting or leasing of building. Even renting of part of residential complex for business or
commerce will be subject to GST. Thus, if a residential flat is given to company as residence
of their employees, it can get covered under GST].
3. Treatment or process
Any treatment or process which is being applied to another person's goods is a supply of
services [This covers job work, testing].
4. Transfer of business assets
(a) Where goods forming part of the assets of a business are transferred or disposed of
by or under the directions of the person carrying on the business so as no longer to
form part of those assets, (*), such transfer or disposal is a supply of goods by the
person [* - The words were 'whether or not for a consideration'. These words have
been omitted with retrospective effect from 1-7-2017 vide Finance Act, 2020, which
was notified on 1-1-2021 but has retrospective effect].
[This clause has to be read with clause I Schedule I. Hence, such transfer will be
subject to GST if Input Tax Credit was availed on such goods. This clause also has to
be read with clause 4(c) of Schedule II. Further, services by way of transfer of a going
concern, as a whole or an independent part thereof is exempt from GST - Notification
Nos. 12/2017-CT (Rates) and 9/2017-IT (Rates) both dated 28-6-2017, effective from
1-7-2017. Thus, transfer of entire business as a going concern cannot be subject to
GST].
(b) Where, by or under the direction of a person carrying on a business, goods held or
used for the purposes of the business are put to any private use or are used, or made
available to any person for use, for any purpose other than a purpose of the business,
(*), the usage or making available of such goods is a supply of services [* - The words
were 'whether or not for a consideration'. These words have been omitted with
retrospective effect from 1-7-2017 vide Finance Act, 2020, which was notified on 1-
1-2021 but has retrospective effect].
[This covers use of property of taxable person like motor vehicles, residential
premises, guest house, telephone, laptop etc. for private use of
partner/director/executives/employees].
(c) Where any person ceases to be a taxable person, any goods forming part of the assets
of any business carried on by him shall be deemed to be supplied by him in the course
or furtherance of his business immediately before he ceases to be a taxable person,
unless— (a) the business is transferred as a going concern to another person; or (b)
the business is carried on by a personal representative who is deemed to be a taxable
 62

person [Transfer of entire business is not subject to GST. Only goods transferred are
subject to tax].

Effect of omission of words 'with or without consideration' in clauses (a) and (b) of para 4
of Schedule II - Clauses (a) and (b) of Para 4 of Schedule II of CGST Act specifies transactions
relating to transfer of business assets as goods or services. The definition was using the term
'with or without consideration'. These words have been omitted with retrospective effect
from 1-7-2017.
These words were causing confusion as in some cases, the transaction was not 'supply' as
there was no consideration, but it could be treated as 'supply' in view of the words 'with or
without consideration' in para 4 of Schedule II of CGST Act, though that was not the intention
at all.
In my view, these words were redundant and unnecessarily confusing. In my view, by
removing these words, there is no change in present provisions relating to taxability in case
of transfer of business assets.
5. Supply of services
The following shall be treated as 'supply of service'
(a) renting of immovable property [Since lease of building and land is already covered in
clause 2(a) and (b) above, this can cover other immovable property like plant and
machinery].
(b) construction of a complex, building, civil structure or a part thereof, including a
complex or building intended for sale to a buyer, wholly or partly, except where the
entire consideration has been received after issuance of completion certificate,
where required, by the competent authority or after its first occupation, whichever
is earlier.
Explanation.—For the purposes of this clause—(1) the expression "competent
authority" means the Government or any authority authorized to issue completion
certificate under any law for the time being in force and in case of non-requirement
of such certificate from such authority, from any of the following, namely - (i) an
architect registered with the Council of Architecture constituted under the Architects
Act, 1972; or (ii) a chartered engineer registered with the Institution of Engineers
(India); or (iii) a licensed surveyor of the respective local body of the city or town or
village or development or planning authority (2) the expression "construction"
includes additions, alterations, replacements or remodeling of any existing civil
structure.
[This covers sale of flat in a residential complex before it is occupied. Once it is
occupied, any sale by the buyer after that will not attract GST, even if completion
certificate is not obtained. However, if builder himself is selling, he will be exempt
from GST only if he sales after completion certificate is obtained].
 63

(c) temporary transfer or permitting the use or enjoyment of any intellectual property
right [This covers allowing use of trade mark, copyright, design, patents].
(d) development, design, programming, customisation, adaptation, upgradation,
enhancement, implementation of information technology software [This covers
development of software but not software itself in physical form].
(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation,
or to do an act [this covers demurrage, LD charges, notice pay, penalty for violation
of contract] and
(f) transfer of the right to use any goods for any purpose (whether or not for a specified
period) for cash, deferred payment or other valuable consideration [This is renting,
where possession and control of goods is transferred to recipient]

6. Composite supply
The following shall be treated as a supply of services, namely—
(a) works contract as defined in section 2(119) of CGST Act [The definition covers only
immovable property]
(b) supply, by way of or as part of any service or in any other manner whatsoever, of
goods, being food or any other article for human consumption or any drink (other
than alcoholic liquor for human consumption), where such supply or service is for
cash, deferred payment or other valuable consideration [supply of food. The clause
does not say 'in restaurant'. Thus, even home delivery of cooked food will be covered,
as it includes service. However, sale of tinned food items is sale of goods as no
'service' element is involved].

7. Being omitted w.r.e.f. 1-7-2017 vide section 122 of Finance Act, 2021.
The present wording is as follows –
Supply of goods - The following shall be treated as supply of goods, namely - supply of goods
by any unincorporated association or body of persons to a member thereof for cash,
deferred payment or other valuable consideration [supply of goods by club to its members
were covered. Interestingly, this did not cover supply of services.
This paragraph is being omitted w.e.f. 1-1-2017, as deeming provision is being introduced in
section 7(1)(aa) of CGST Act w.r.e.f. 1-7-2017].
3.6 Activities or transactions which are neither supply of goods nor supply of services
Present service tax law has concept of 'negative list of services'. Similar concept has been
introduced in Model GST Law.
As per Schedule III of CGST Act read with section 7(2)(a) of CGST Act, following matters will
not be treated as supply of goods or services.
Schedule III [Section 7]
Activities or transactions which shall be treated neither as a supply of goods nor a supply
of services
 64

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

2. Services by any Court or Tribunal established under any law for the time being in force.
[Explanation - The term 'Court' includes District Court, High Court and Supreme Court]
3. (a) The functions performed by the Members of Parliament, Members of State Legislature,
Members of Panchayats, Members of Municipalities and Members of other local authorities
(b) The duties performed by any person who holds any post in pursuance of the provisions
of the Constitution in that capacity or (c) The duties performed by any person as a
Chairperson or a Member or a Director in a body established by the Central Government or
a State Government or local authority and who is not deemed as an employee before the
commencement of this clause [true indeed].
4. Services of funeral, burial, crematorium or mortuary including transportation of the
deceased [small mercy after death].
5. Sale of land and, subject to para 5(b) of Schedule II, sale of building [para 5(b) covers sale
of flat in a complex after completion or after its first occupation].
6. Actionable claims, other than lottery, betting and gambling.
7. Supply of goods from a place in the non-taxable territory to another place in the non-
taxable territory without such goods entering into India.
8. (a) Supply of warehoused goods to any person before clearance for home consu-mption;
(b) Supply of goods by the consignee to any other person, by endorsement of documents of
title to the goods, after the goods have been dispatched from the port of origin located
outside India but before clearance for home consumption;
Explanation 1—For the purposes of paragraph 2, the term 'Court' includes District Court,
High Court and Supreme Court.
Explanation 2.—For the purposes of this paragraph, the expression "warehoused goods"
shall have the same meaning as assigned to it in the Customs Act, 1962.
Paragraphs 7 and 8 and Explanation 2 inserted vide CGST (Amendment) Act, 2018, w.e.f. 1-
2-2019.
Activities and transactions covered under Schedule III are not 'exempt supply' except
covered in paragraph 5 - For purpose of section 17(3) of CGST Act(proportionate reversal
of ITC when taxable person is making both taxable and exempt supply), the expression "value
of exempt supply" shall not include the value of activities or transactions specified in
Schedule III of CGST Act, except those specified in paragraph 5 of the said Schedule.
Schedule III of CGST Act specifies transactions or activities which shall be treated neither as
supply of goods nor supply of services.
Paragraph 5 of Schedule III of CGST Act pertains to sale of land or sale of building after
completion certificate is obtained.
For determining the value of an exempt supply as per section 17(3) of CGST Act-- (a) the
value of land and building shall be taken as the same as adopted for the purpose of paying
stamp duty, and (b) the value of security shall be taken as 1% of the sale value of such
security – Explanation under Rule 45 of CGST and SGST Rules, 2017.
 65

Services of Court Receiver - Court appoints Receivers to take care of property pending
litigation (lis pendente). In Bai Mamubai Trust v. Suchitra (2019) 109 taxmann.com 300 (Bom
HC), it has been held that office of Court Receiver us an establishment of High Court. The
Court receiver implements orders of Court. Hence, it is service provided by officer of Court.
The fees fall under Item 2 of Schedule III of CGST Act and hence is not 'supply' at all. However,
if the Court Receiver undertakes business activities, he will be liable to pay GST under section
92 of CGST Act. If plaintiff alleges violation of legal rights and seeks damages from a Court to
make good the violation, it is not a supply, as no reciprocal relationship exists. It is wrongful
unilateral act which results in damages. Hence, no GST is payable in such cases.
'Transfer of title in goods' is supply of goods, even if goods (moulds in this case) were out
of India - In Automative Components Technology India (P.) Ltd.,In re [2020] 115
taxmann.com 99 (AAR - TAMILNADU), the foreign supplier of applicant manufactured
moulds and used them outside India for manufacture of components for the applicant. The
foreign supplier raised invoice for mould on applicant in India. The goods did not come to
India. Later, applicant raised invoice on Indian buyer for the moulds (which never entered in
India). Title in moulds was transferred from foreign supplier to applicant in India, who, in
turn, transferred the title to Indian buyer. Thus, with regard to the moulds, there were two
transactions involved in respect of moulds (which do not enter India at all) - T1: Transfer of
title in moulds from the foreign supplier to the Applicant. T2: Transfer of title in moulds from
the Applicant to the Indian buyer. It was held that there is transfer in title of moulds by
applicant for a consideration and supply is in course of business and, therefore, same
constitutes supply of goods and GST is liable to be paid on such supply.
Interestingly, this is not import of goods, though supplier of goods is out of India. There is no
movement of goods (mould). However, it is still 'transfer of title in goods' and GST is payable.
The decision of AAR is in respect of second transaction i.e. T2. In case of first transaction
(T1), since this is not import of goods, issue is whether applicant in India would be liable
under reverse charge. Really, there is no provision of payment of tax by applicant under
reverse charge. Applicant may pay IGST under reverse charge and take its credit, but this is
also litigation prone.
3.6-1 Services by employee to employer not subject to GST
Services by employee to employer are not subject to GST. However, services provided by
employer to employee can be subjected to GST, if these are for personal use of employees.
It has been clarified that fringe benefits are in relation to employment and hence outside
GST-PIB press release dated 10-7-2017 17:09 IST.
Gifts upto Rs 50,000 to employees may be exempted. However, reversal of input tax credit
will be required.
In common parlance, gift is without consideration, is voluntary in nature and is made
occasionally. It cannot be demanded as a right by employee and the employee cannot move
a Court for obtaining gift - PIB press release dated 10-7-2017 17:09 IST.
Meaning of 'gift' - Gift is the transfer of certain existing movable or immovable property
made voluntarily and without consideration, by one person, called the donor, to another,
 66

called the donee, and accepted by or on behalf of the donee - section 122 of Transfer of
Property Act.
Test of relation of employer and employee - In employment, there is master servant
relation. It is contract of service and not contract for services.
In Cosmopolitan Hospitals v. Vasantha P NairI (1992) CPJ 302 (NCDRC) had held that medical
services are covered under CPA. The reason is - there is difference between 'contract for
service' and 'contract of service'. In contract of service, the master can order or require what
is to be done and how it is to be done. This is a 'contract of personal service' and hence is
out of purview of CPA as the master can always dispense with service of servant and hence
no occasion would arise for him to complain about service of the servant. However, in
'contract for service', the person cannot order what is to be done or how it is to be done e.g.
lawyer-client relationship will fall in this category. Services rendered in professional category
would fall in this category, e.g. when a person gives cloth to a tailor for stitching a suit, the
service rendered is in the course of his profession and not under contract of personal service.
Thus, service of doctor is covered under the definition of service, as it is 'contract for service'
and not 'contract of service'.
The distinction between 'contract of service' and 'contract for service' has been fully upheld
by Supreme Court in Indian Medical Association v. V P Shantha (1995) 6 SCC 651 = (1996) 1
Comp LJ 15 = 1995 AIR SCW 4463 = AIR 1996 SC 550 = (1995) 3 CTJ 969 = 86 Comp Cas 806
(SC 3 member bench). In this case, it was held that 'contract for services' implies a contract
whereby one party undertakes to render services e.g. professional or technical services to
or for other in the performance of which he is not subject to detailed direction and control
but exercises professional or technical skill and uses his own knowledge and discretion.
However, a 'contract of service' implies a relationship of master and servant and involves an
obligation to obey orders in the work to be performed and as to its mode and manner of
performance - similar views in Shivnandan Sharma v. Punjab National Bank Ltd. AIR 1955 SC
404 * Chandi Prasad Singh v. State of Uttar Pradesh AIR 1956 SC 149 * Dhrangadhra
Chemical Works v. State of Saurashtra AIR 1957 SC 264.
In Dhrangadhra Chemical Works v. State of Saurashtra AIR 1957 SC 264, it was observed,
'The principles according to which the relationship as between employer and employee or
master and servant has got to be determined are well settled. The test which is uniformly
applied in order to determine the relationship is the existence of a right of control in respect
of the manner in which the work is to be done. A distinction is also drawn between a contract
for services and a contract of service and the distinction is put in this way - 'In the one case,
the master can order or require what is to be done, while in other case, he cannot only order
or require what is to be done but how itself it shall be done. - - Prima facie test for the
determination of the relationship between master and servant is the existence of the right
of master to supervise and control the work done by the servant not only in the matter of
directing what work the servant is to do but also the manner in which he shall do his work.
- - Test of control is not one of universal application. There are many contracts in which the
master could not control the manner in which the work was done'.
In Smt. Savita Garg v. National Heart Institute AIR 2004 SC 5088 = (2004) 8 SCC 56 = 2004
AIR SCW 5820, it was held that doctors who are staff of hospital are on 'contract of service',
 67

while doctors on panel whose services are requisitioned from time to time by hospital are
on 'contract for service'. Hospital is controlling authority of both - quoted with approval in
Balaram Prasad v. Kunal Naha (2014) 1 SCC 384.
In short, in case of contract of service, the employer not only orders/requires what is to be
done but also directs as to how it shall be done, whereas in contract for service, the master
can only require as to what is to be done - Max Mueller Bhavan In re (2004) 138 Taxman 113
(AAR).
Salary of employees of foreign office paid in India - In Hitachi Power Europe GmbH, In re
[2020] 81 GST 706 = 117 taxmann.com 537 (AAR - Maharashtra), Expats were deputed in
India for project execution. They were employees of Project office in India. For
administrative convenience; salary of the employees were paid by foreign office and the
project office in India issued credit note of that amount to foreign office. It was held that
this is for payment of salary to employees. It is intra-company transaction. GST is not
applicable on accounting entry made for purpose of Indian accounting requirements in
books of account of project office for salary cost of expat employees - same view in Hitachi
Power Europe GmbH, In re[2019] 80 GST 81 = 116 taxmann.com 102 (AAR - UP).
3.6-2 Transaction of sale of land and building out of GST
Sale of land and, subject to para 5(b) of Schedule II, sale of building is neither supply of goods
nor a supply service as per para 5 of Schedule III of CGST Act.
Para 5(b) of Schedule II of CGST Act covers supply of building before completion or before
occupancy. Thus, sale of completed building after completion certificate will not be subject
to GST.
However, for purpose of section 17(3) of CGST Act (proportionate reversal of ITC when
taxable person is making both taxable and exempt supply), the expression 'value of exempt
supply' shall include value of sale of land and sale of completed building – Explanation to
section 17(3) of CGST Act inserted vide CGST (Amendment) Act, 2018, w.e.f. 1-2-2019.
Long lease of land is practically sale of land - In Lavasa Corporation Ltd. v. Jitendra Jagdish
Tulsiani [2018] 96 taxmann.com 212 (Bombay HC), agreement of lease was executed to take
apartments on long term lease of 999 years. Almost 80% of the cost was paid and substantial
amount of stamp duty and registration charges were paid. Lease rent was nominal of Rs one
per year. It was held that though nomenclature of the document is 'agreement to lease' in
its real purpose, it is an 'Agreement to sale'. Law is well settled that the nomenclature of the
document cannot be a true test of its real intent. The document has to be read as a whole
to ascertain the intention of parties. In reality, the transaction is 'agreement of sale'.
This judgment is in respect of RERA, and may not apply to GST. Further, specific provisions
have been made in respect of GST on long lease in case of real estate projects of residential
and commercial apartments.
The judgment was followed in Nagpur Integrated Township P Ltd. In re (2020) 80 GST 536 =
117 taxmann.com 392 (AAAR-Maharashtra), where long term lease of residential
apartments was shown, which was effectively sale of residential apartments.
Sale of developed plots by including development cost in sale value of plots - Often a
developer purchases land, converts it into plots, develops it by providing internal roads,
 68

water drains, compound walls, health club, and then sales individual plots. If he charges
separately development charges, then obviously GST is payable on development charges @
18%. However, if he includes the development cost in value of plots and sales individual plots
by paying stamp duty and registration fee on total value, what would be tax liability?
In Shree Dipesh Anilkumar Naik, In re[2020] 80 GST 505 = 117 taxmann.com 450 (AAR -
Gujarat), it was held that activity of sale of developed plots would be covered under
paragraph 5(b) of schedule II of CGST Act, as 'construction of a complex intended for sale to
a buyer'; GST is payable on sale of developed plots.
Activity of purchase of land and selling the said land by converting into integrated residential
sub-plots would fall under paragraph 5(b) of Schedule II of CGST Act and would be liable to
GST @18% - Satjaya Infratech In re (2020) 81 GST 589 = 117 taxmann.com 260 (AAR-Gujarat).
In PPD Living Spaces P Ltd. In re (2018) 70 GST 579 = 98 taxmann.com 158 (AAR-Kerala), it
was held that it is lawful to structure agreement by fixing land cost after development
charges. However, there was some confusion that if plots are sold after issuance of
completion certificate, ITC has to be reverse on pro rata basis. Really, in case of sale of plots,
there is no question of issue of completion certificate.
In my view, it is possible to sale plot by including development costs and in that case, no GST
is payable as it is composite supply with principal supply of land.
However, in respect of health club, club house and play courts, it would be difficult to say
that these are part of composite supply of plots. Hence, in my view, these should not be part
of services offered to customers. It is advisable to hand them over to club or association,
who will provide the services to members on chargeable basis.
In any case, simple service of development of land belonging to landowners is subject to GST
when no sale of land is involved - MAARQ Spaces P Ltd In re (2019) 111 taxmann.com 368
(AAR-Karn).
3.6-3 Salary to partners not subject to GST
Working partners are entitled to draw salary from the firm. On the basis of provisions of
Partnership Act. It is settled that a partner is not 'employee' of the firm and salary is only
share of profit. The issue is whether such remuneration will be subject to GST.
Luckily it has been clarified vide S Nos. 58 and 71 of Tweet FAQ released by CBE&C on 26-6-
2017, that GST is not payable on salary to partners.
In Anil Kumar Agrawal, In re[2020] 116 taxmann.com 428 (AAR - Karn), it has been held that
is salary received as partner from firm and share of profit received from partnership is not
'supply' and hence out of GST.
In my view, the answer is correct.
Salary to partner is only share of profit in income tax - In CIT v. R M Chidambaram Pillai
(1977) 106 ITR 292 (SC), it was held that a firm is not a 'legal person' though it has some
attributes of personality. In income tax law, a firm is a unit of assessment, by special
provisions, but is not a full person. Salary paid to partner is only profit known by a different
name. In strict law, there cannot be a contract of service between a firm and one of its
 69

partners, since contract of employment requires two distinct persons viz. employer and
employee. A man cannot be his own employer.
Thus, salary to partner is only share of profit by different name. It is only supply money and
hence not covered under GST as mere supply of money is neither goods nor services.
Alternate argument that partner is employee due to deeming fiction - Though partnership
firm is not 'legal person', by a legal fiction under GST Law, it has been defined as a 'person',
notwithstanding provisions of Partnership Act.
Thus, once a legal fiction is created by law, it has to be taken to its logical end. Once a
deeming provision has been introduced, it has to be 'deemed' for all purposes for which the
fiction was created. Hence, partnership firm and the partner have to be 'deemed' as two
different persons and then a partner will be employee of the partnership firm. Since service
provided by employee to employer is neither supply of goods nor supply of service as per
clause 1 of Schedule III of CGST Act, GST cannot apply.
It may be advisable to have proper agreement with partner for this purpose.
Conclusion - In view of above and in view of departmental clarification, such remuneration
to partners is not taxable under GST.
3.6-4 Activities in relation to functions under Article 243G are neither goods nor services
Activities or transactions undertaken by the Central Government or State Government or
Local Authority in which they are engaged as public authority i.e. services by way of any
activity in relation to a function entrusted to a Panchayat under Article 243G of Constitution
of India are neither supply of goods nor supply of services - Notification No. 14/2017-CT
(Rate) dated 28-6-2017.
These are discussed in a separate chapter under 'Government related activities'.
3.6-5 Inter-state movement of modes of conveyance, carrying goods or passengers or for
repairs and maintenance is neither supply of goods nor services
CBE&C circular No. 1/1/2017-IGST dated 7-7-2017 has clarified as follows -
Inter-state movement of various modes of conveyance, carrying goods or passengers or for
repairs and maintenance is neither supply of goods nor supply of service, as per decision of
GST Council.
This will cover trains, buses, trucks, tankers, Trailers, Vessels, Containers and Aircrafts.
However, if such movement is for further supply of same conveyance, GST provisions will
apply (i.e. car or truck or vehicle itself is driven to other State for sale in that State).
However, generation of e-way bill is required, if value exceeds Rs 50,000.
3.6-6 Inter-State movement of rigs, tools and spares, and all goods on wheel like cranes
CBI&C circular No. 21/21/2017-GST dated 22-11-2017 has clarified as follows –
Inter-State movement of rigs, tools and spares and all goods on wheels (like cranes) shall be
treated as neither as 'supply of goods' nor supply of services. IGST will not apply. However,
if these are repaired, GST will apply on such repair or maintenance charges.
These instructions apply to tower cranes, rigs, batching plants, concrete pumps and mixers
which are not mounted - para 13 of CBI&C circular No. 80/54/2018-GST dated 31-12-2018.
 70

However, generation of e-way bill is required, if value exceeds Rs 50,000.

3.6-7 Service of grant of licence of alcoholic liquor by State Government is neither goods
nor service
service supplied by State Government by way of grant of alcoholic liquor licence, against
consideration in the form of licence fee or application fee or by whatever name it is called,
is neither supply of goods nor supply of service - Notification No. 24/2019-IT (Rate) and No.
22/2019-CT(Rate)bothdated 30-9-2019.
3.7 Services provided by Government or local authority which are not taxable
Any activity or transaction undertaken by Central Government, State Government or Local
Authority as public authority has been specifically included in definition of 'business' under
section 2(17)(i) of CGST Act.
However, some of these activities will be specifically excluded from scope of GST by issuing
notification under section 7(2)(b) of CGST Act on recommendation of GST Council.
Activities or transactions undertaken by the Central Government or State Government or
Local Authority in which they are engaged as public authority i.e. services by way of any
activity in relation to a function entrusted to a Panchayat under Article 243G of Constitution
of India are neither supply of goods nor supply of services - Notification No. 14/2017-CT
(Rate) dated 28-6-2017.
3.8 Tax liability in case of Mixed supply and composite supply
Often, various supplies are made together e.g. (a) supplier of car arranges for its registration
with RTO (b) supplier of goods or food arranges for its packing, insurance and delivery (c)
commercial coaching institute supplies printed study material, recorded lectures (d) Goods
Transport Agency arranges loading, unloading and storage (e) Tour operator arranges hotel
booking, sight seeing, travel arrangement, visa etc. (f) car repairer also supplying spare parts
(g) supplier of machinery also undertaking its erection and commissioning (h) Hotel
providing laundry and intercom services.
In some cases, such combined supply is normal trade practice. This is termed as 'composite
supply'. In some cases, it is not normal trade practice. This is termed as 'mixed supply'.
Normally, in case of composite supply, consolidated bill may be issued, while in case of mixed
supply, bill is often split in various separate supplies.
3.8-1 Tax liability in case of composite and mixed supply
The statutory provisions are as follows.
The tax liability on a composite or a mixed supply shall be determined in the following
manner — (a) a composite supply comprising two or more supplies, one of which is a
principal supply, shall be treated as a supply of such principal supply (b) a mixed supply
comprising two or more supplies shall be treated as supply of that particular supply which
attracts the highest rate of tax - section 8 of CGST Act.
'Principal supply' means the supply of goods or services which constitutes the predominant
element of a composite supply and to which any other supply forming part of that composite
supply is ancillary - section 2(90) of CGST Act.
 71

'Composite supply'means a supply made by a taxable person to a recipient comprising 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.
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 - section 2(30) of CGST Act.
'Mixed supply' means two or more individual supplies of goods or services, or any
combination thereof, made in conjunction with each other by a taxable person for a single
price where such supply does not constitute a composite supply.
Illustration: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry
fruits, aerated drink and fruit juices when supplied for a single price is a mixed supply. Each
of these items can be supplied separately and is not dependent on any other. It shall not be
a mixed supply if these items are supplied separately - section 2(74) of CGST Act.
Comment on illustration given in mixed supply - The illustration given in case of 'mixed
supply' is not fully correct, as really, during Diwali, it is indeed trade practice to supply these
items together as part of season's gift.
Retreading of tyres is service but supply of retreaded tyre is goods - As per MF(DR)(TRU)
circular No. 34/8/2018-GST dated 1-3-2018, retreading of tyres is a composite supply and
pre-dominant element is process of retreading which is a service. However, if the old tyre
belongs to supplier of retarder tyres (i.e. he sales retreaded tyre on his own account), it is
supply of goods under heading 4012 and chargeable @ 28%.
Bus body building - Whether it is supply of goods or services depends on which supply is
the principal supply, based on facts and circumstances of the case - MF(DR)(TRU) circular
No. 34/8/2018-GST dated 1-3-2018.
The activity of fabrication and fitting and mounting of bus bodies on the chassis supplied by
the other party is a composite supply with supply of goods, i.e., bus-bodies, being principal
supply and same is covered under HSN code 8707 - Paras Motor Industries, In re [2018] 95
taxmann.com 218 (AAR- Haryana).
Activity of Body building of buses undertaken by applicant carried out on chassis supplied by
principal in capacity of a job worker would amount to 'Composite Supply'. Rate of tax on
such 'Composite Supply' would be determined by predominant component involved in such
'Composite Supply' depending upon character of body being built on chassis, which would
eventually be classifiable under Chapter 87 of Tariff. On the other hand if predominant
element happens to be Service Part, then Principal Supply would be classified under heading
No. 9988 - Arpijay Fabricators (P.) Ltd., In re [2018] 96 taxmann.com 44 (AAR-Madhya
Pradesh)
Supply, erection and assembly of air conditioning plant is composite supply, not a works
contract - In Nikhil Comforts In re (2019) 75 GST 305 = 107 taxmann.com 233 (AAR-
Maharashtra), it has been held that supply, erection, installation and assembly of air
conditioning plant is a composite supply liable to tax @ 28% (as applicable to air
conditioner), as principal supply is air conditioner. It is not 'works contract' service and hence
 72

not eligible for 18% GST - affirmed in Nikhil Comforts, In re [2020] 122 taxmann.com 14
(AAAR-Maharashtra) [Typical 'head I win, tail you lose' attitude of Government Officers].
Supply and installation of pumps is composite contract, it is supply of goods - In United
Engineering Works In re (2019) 75 GST 756 = 108 taxmann.com 104 (AAR-Karnataka), it was
held that supply of submersible pump sets and installation, electrification and energisation
of same to Government bodies is composite supply. Principal supply is supply of goods. It is
not a works contract as not related to immovable property and is not a works contract [There
can be two views on this issue].
Servicing of vehicles which covers both goods and services - In case of servicing of vehicles
which covers both goods and services, if value of goods and services is shown separately,
the goods and services shall be liable to tax at the rates applicable to such goods and services
separately. Servicing of vehicles which covers both goods and services.
In other words, supply of goods and services will be treated as two different supplies -
neither mixed supply nor composite supply.
Priority Sector Lending Certificates (PSLC) - Priority Sector Lending Certificates (PSLCs) are
tradable certificates issued against priority sector loans of banks so as to enable banks to
achieve their specified target and sub-targets for priority sector lending through purchase
of these instruments in the event of a shortfall and at the same time incentivizing the surplus
banks to lend more to these sectors. Priority Sector Lending Certificates (PSLC) are tradable
like duty credit scrips and are 'goods' - MF(DR)(TRU) circular No. 34/8/2018-GST dated 1-3-
2018.
Other services supplied by DISCOMS against charge are taxable under GST - Service of
transmission or distribution of electricity by DISCOMS is exempt from tax. DISCOMS provide
other services for which they charge separately e.g. i. Application fee for releasing
connection of electricity; ii. Rental Charges against metering equipment; iii. Testing fee for
meters/transformers, capacitors etc.; iv. Labour charges from customers for shifting of
meters or shifting of service lines v. charges for duplicate bill. These are subject to tax -
MF(DR)(TRU) circular No. 34/8/2018-GST dated 1-3-2018.
[In other words, as per the circular, it is a mixed supply and not composite supply. The issue
is surely arguable as really it is a composite supply though charged separately].
3.8-2 Distinction between 'composite supply' and 'mixed supply'
A composite supply is 'naturally bundled' while 'mixed supply' is not naturally bundled in
ordinary course of business.
A supply can be 'mixed supply' only if it is for a single price, while a supply can be 'composite
supply' even if separate prices are charged.
Trade practice is also relevant. A vehicle repair shop also supplies spare parts. However, the
long trade practice is to treat these two supplies separately. Hence, such activity is not
'composite supply'. It is also not 'mixed supply' as single price is not charged.
In Cartus India (P.) Ltd., In re [2020] 119 taxmann.com 25 (AAAR - Karnataka), applicant was
providing different packages of bundled services for relocation of employee. There was a
specific rate for each such package. Client may choose several individual services from list
(called as 'a la carte' services) or may opt for any package.They are bundled based on
 73

requirement of client. It was held that 'a la carte' services provided by appellant, relating to
employee relocation is neither a composite supply nor a mixed supply [In appeal against
Cartus India (P.) Ltd., In re [2019] 110 taxmann.com 345 (AAR - Karnataka)].
3.8-3 Meaning of 'naturally bundled'
The definition of 'composite supply' uses the words 'naturally bundled'. This is not defined
in GST Act but was used in Finance Act, 1994 (relating to service tax). Hence, clarifications
given under those provisions are relevant.
The principle was nicely explained in Para 9.2.4 of CBI&C's 'Taxation of Services : An
Education Guide' published on 20-6-2012, as follows -
Whether services are bundled in the ordinary course of business would depend upon the
normal or frequent practices followed in the area of business to which services relate. Such
normal and frequent practices adopted in a business can be ascertained from several
indicators few of which are listed below -
The perception of the consumer or the service receiver. If large number of service
receivers of such bundle of services reasonably expect such services to be provided
as a package then such a package could be treated as naturally bundled in the
ordinary course of business.

Majority of service providers in a particular area of business provide similar bundle

of services. For example, bundle of catering on board and transport by air is a bundle
offered by a majority of airlines.

The nature of the various services in a bundle of services will also help in determining
whether the services are bundled in the ordinary course of business. If the nature of
services is such that one of the services is the main service and the other services
combined with such service are in the nature of incidental or ancillary services which
help in better enjoyment of a main service. For example service of stay in a hotel is
often combined with a service or laundering of 3-4 items of clothing free of cost per
day. Such service is an ancillary service to the provision of hotel accommodation and
the resultant package would be treated as services naturally bundled in the ordinary
course of business.

Other illustrative indicators, not determinative but indicative of bundling of services

in ordinary course of business are - (a) There is a single price or the customer pays
the same amount, no matter how much of the package they actually receive or use
(b) The elements are normally advertised as a package (c) The different elements are
not available separately (d) The different elements are integral to one overall supply
- if one or more is removed, the nature of supply would be affected.

No straight jacket formula can be laid down to determine whether a service is naturally
bundled in the ordinary course of business. Each case has to be individually examined in the
backdrop of several factors some of which are outlined above.
3.8-4 Illustrations of naturally bundled service
 74

An airline provides movie or catering on board. A service provider of pandal and shamiana
may also offer to provide catering service. A job worker may also agree to provide delivery
of goods after job work.
A CA may offer income tax consultancy in addition to auditing services.
A contractor may offer services right from design, getting necessary approvals, actual
construction, finishing, arranging electrical and water connections and getting completion
certificate of a building.
A 'turnkey project' is another example of bundled service.
In such cases, the service is required to be classified as per essential character.
A Goods Transport Agency (GTA) provides composite services which may include ancillary
services like loading/unloading, packing/unpacking, transhipment, temporary storage
during transit etc. All such ancillary services will form part of GTA service and would be
eligible for abatement available to GTA service - MF(DR) circular No. 186/5/2015-ST dated
5-10-2015.
Supply of water is part of maintenance services provided to housing society/Resident
Welfare Association and GST is payable on charges for supply of water even if there are two
separate contracts - Ashiana Maintenance Services LLP, In re [2021] 124 taxmann.com 54
(AAR - Haryana).
In Dalveer Singh v. CCE (2008) 12 STT 226 (CESTAT SMB), appellant was providing service of
transporting goods from railway wagons to company's warehouse. It included
loading/unloading of goods. It was held that loading/unloading is incidental to transport of
goods and the service is not 'cargo handling service'.
In CCE v. Maa Sharda Transport (2013) 42 GST 282 = 33 taxmann.com 18 (CESTAT). Assessee
was engaged in filling of ash into bunkers, in addition to transport activity. It was held that
this activity is incidental to transportation of goods and was not taxable under cargo
handling service.
In Suzlon Infrastructure v. CCE (2012) 283 ELT 49 (CESTAT), assessee had received a
composite contract for erection and commissioning. Assessee raised four separate invoices
for construction of civil work, supply and installation of transmission line, erection and
commissioning of windmill and final testing. It charged service tax only on one invoice of
erection and commissioning. It was held that it was a composite service and entire service is
to be held as erection and commissioning service only (decision not relating to bundled
service but principle applicable here).
Cold storage charges are inseparable part of C&F Agent's service and includible in taxable
value of services - Monsanto Manufacturers P Ltd. v. CCE (2013) 65 VST 58 (CESTAT).
Erection, commissioning, installation and testing of electricity meters at the premises of
electricity consumers is service relating to transmission and distribution of electricity (and
hence exempt) - Paschimanchal Vdyut Vitran Nigam v. CCE (2012) 36 STT 636 = 24
taxmann.com 169 (CESTAT).
In Card Protection Plan Ltd. v. CCE (2012) 36 STT 107 = 22 taxmann.com 176 (ECJ), appellant
was providing insurance scheme of 'protection and recovery' plan in case of loss of credit
 75

card, car keys, passports, share certificates etc. In addition to insurance, other facilitation
services like card registration service, emergency airline ticket, assisting in informing police,
lost key location were provided. It was held that insurance and other facilitation services
would constitute a single indivisible economic transaction for levy of tax. It cannot be split
artificially.
Supply of software, its customisation and training are closely linked and they constitute a
single indivisible economic transaction, even if separate prices were given. Predominant
element was customisation as it would make software useful to consumer and its price was
also higher. Hence whole contract constituted a single supply of service - Levob
Verzekeringen BV and OV Bank NV v. Secretary of State for Finance, Netherlands (2012) 36
STT 135 = 23 taxmann.com 174 (ECJ).
If two or more elements are so closely linked that they form a single indivisible economic
supply, which can be split only artificially, all those elements constitute a 'single supply' -
Aktiebolaget NN v. Skatteverket (2012) 36 STT 264 = 22 taxmann.com 175 (ECJ) * Don Bosco
Onroerend Goed BV v. Secretary of State for Finances (2012) 36 STT 284 = 22 taxmann.com
179 (ECJ).
Telecom service and separate handling charge for handling of payment of mobile bills is a
'single supply' (naturally bundled service). The charges for handling payment of bills is not a
separate service, even if separate price charged - Everything Everywhere Ltd., formerly T-
Mobile (UK) Ltd. v. Commissioners for Her Majesty's Revenue and Customs (2012) 37 STT 763
= 28 taxmann.com 138 (ECJ)
Renting of immovable property and cleaning service of common parts are separate
transactions. These are not naturally bundled services, as cleaning services are separately
available from third parties - RLRE Tellmer Property sro v. Tax Department of Usti nad Labem
(2012) 36 STT 257 = 23 taxmann.com 244 (ECJ) [The principle of this decision would apply in
India. However, the actual decision may not apply as in India, generally such services are not
separately or so easily available].
Transport of goods plus cash collection as composite service - In NV Nederlandse
Spoorwegen v. Staatssecretaris van Financien (2013) 38 STT 541 (ECJ), assessee was carrier,
engaged in transport of goods on a cash-on-delivery system (like VPP in India). It was held
that service of cash collection is only ancillary to service of transport of goods. These two
services are not separable. Hence, it is eligible for exemption/abatement as applicable to
transport of goods.
Door delivery of cargo by airlines - In Jet Airways v. CST (2008) 15 STT 1 = 33 VST 501
(CESTAT), assessee was transporting goods by air. He was getting the cargo collected at
source/delivered at destination from its cargo agents, which incidental to transportation of
goods by air. It was held that this is not 'cargo handling service' (as essential character of
service is transport of goods by air).
Charges of PLC, EDC , parking space charges etc. are part of 'construction service' - A
builder/contractor charges separately for Preferential Location Charges (PLC), additional
charges for modifications suggested by customers, maintenance during construction period,
covered parking charges, EDC (External Development Charges), IDC (Internal Development
 76

Charges) etc. In my view, all these are 'naturally bundled services'. These should get covered
under 'construction of complex' and be eligible for abatement in valuation. However, club
membership fee cannot be part of construction service and should not get covered under
'naturally bundled service'. Similarly, maintenance service provided after construction is
over is not part of 'construction service' and should not be eligible for abatement.
However, in Bengal Peerless Housing Development Company Ltd., In re[2019] 110
taxmann.com 34 (AAAR-WB), it has been held that PLC is a separate service charged
separately at the option of customer. It is not part of value of construction service and no
abatement is available in respect of PLC amount charged [In other words, it is not composite
supply]. The decision in Bengal Peerless Housing Development Co. Ltd. In re [2019] 105
taxmann.com 58 (AAR-West Bengal) has been reversed, where, it was held that service of
construction of a dwelling unit in a residential complex, bundled with services relating to the
preferential location of the unit and right to use car parking space and common areas and
facilities, is a composite supply, construction service being the principle supply. Entire value
of the composite supply is, therefore, to be treated, for the purpose of taxation, as supply
of construction service.
Commercial coaching plus accommodation and mess services - In Doctors Academy of
Educational Society, In re [2020] 121 taxmann.com 187 (Appellate Authority (GST) - AP),
appellant was providing service of supply of commercial coaching along with
accommodation charges and mess services to students. Principal supply is commercial
coaching and other supplies are incidental to principal supply. Principal supply is must for
every student. It was held that these services were offered as a bundled services to students.
These shall be treated as composite supply. Tax shall be levied as applicable to principal
supply, i.e., commercial coaching @ 18%.
Contract for supply, installation and fixing of furniture is composite supply - Contract for
supply, installation and fixing of furniture is composite supply with furniture as principal
supply. Hence, the supply is classifiable as furniture under HSN 9403 - Methodex Systems P
Ltd. In re (2020) 81 GST 347 = 118 taxmann.com 110 (AAR-MP).
Electricity and water charges collected from tenant on actual basis is part of composite
supply of renting or immovable property - In E-Square Leisure (P) Ltd. In re (2019) 104
taxmann.com 121 (AAR - Maharashtra), it has been held that GST is payable on electricity
and water charges collected from tenant on actual basis. The amount collected is not as
'pure agent'. Renting is main supply and supply of electricity, water, fuel are in nature of
ancillary supply. All these are inter-dependent. It is a 'composite supply' [In my view, if rent
agreement clearly states that renting is of immovable property only and electricity and water
charges is responsibility of tenant, it can be argued that electricity and water charges are not
part of renting service].
Boarding schools - Boarding schools provide service of education coupled with other
services like providing dwelling units for residence and food. This may be a case of bundled
services if the charges for education and lodging and boarding are inseparable. Their
taxability will be determined in terms of the principles laid down in section 66F of the Act.
Such services in the case of boarding schools are bundled in the ordinary course of business.
Therefore the bundle of services will be treated as consisting entirely of such service which
 77

determines the dominant nature of such a bundle. In this case since dominant nature is
determined by the service of education, the entire bundle would be treated as educational
service - Para 4.12.4 of CBI&C's Taxation of Services : An Education Guide' published on 20-
6-2012.
Freight forwarder - Freight forwarder is a classic example of naturally bundled service,
where the service starts with taking delivery of goods from place of seller, packing, loading,
transporting, clearing at State borders or customs (as applicable), unloading at other side,
transporting to destination and giving delivery to the customer at other end. In my view,
essential character of service is transport of goods and should fall under that description.
This view has been confirmed in Para 5.9.5 of CBI&C's 'Taxation of Services : An Education
Guide' published on 20-6-2012.
In APL Logistics (India) v. CCE (2015) 50 GST 531 = 55 taxmann.com 364 (CESTAT), assessee
was providing logistics support service to exporters/importers. Ocean freight was shown
separately in invoice, which was paid by assessee to shipping lines. It was held that service
tax is not payable on ocean freight.
Service tax on freight forwarder on transportation of goods from India - If freight forwarder
acts as mere agent of shipping lines/carrier/ocean liner, he only charges outward freight on
transportation of goods from India. In such case, he is merely acting as intermediary. He will
be liable to pay service tax on his commission and not the outward freight.
If he is acting as Principal, he bears all legal responsibility and risks. In such case, he is not
liable to pay service tax when destination of goods is outside India - CBI&C circular No.
197/7/2016-ST dated 12-6-2016.
3.8-5 Illustrations of composite supply of goods
In case of supply of goods also, there can be composite supply or mixed supply.
As per Rule 3(b) of General Interpretative Rules [GIR] for classification of goods, in case of
composite goods, if these cannot be classified on basis of specific description, these should
be classified as if they consisted of the material or component which gives it their essential
character.
For example, if a set consists of drawing instruments (90.17), pencil (96.09) and pencil
sharpener (82.14), put up in a leather case (4201.90); the set will be classifiable under 90.17
i.e. drawing instrument.
Supply of mobile with charger - Supply of mobile with charger is a composite supply as
there is no intention to effect separate sale of charger - Samsung (India) v. CCT (2018) 66
GST 1 = 90 taxmann.com 92 (All HC DB).
No doubt this is the correct decision.
In State of Punjab v. Nokia India P Ltd. (2015) 49 GST 277 = 52 taxmann.com 410 = 315 ELT
162 = 77 VST 427 (SC), cell phone was sold along with battery charger as a package. It was
held that battery charger is an accessory. It is not part of cell phone as it is not required at
the time of operation of cell phone. Hence, mere making composite package of cell phone
and battery charger could not make it composite goods. Hence, Vat on battery charger has
 78

to be on the basis that it is accessory and not composite article [In this case, billing was
composite. Even then it was held that battery charger is to be treated separately].
This judgment was indeed noted by Allahabad High Court, but was distinguished giving
various reasons.
[In my view, apart from the reasons given, the most appropriate reason is that there is
specific definition of 'composite supply' in GST Law and no concept of 'accessory' in GST
Law].
Supply of goods with transportation, loading/unloading - In IAC Electricals P Ltd. In re
[2018] 68 GST 392 = 93 taxmann.com 476 (AAR –WB), the taxable person had entered into
two separate contracts – one for supply of materials at ex-factory price and other for
transportation, transit insurance, loading/unloading of goods. It was held that the contracts
are not independent [This was clear from terms of contract also]. It was held that this is a
composite contract.
Supply of goods with freight and insurance services is a composite supply, where principal
supply is of 'goods'. However, commissioning/installation service is independent service -
San Engineering and Locomotive Co. In re (2020) 82 GST 317 = 116 taxmann.com 422 (AAR-
Kar).
Supply of desktop computer with CPU, Monitor, keyboard and mouse is single supply -
Supply of desktop computer with CPU, Monitor, keyboard and mouse with one single price
is single supply. It is classifiable under heading 8471 - HP India Sales P Ltd. In re (2019) 110
taxmann.com 86 (AAR-TN).
Accommodation service with food, housekeeping, TV, Internet, parking is composite
supply - Accommodation service with food, housekeeping, TV, Internet, parking is
'composite supply', with accommodation is principal supply. The service falls under heading
996311. If total amount charges is less than Rs 1,000 per day, it is exempt - Srisai Luxurious
Stay LLP In re (2020) 81 GST 372 = 116 taxmann.com 399 (AAR-Karn).
Electricity and water charges collected from tenant on actual basis is part of composite
supply of renting or immovable property - In E-Square Leisure P Ltd. In re (2019) 104
taxmann.com 121 (AAR - Maharashtra), it has been held that GST is payable on electricity
and water charges collected from tenant on actual basis. The amount collected is not as
'pure agent'. Renting is main supply and supply of electricity, water, fuel are in nature of
ancillary supply. All these are inter-dependent. It is a 'composite supply' [In my view, if rent
agreement clearly states that renting is of immovable property only and electricity and water
charges is responsibility of tenant, it can be argued that electricity and water charges are not
part of renting service].
Work of blasting is composite supply of goods and services - In Khedut Hat In re (2018) 70
GST 779 = 98 taxmann.com 136 (AAR-Gujarat), applicant was engaged in blasting activity.
The explosives were consumed during blasting and property in the explosives was never
transferred to customer. Even then, it was held that this is deemed supply of explosives. It
is composite supply as defined under section 2(30) of CGST Act and tax rate will be on basis
of principal supply as per section 8(a) of CGST Act.
 79

Maintenance Contract where some lubricants or oil is used is a composite contract of

supply of goods and services? - In Khilari Infrastructure P Ltd. In re (2018) 69 GST 693 = 97
taxmann.com 122 (AAR-Maharashtra), it was held that maintenance Contract where some
lubricants or oil is used (cost 2% to 5% of total contract) is a composite contract of supply of
goods and services seems doubtful since properly of lubricants and oil is never transferred
to customer. In fact, the AAR, in its order itself, has sought guidance of GST Council of this
issue.
Supply of medicines and food with healthcare services - Supply of medicines and food along
with and part of healthcare services is a composite supply. It is exempt. However, if food or
medicines are supplied separately on optional basis, it is not a composite supply - Columbia
Asia Hospitals (P.) Ltd.,In re [2018] 100 taxmann.com 212 (AAR - KARNATAKA) - same view
in KIMS Health Care Management Ltd.,In re [2018] 70 GST 735 = 99 taxmann.com 37 (AAR -
Kerala) * Ernakulam Medical Services P Ltd. In re (2018) 70 GST 617 = 98 taxmann.com 161
(AAR-Kerala) * Rajagiri Health Care & Education Trust,In re [2018] 99 taxmann.com 36 = 71
GST 19 (AAR - Kerala). * Kindorama Healthcare In re (2019) 105 taxmann.com 224 (AAR –
Kerala) * Terna Public Charitable Trust.,In re [2019] 107 taxmann.com 356 (AAR -
Maharashtra).
Food supplies to patients as part of health care service is composite supply and not
separately taxable - FAQ on GST Chapter 4 Q No. 28 issued by CBI&C on 15-12-2018.
Supply of medicines, consumables and in-plants during providing health care services -
Supply of medicines, consumables and in-plants during providing health care services
supplied to in-patients for diagnosis or treatment by hospital are naturally bundled and are
exempt under 'health care service' - KIMS Health Care Management Ltd. In re (2018) 70 GST
735 = 99 taxmann.com 37 (AAR-Kerala) * Starcare Hospital Kozhikode (P.)Ltd., In re[2019]
105 taxmann.com 225 (AAR - Kerala) * Kindorama Healthcare (P.)Ltd., In re[2019] 105
taxmann.com 224 (AAR - Kerala) * CMC Vellore Association In re (2020) 113 taxmann.com
55 (AAR-TN) *CMC Vellore Association, In re [2020] 117 taxmann.com 863 (AAR - AP). * Shifa
Hospitals In re (2020) 78 GST 676 = 110 taxmann.com 483 (AAR-TN) * Baby Memorial
Hospital Ltd. In re (2020) 80 GST 342 = 110 taxmann.com 514 (AAR-Kerala) * Royal Care
Speciality Hospitals In re (2020) 79 GST 92 = 110 taxmann.com 481 (AAR-TN).
Marine Consultancy Service and support service is composite supply - In Five Star
Shipping,In re [2018] 98 taxmann.com 435 (AAAR-MAHARASHTRA), appellant was providing
Marine Consultancy Service to foreign ship-owners (FSO) in respect of opportunities of
maritime operation business and support service in respect of maritime transport of foreign
ship owners (which was in nature of intermediary service). It was held that the entire gamut
of services performed by the Appellant is composite supply of the intermediary services,
classified under the Service Accounting Code 999799, and other miscellaneous services with
SAC 998222 (accounting services), of which the intermediary service is the principal supply.
Earlier, in Five Star Shipping In re (2018) 69 GST 17 = 95 taxmann.com 2 (AAR-Maharashtra),
it was held that this is 'mixed supply'. (It is not clear why consultancy service has been held
as accounting service.)
Supply of free medical instrument with obligation to purchase minimum quantity of goods
- In Abbott Healthcare (P.) Ltd.,In re [2018] 98 taxmann.com 156 (AAR- Kerala), the appellant
 80

was supplying specified medical instruments to hospitals, labs, etc. for use without
consideration against an agreement containing minimum purchase obligation of products
like reagents, calibrators, disposals etc., for a specific period. It was held that this constitutes
composite supply. This is 'naturally bundled' as supply of goods has no independent
existence severed from supply of right to use machine/instrument and becomes a
'composite supply', whereby supply of instrument is 'principal supply'. Thus, entire
transaction is liable to GST under Sr. No. 17(iii) - Heading 9973 as 'transfer of right to use of
any goods for any purpose' (whether or not for a specified period) for cash, deferred
payment or other consideration - view confirmed in Abbott Healthcare (P.) Ltd., In re[2019]
72 GST 705 = 103 taxmann.com 159 (AAAR-Kerala).
However, this view has not been accepted in Abbott Healthcare (P.) Ltd, v. CST (2020) 113
taxmann.com 181 (Ker HC) and the matter has been remitted back to AAR for fresh
consideration.
In Raddox Laboratories India P Ltd. In re (2020) 78 GST 75 = 111 taxmann.com 375 (AAR-
Karnataka), it was held that GST is not payable on free supply of equipment given to
customer (which is returnable at end of contract), while GST is payable on reagents, controls
and services. If some amount is charged for supply of equipment, then GST payable on non-
refundable amount. Applicant can avail ITC of GST paid on purchase of equipment in both
the cases.
Comprehensive maintenance agreement - In Sandvik Asia (P.) Ltd., In re[2018] 71 GST 174
= 100 taxmann.com 14 (AAR- Rajasthan), it has been held that in composite supply of
comprehensive maintenance contract, supply of maintenance services is to be considered
as principal supply and supply of other goods or services shall be ancillary to such principal
supply. Maintenance and repair services of commercial and industrial machinery fall under
heading 9987171 and prescribed rate of GST is 18 per cent (CGST at rate of 9 per cent of
taxable value, SGST at rate of 9 per cent of taxable value) or IGST at rate of 18 per cent of
taxable value. This decision has been reversed in Sandvik Asia (P.) Ltd., In re[2019] 104
taxmann.com 424 (AAAR- Rajasthan) and it was held that it is mixed supply (as there were
two separate agreements) [In my view, decision of AAR is still valid if it is single
comprehensive maintenance contract].
Repair and services during warranty to foreign principal- In Volvo-Eicher Commercial
Vehicles Ltd. In re (2020) 82 GST 653 = 119 taxmann.com 176 (AAAR-Kar), appellant was
providing repairs and maintenance services to vehicles in India, supplied by foreign Principal.
It was held that repair and services during warranty is composite supply of goods and service
with principal is supply of service.
After sale service with spare parts, batteries etc. - In Cummins India Ltd. In re (2019) 72 GST
734 = 103 taxmann.com 124 (AAR-Maharashtra), applicant was providing after sales service
to customers, which included supply of spare parts, maintenance services, rebuilding of
engine and batteries, for a single price. It was held that principal supply is one of supply of
service. Supply of goods is incidental to supply of service.
3.8-6 Illustrations of mixed supply
 81

Contract for supply of spares and supply of repairs and maintenance services - Where
supply of spare parts/accessories and repair services are distinct and separately identifiable,
these cannot be considered as composite supply. Separate rates as applicable to spare parts
and repair services will apply - Vista Marine and Hydraulics In re (2020) 77 GST 349 = 110
taxmann.com 498 (AAR-Kerala).
Earlier, in Sandvik Asia (P.) Ltd., In re[2018] 71 GST 174 = 100 taxmann.com 14 (AAR-
Rajasthan), it was held that in composite supply of comprehensive maintenance contract,
supply of maintenance services is to be considered as principal supply and supply of other
goods or services shall be ancillary to such principal supply. Maintenance and repair services
of commercial and industrial machinery fall under heading 9987171 and prescribed rate of
GST is 18 per cent (CGST at rate of 9 per cent of taxable value, SGST at rate of 9 per cent of
taxable value) or IGST at rate of 18 per cent of taxable value.
UPS (Uninterrupted Power Supply) with battery - In Switching Avo Electro Power Ltd., In re
[2018] 96 taxmann.com 106 = 69 GST 414 (AAAR-West Bengal), it was held that when a UPS
is supplied with built-in batteries so that supply of battery is inseparable from supply of UPS,
it should be treated as a composite supply. However, storage battery has multiple uses and
can be put to different uses. When battery is supplied separately with static converter (UPS)
it cannot be considered as a composite supply or a naturally bundled supply (i.e. it will be
treated as mixed supply).
[Earlier, in Switching Avo Electro Power Ltd., In re [2018] 92 taxmann.com 223 = 67 GST 449
(AAR-West Bengal), it was held that where UPS and battery are supplied as separate goods,
but a single price is charged for combination of goods supplied as single contract, supply of
UPS and battery is to be considered as mixed supply, as they are supplied under a single
contract at a combined single price. This order was modified in appeal as stated above].
Separate charges for different supplies means it is not 'mixed supply' - If separate amounts
are charged for different supplies (like accommodation, food, guides, trekking etc.), the
goods and services will be liable to tax at rates as applicable to such goods and services
separately - Kerala Forest Development Corpn Ltd. In re (2019) 74 GST 123 = 104
taxmann.com 42 (AAR- Kerala) [In my view correct, since if separate charges are made, it is
not 'mixed supply'].
 82

Supply of goods or services or both

4.1 Meaning of 'goods'
'Goods' include all materials, commodities and articles - Article 366(12) of Constitution of
India.
This is inclusive definition. It should cover all movable property.
GST Law defines 'goods' as follows -
'Goods' means every kind of movable property other than money and securities but includes
actionable claim, growing crops, grass and things attached to or forming part of the land
which are agreed to be severed before supply or under a contract of supply - section 2(52)
of CGST Act.
'Actionable claim' shall have the meaning assigned to it in section 3 of the Transfer of
Property Act, 1882 (4 of 1882) - section 2(1) of CGST Act.
4.1-1 Goods must be movable and marketable
The item must be such that it is capable of being bought or sold. This is the test of
'Marketability'. The goods must be known in the market. Unless this test of marketability is
satisfied, these will not be goods. This view, expressed in UOI v. Delhi Cloth Mills - AIR 1963
SC 791 = 1963 (Suppl.) (1) SCR 586 = 1977 (1) ELT (J 177) (SC 5 member Constitution bench),
has been consistently followed by Supreme Court in subsequent cases and by all High Courts.
It was held that to become 'goods' an article must be something which can ordinarily come
to market to be bought and sold.
Some important judgments where test of 'marketability' is upheld are : South Bihar Sugar
Mills Ltd. v. UOI - 2 ELT (J336) (SC) = AIR 1968 SC 922 = (1968) 3 SCR 21 * A P State Electricity
Board v. CCE - 1994 (2) SCC 428 = 70 ELT 3 (SC) = 95 STC 595 (SC) * Union Carbide India Ltd.
v. UOI - 24 ELT 169 (SC) = 1986 (2) SCR 162 = AIR 1986 SC 1097 = 64 STC 444 = (1986) 2 SCC
547 (SC 3 member bench) * Bhor Industries Ltd. v. CCE - 40 ELT 280 = AIR 1989 SC 1153 =
(1989) 1 SCC 602 = 184 ITR 129 = 73 STC 145 = (1989) 1 SCR 382 * Hindustan Polymers v. CCE
- 43 ELT 165 (SC) = (1989) 4 SCC 323 = AIR 1990 SC 1676 * Moti Laminates (P.) Ltd. v. CCE 76
ELT 241 (SC) = (1995) 3 SCC 23 = 1995 AIR SCW 2035 =7 RLT 1 (SC) - 3 member bench *
Porritts and Spencer (Asia) Ltd. v. CCE - AIR 1995 SC 2344 = 106 ELT 18 = 1995 (Suppl) SCC
219 (SC 3 member bench) * Anil Starch Products Ltd. v. CCE 1997(89) ELT 21 (SC) * Rajasthan
State Electricity Board v. Associated Stone Industries 2000 AIR SCW 2482 = (2000) 6 SCC 141
* FGP Ltd. v. UOI (2003) 10 SSC 270 = 168 ELT 289 (SC) * CCE v. Aldec Corporation 2005 (188)
ELT 241 (SC) * White Machines v. CCE (2008) 224 ELT 347 (SC) * Medley Pharmaceuticals v.
CCE (2011) 2 SCC 601 = 263 ELT 641 (SC).
4.1-2 Illustrations of 'goods'
Goods includes all movable property. It includes * steam - Nizam Sugar Factory Ltd. v. CST -
(1957) 8 STC 61 (AP HC) * animals and birds in captivity - K J Abraham v. Asstt. STO - (1960)
11 STC 291 (Ker HC).
Crops, grass, trees attached to earth - Growing crops, grass and things attached to or
forming part of the land which are agreed to be severed before supply or under the contract
of supply has been specifically defined as 'goods'.
 83

Standing trees are not 'goods' and not taxable. However, standing timber will be taxable
under CST if timber is identified, contract is unconditional and timber is in deliverable state.
In such case, it is 'movable property' and 'goods' hence can be taxed. - State of Orissa v.
Titaghur Paper Mills Co. Ltd. - AIR 1985 SC 1293 = (1985) 60 STC 213 (SC) * Shantabai v. State
of Bombay AIR 1958 SC 532 - same view in CST v. Durga Shellac Factory (1999) 116 STC 282
(MP HC DB).
Master copies of film songs and music - Master copies of film songs and music are 'goods'.
Intangible property can be 'goods' - CIT v. Giza Impex (2008) 166 Taxman 30 (Mad HC DB).
Drawings - Technical drawings are goods - Associated Cement Companies Ltd. v. CC 2001(4)
SCC 593 = 2001 AIR SCW 559 = 128 ELT 21 = AIR 2001 SC 862 = 124 STC 59 (SC 3 member
bench).
Knowledge in the form of drawing and design relating to machinery are 'goods' - Prerna
Textiles v. CCE 2000(117) ELT 241 (CEGAT) - civil appeal dismissed by SC (2001) 134 ELT A169.
Design and drawings are 'goods' and supply of drawings and designs would not be liable to
service tax - Solitz Corporation v. CST (2009) 18 STT 550 (CESTAT).
Design and drawings expressed on media are 'goods' and same cannot be subjected to
service tax - Mitsui & Co v. CCE (2013) 42 GST 157 = 32 taxmann.com 31 = 68 VST 43 (CESTAT)
* CCE v. Kirloskar Brothers (2014) 43 GST 282 = 39 taxmann.com 153 (CESTAT).
Films and programmes on disk is 'goods' - In Ushakiran Movies v. State of Andhra Pradesh
(2006) 148 STC 453 (AP HC DB), the appellant had produced films and programmes. These
were copies on disks and rights to telecast films and programmes were given to ETV for
minimum guaranteed fee and share of advertisement revenue. Senior Counsel of applicant
gave up the contention (in words of Court 'fairly gave up contention') that these are not
goods. Hence, Court proceeded on the basis that these are 'goods'.
Old newspaper are 'newspaper' - Old newspapers are still newspapers as they still have
news element and State Govt. cannot tax the same -Sait Rikhaji Furtarnal v. State of Andhra
Pradesh 1991 taxmann.com 1318 = (1992) 85 STC 1 (SC) = AIR 1991 SC 354 – followed in CST
v. Agrahari Rope Stores (2006) 146 STC 596 (All HC)
This was followed in State of Tamil Nadu v. P.S. Sambandam Mudaliar & Co.[2018] 94
taxmann.com 196 (Madras HC) (as it was a later decision).
In All India Reporter Karamchari Sangh v. All India Reporter Ltd. (1988) 70 STC 349 (SC), it
was held that law journals are 'newspapers'. Hence, these will stand excluded from
definition of 'goods' under CST Act though otherwise, they are no doubt 'goods'.
Earlier in Indian Express v. State of Tamilnadu (1987) 67 STC 474 (SC), it was held that old
newspapers are not 'newspapers'. It loses its character as 'newspaper'. They are disposed of
as waste paper and are taxable. - same view in The Hindu v. State of Andhra Pradesh (1987)
67 STC 477 (SC).
4.2 Intangibles can be 'goods'
Any movable property is 'goods'. Thus, intangible property can be 'goods'.
Sale of Copyright - In Bharat Sanchar Nigam Ltd. v. UOI (2006) 3 SCC 1 = 152 Taxman 135 =
3 STT 245 = 145 STC 91 = 282 ITR 273 = AIR 2006 SC 1383 = 3 VST 95 = 2 STR 161 (SC 3
 84

member bench), it was also observed that incorporeal right of copyright could be regarded
as 'goods'. In CIT v. Sun TV Ltd. (2007) 161 Taxman 351 (Del HC DB), it has been held that
right to telecast TV program in foreign countries is 'sale of goods'.
Trade mark - Trade mark is intangible goods - SPS Jayam & Co. v. Registrar, TNTST (2004)
137 STC 117 (Mad HC DB) * Malabar Gold v. CTO (2013) 38 STT 606 = 30 taxmann.com 606
= 58 VST 191 (Ker HC).
In CST v. Duke and Sons (1999) 112 STC 370 (Bom HC DB), it was held that transfer of
intangible property like trade mark by mere permission in writing is 'transfer of right to use
goods' and is taxable. Trade mark itself or right therein need not be transferred.
Royalty collected on mining lease - Royalty to remove minerals is 'profit a prendre'. No
transaction of sale or purchase is involved - Tamilnadu Magnesite Ltd. v. State of Tamilnadu
(2007) 9 VST 360 (Mad HC DB) - following State of Himachal Pradesh v. Gujarat Ambuja
Cement (2005) 142 STC 1 (SC).
Carbon credit - Certified Emission Reductions (CER) commonly known as carbon credit is
'goods' and Vat is payable - Ruling published vide Notification No. 256/CDVAT/2009/43
dated 13-1-2010 issued by Delhi Government [28 VST 29 (St)].
GST payable on sale of duty credit scrip as 'goods' but exempted w.e.f. 13-10-2017 - Duty
credit scrips are goods falling under heading 4907 (document of title). However, these are
exempted from GST w.e.f. 13-10-2017 - Notification No. 2/2017-IT (Rate) dated 28-6-2017
amended on 13-10-2017.
GST is payable on DFIA as DFIA is not duty credit scrip and not exempt - Spaceage Syntex P
Ltd. In re (2018) 99 taxmann.com 234 (AAR-Maharashtra).
GST is payable on sale of duty credit scrip. The rate was 12% IFST or 6% SGST plus 6% CGST
w.e.f. 1-7-2017 - FAQ issued by CBE&C in August 2017 [upto 13-10-2017].
In following cases, duty credit scrips were held as goods.
In Yash Overseas v. CST (2008) 8 SCC 681 = 15 STT 375 = 17 VST 182 (SC 3 member bench), it
has been held that DEPB has intrinsic value that makes it marketable commodity. Hence it is
'goods'. It is like prepaid meal ticket. If DEPB has to be compared with a lottery ticket, it can
only be compared with a lottery ticket that has won the prize. The prize-winning lottery
ticket ceases to be a mere piece of paper having no value itself. It acquires inherent value
and becomes itself a thing of value [Principle applies to Duty Credit Scrips and DFIA as these
are transferable].
REP Licenses (now DFIA or Duty Credit Scrips) which can be sold in market at premium are
'goods' - Bharat Fritz Werner Ltd. v. Commissioner of Commercial Taxes - (1992) 86 STC 170
(Kar HC) affirmed in 86 STC 175 (Kar HC DB) * P S Apparels v. Dy. CTO - (1994) 94 STC 139
(Mad HC DB) * Hemant Spices v. ACST - (1994) 95 STC 336 (Ker HC) * Shivdam Wood v. CTO
(1999) 112 STC 87 (WBTT) * Inter Gold (India) v. State of Maharashtra (2010) 3 GST 260 = 29
VST 360 (Bom HC DB) * CTO v. State Bank of India (2016) 10 SCC 595 = 341 ELT 481 (SC).
DEPB (Duty Entitlement Passbook Scheme) is freely tradable. It is right to claim back credit.
It is freely tradable and is 'goods'. It is taxable under sales tax. It is not actionable claim. -
Philco Exports v. STO (2001) 124 STC 503 (Del HC DB) * Jindal Drugs v. State of Maharashtra
 85

2004 (178) ELT 105 = 17 VST 164 (Bom HC DB) * International Creative Foods v. State of
Kerala (2008) 17 VST 178 (Ker HC).
In Vikas Sales Corporation v. CCT AIR 1996 SC 2082 = (1996) 102 STC 106 (SC) = 86 Taxman
369 (Mag) (SC 3 member bench), it was held that REP licenses (now DEPB) have their own
value. They are bought and sold as such. It is by itself a property. For all purposes and intents,
it is 'goods'.
In Baraka Overseas Traders v. CCT (2001) 121 STC 277 (Karn HC DB), it was held that tax is
payable if REP licenses are renounced for a 'charge'. The charge is nothing but sale.
There can be inter-state sale of DEPB authorisation - Hansa Overseas Enterprises v. State of
Andhra Pradesh (2012) 47 VST 524 (AP HC DB).
Electrical energy - In following cases, it was held that electricity is 'goods'. Electricity has
been mentioned Customs Tariff under heading 2716 00 00 with tariff rate of Rs 2,000 per
1,000 Kwh.
In GST Tariff, the GST rate is Nil.
In case of electrical energy, generation or production coincides almost instantaneously with
its consumption. Sale, supply and consumption takes place without any hiatus. - - Electricity
is movable property though it is not tangible. It is 'goods'. - State of Andhra Pradesh v.
National Thermal Power Corporation (NTPC) 2002 AIR SCW 1956 = (2002) 5 SCC 203 = 127
STC 280 (SC 5 member bench).
The 'electricity' is 'goods' - CST v. MPEB - (1970) 25 STC 188 (SC) = (1969) 2 SCR 939 = AIR
1970 SC 732 (partly overruled in 2002 only to the extent that it was held in 2002 judgment
that electricity cannot be stored). - followed in Indian Oil Corpn. v. CTO (1997) 107 STC 463
(Raj TT) - same view in CMS (India) Operations and Maintenance Co. P Ltd. v. CCE (2007) 10
STT 65 = 9 VST 228 = 7 STR 369 (CESTAT).
Electrical energy has been specified in heading 2716 in both Central Excise and Customs
Tariff and hence is 'goods'.
Service of transmission or distribution of electricity by an electricity transmission or
distribution utility is exempt from GST - Notification No. 12/2017-CT (Rate) and No. 9/2017-
IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Duty drawback is simply money not goods - Duty drawback received in respect of exports
is simply money. It is not goods and no sales tax is payable if exporter receives duty drawback
- KMA Finished Leather v. State of Tamil Nadu (2004) 134 STC 185 (Mad HC DB).
Since money is neither goods nor service, GST should not apply on duty drawback.
Money (cash) is not 'goods' - Cash (money) is not 'goods' [Hence, ITC for vehicle used for
transportation of cash is not available] - CMS Info Systems Ltd. In re (2018) 69 GST 471 = 96
taxmann.com 292 (AAAR - Maharashtra).
4.3 Actionable claim
Definition of 'goods' specifically includes 'actionable claim'.
Inclusion of 'actionable claim' in definition of 'goods' has been held as valid in Skill Lotto
Solutions (P.) Ltd.v.Union of India [2020] 122 taxmann.com 49 = 43 GSTL 289 (SC 3 member
bench).
 86

"Actionable claim" shall have the meaning assigned to it in section 3 of the Transfer of
Property Act, 1882 - section 2(1) of CGST Act.
Actionable claims, other than lottery, betting and gambling are neither as a supply of goods
nor a supply of services - Schedule III of CGST Act read with section 7(2)(a) of CGST Act.
Thus, only activities relating to lottery, betting and gambling will be subject to GST.
As per section 3 of Transfer of Property Act, actionable claim means a claim to any debt,
other than a debt secured by mortgage of immovable property or by hypothecation or
pledge of movable property, or to any beneficial interest in movable property not in
possession, either actual or constructive, of the claimant, which the Civil Courts recognise as
affording grounds for relief, whether such debt or beneficial interest be existent, accruing,
conditional or contingent.
Section 130 of Transfer of Property Act provides that an actionable claim may be assigned
for value.
Basically, actionable claim means a claim for any amount receivable (debt) or claim for
benefit of any movable property not in possession for which relief can be claimed in Civil
Court. Such claim can be assigned/transferred.
Transfer/assignment of unsecured debt is assignment/transfer of 'actionable claim'. Claim
to secured debt is not actionable claim. Thus, transfer of secured debt through securitization
is not assignment of 'actionable claim'. However, it is mere transaction in money or mere
transfer of title of immovable property and hence not a 'service'.
An actionable claim can be enforced only through Court of Law and cannot be bought and
sold as goods, though it can be assigned.
Debt for which action is necessary to realise can only be said to be an actionable claim.
Where no action is necessary to realise the debt, it cannot be said to be actionable claim -
Jindal Drugs v. State of Maharashtra 2004 (178) ELT 105 = 17 VST 164 (Bom HC DB) [In this
case, it was held that DEPB credit is not actionable claim as no action in law is necessary for
its realisation. In case of transfer of DEPB, it confers upon the transferee the immediate right
to pay duty (through DEPB credit).
In Jugal Kishore v. Raw Cotton Co. AIR 1955 SC 376, it was held that a Judgment Debt or
Decree is not an actionable claim as no action is necessary to realise it.
An actionable claim would include right to recover insurance money or a partner's right to
sue for account of a dissolved partnership or right to claim benefit of a contract not coupled
with any liability - UOI v. Sri Sarada Mills (1972) 2 SCC 877 = 43 Comp Cas 431 (SC).
In Venkatasamy Jagannathan In re (2019) 75 GST 628 = 107 taxmann.com 276 (AAR-TN),
appellant had profit sharing agreement (PSA), where applicant was entitled to get profit for
strategic sale of equity shares above a specified sale price per equity share. It was held that
the claim is beneficial interest in the profits arising. The claim is contingent on such event
occurring. It is 'actionable claim' and hence no GST.
A claim for arrears of rent is an actionable claim - State of Bihar v. Maharajadhiraja Sr
Kameshwar Singh (1952) SCR 889.
 87

Right to claim provident fund is actionable claim - Official Trustee v. L Chippendale AIR 1944
Cal 335 * Bhupati Mohan Das v. Phanindra Chandra Chakravarty AIT 1935 Cal 756.
In Sunrise Associates v. Government of NCT of Delhi (2006) 5 SCC 603 = 4 STT 105 = 145 STC
576 = 3 VST 151 (SC 5 member Constitution Bench), it was held that actionable claim is
transferable [In this case, it was held that lottery ticket is an actionable claim].
Recharge coupon vouchers are sold by distributors of mobile telephone companies. The
recharge coupon is for accessing telephone services for pre-determined period of time.
Thus, recharge coupon is acknowledgement of receipt of money in advance for providing
telecom service in future is actionable claim and hence not subject to sales tax - Bharti Airtel
v. ACST (2010) 4 GST 342 = 34 VST 202 (WBTT).
Reward points earned by customer on purchases made by him under loyalty programme is
actionable claim, as customer can redeem the payback points within the validity period (for
purchase of goods). However, after the validity period is over is not 'actionable claim'. [really,
it can come under 'tolerating an act or situation', which is deemed service]. It is taxable
under GST - Loyalty Solutions and Research P Ltd. In re (2018) 69 GST 277 = 95 taxmann.com
204 (AAR - Haryana).
4.3-1 Illustrations of 'actionable claim'
Following are illustrations of 'actionable claim' -
Lottery ticket (before draw)
Insurance policy
Claim for arrears of rent
Claims for future rents (these can be assigned)
Unsecured loans

Option to purchase securities or movable/immovable property

Claim for unpaid dower (in case of Muslim woman getting divorce)
A claim in profit by partner in firm, dividend declared
Right to sue for infringement of brand or copyright (IPR) even when brand or
copyright is not registered [Note that registration of patent is mandatory as without
such registration, protection under law is not available. However, in case of copyright
and brand, action for infringement can be initiated even if brand or copyright was
not registered].
Reward points earned by customer on purchases made by him under loyalty
programme.
Assignment or sale of secured or unsecured debt - FAQ No. 40 issued by CBI&C on
banking sector on 27-12-2018.

Actionable claims, other than lottery, betting and gambling are neither as a supply of goods
nor a supply of services - Schedule III of CGST Act read with section 7(2)(a) of CGST Act.
 88

4.3-2 Lottery tickets are subject to GST

Lottery ticket is actionable claim. Actionable claim has been included in definition of 'goods'
under GST Law.
However, earlier, actionable claim was excluded from definition of 'goods'.
Lottery ticket is 'actionable claim' - Sunrise Associates v. Government of NCT of Delhi (2006)
5 SCC 603 = 4 STT 105 = 3 VST 151 = 145 STC 576 (SC 5 member Constitution Bench) - followed
in State of Kerala v. Prabhavathy Thankamma (2009) 3 SCC 511 (SC) * Commercial
Corporation of India Ltd. v. ASTO (2007) 10 VST 175 (Ker HC) * LIS v. State of Kerala (2008)
17 VST 432 (Ker HC DB) * MRS Lucky Lottery Centre v. State of Tamil Nadu (2010) 29 VST 16
(Mad HC DB).
Lottery is actionable claim and can be taxed under GST - Teesta Distributors v. UOI (2018) 99
taxmann.com 162 (Cal HC).
4.3-3 Transfer of unsecured debt is actionable claim but not subject to GST
If an unsecured debt is transferred to a third person for a consideration, the activity be
treated as 'goods' as it is actionable claim.
However, in essence, it is mere transaction in money.
However, actionable claims, other than lottery, betting and gambling are neither as a supply
of goods nor a supply of services - Schedule III of CGST Act read with section 7(2)(a) of CGST
Act.
Hence, such transfer of unsecured debt will not be subject to GST.
4.3-4 Securitisation of debts, mortgage
Often debts are securitized and transferred to another Financial Institution/Bank.
Sometimes, this is done under 'Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002'.
Technically, such debt is not unsecured debt and hence cannot fall within the definition of
'actionable claim'.
The transaction is not 'transfer of actionable claim' (under Transfer of Property Act), but
acquisition of 'financial asset' under 'Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002'.
Departmental clarification that acquisition of secured debt is transaction in money - Sale,
purchase, acquisition or assignment of a secured debt like a mortgage will constitute a
transaction in money. However if a service fee or processing fee or any other charge is
collected in the course of transfer or assignment of a debt then the same would be
chargeable to service tax - Para 2.8.9 of CBE&C's 'Taxation of Services : An Education Guide'
published on 20-6-2012.
If it is transaction in money, it can come within the definition of 'service'.
However, GST should be payable only on charges relating to transfer of secured debt and
not on entire quantum of secured debt.
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Further, security receipt issued under the Securitisation Act is included in definition of
'security'. Hence, it is outside GST net - FAQ No. 65 issued by CBI&C on banking sector on 27-
12-2018.
4.3-5 Beneficial interest in movable property
Beneficial interest in movable property not in possession is defined as 'actionable claim' and
hence subject to GST.
Para 2.8.10 of CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012
clarifies as follows -
Black's Law Dictionary defines 'beneficial interest' as follows— "A right or expectancy in
something (such as a trust or an estate), as opposed to legal title to that thing. For example,
a person with a beneficial interest in a trust receives income from the trust but does not
hold legal title to the trust property".
Therefore 'beneficial interest in movable property' is a right or expectancy in a movable
property like right to receive income accruing from a movable property.
Vouchers entitling a person to enjoy service is not actionable claim - Vouchers that entitle
a person to enjoy a service, for example a health club, is not actionable claim. Such a voucher
does not create a 'beneficial interest' in a movable property but only entitles a person to
enjoy a particular service for a single or specified number of times - Para 2.8.11 of CBE&C's
'Taxation of Services : An Education Guide' published on 20-6-2012 [Thus, these would be
taxable].
Recharge vouchers is not actionable claim - Recharge vouchers issued by service companies
for enabling clients/consumers to avail services like mobile phone communication, satellite
TV broadcasts, DTH broadcasts etc. is not actionable claims. Such recharge vouchers do not
create a 'beneficial interest' in a movable property but only enable a person to enjoy a
particular service - Para 2.8.12 of CBE&C's 'Taxation of Services : An Education Guide'
published on 20-6-2012 [Thus, these would be taxable].
Pre-paid Instruments issued are taxable as 'goods' - In Kalyan Jewellers India Ltd., In re
[2020] 113 taxmann.com 58 (AAR - TAMIL NADU), the applicant was issuing pre-paid
instruments (PPI) either in paper form or in form of smart cards which could be read
electronically. These could be redeemed by purchase of jewellery. It was held that these are
'vouchers'. PPI in paper form is classifiable under heading 4911 and GST rate is 12%. Smart
cards are classifiable under heading 8523 and GST rate is 18% [applicant in real trouble.
Really this is only payment of advance against future supply of goods].
4.4 Supply of goods at future date - Hire purchase and financial lease
Any transfer of title in goods under an agreement which stipulates that property in goods
will pass at a future date upon payment of full consideration as agreed, is a supply of goods
- para 1(c) of Schedule II of CGST Act.
The financial lease or hire purchase of goods should get covered under 'supply of goods', in
view of aforesaid specific definition.
4.4-1 Financial Leasing
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As per International Accounting Standards, 'lease' is an agreement whereby the lessor

passes to the lessee the right to use the asset for an agreed period for consideration of rent.
In operating lease, ownership of asset rests with lessor. Whole of rent received is income of
lessor and expenditure for lessee.
So far as lessee is concerned, it is not shown as asset in his books and hence it is called 'off
balance sheet' transaction. Of course, lease rental is shown as expenditure in books of lessee
and hence it is not 'off P&L account' transaction.
Lessor reserves right to repossess goods if lessee fails to pay consideration in time.
Lessor charges Lease Management fees as initial payment. Such payment may be about 0.5%
to 1% of price of asset.
In Space Capital Service v. Prakash Industries Ltd. (2000) 101 Comp Cas 437 = 30 SCL 420 (Del
HC), it was held that leased property does not belong to lessee and lessor can take back
possession - same view in GE Capital v. Dee Pharma Ltd. (1998) 4 Comp LJ 527 = 96 Comp
Cas 192 = 47 DRJ 265 (Del) - followed in PNB Capital Services v. Atul Glass Industries Ltd.
(2004) 51 SCL 122 (Del HC).
4.4-2 Financial and Operating Lease
Lease can be broadly classified as (a) Financial or (b) Operating lease. Financial lease is
usually long term agreement covering entire economic life of asset. Whole investment is
recovered by lessor (plus, of course, his profit). Asset is usually maintained by lessee. It is
non-cancellable contract. Practically, lessee becomes owner, though not legally.
Operating lease is for short period. The asset may be given to more than one parties on lease
during economic life of asset. Hence, cost of asset is not recovered in one contract of lease.
Usually, lessor upkeeps and maintains the asset. Contract can be cancelled by lessee/lessor
by giving notice of period as prescribed in contract. Giving computers or furniture on
monthly charge basis is one example of 'operating lease'.
Depreciation in case of lease - In case of operating lease, the lessor is de facto and de jure
owner of the goods. He can claim depreciation. However, in case of financial lease, the lessee
is de facto owner though lessor is de jure owner. Hence, in Indusind Bank Ltd. v. Addl. CIT
(2012) 19 taxmann.com 173 = 135 ITD 165 (ITAT Mumbai), it was held that in case of financial
lease, depreciation can be claimed by the lessee and not lessor.
4.4-3 Meaning of Financial lease
As per AS-19 of ICAI, a finance lease is a lease that transfers substantially all the risks and
rewards incident to ownership of an asset [If all risks and rewards are transferred, it will be
an outright sale and not a lease]. As per AS-19 of ICAI, 'Operating lease' is a lease other than
a finance lease.
A financial lease is one where the lessee uses the asset for substantially the whole of its
useful life and the lease payments are calculated to cover the full cost together with interest
charges. It is thus a disguised way of purchasing the asset with the help of a loan. - - In our
opinion, financial lease is a transaction current in the commercial world, the primary
purpose whereof is the financing of the purchase by the financier. The purchase of assets or
equipment or the machinery is by the borrower. For all practical purposes, the borrower
 91

becomes the owner of property inasmuch as it is the borrower who chooses the property to
be purchased, takes delivery, enjoys the use and occupation of the property, bears wear and
tear, maintains and operates the machinery/equipment, undertakes indemnity and agrees
to bear the risk of loss or damage, if any. He is the one who gets the property insured. He
remains liable for payment of taxes and other charges and indemnity. He cannot recover
from lessor any of the abovementioned expenses. The period of lease extends over and
covers the entire life of property for which it may remain useful, divided either into one term
or divided into two terms, with clause for renewal. In either case, the lease is non-cancelable
- Asea Brown Boveri Ltd. v. Industrial Finance Corpn. of India AIR 2005 SC 17 = 154 Taxman
512 = 2004 AIR SCW 6198 = 56 SCL 21 (SC).
In hire purchase or financial leasing, there are two different and distinct transactions, viz.
the financing transaction and the equipment leasing/hire purchase transaction. The former
is exigible for service tax under section 66 of Finance Act, 1994 whereas the latter would be
exigible to local tax/VAT. - - A financial lease transfers all the risks and rewards incidental to
ownership, even though the title may or may not be eventually. An operating lease is other
than finance lease. - - Equipment lease is a form of long-term financing - Association of
Leasing and Financial Services v. UOI (2010) 7 taxmann.com 740 = 35 VST 549 (SC 3 member
bench)
Almost entire finance in financial lease - The financial lease can finance entire cost of asset.
Practically, the lessor collects some amount as 'security deposit' from lessee, which may be
10% to 25%. Thus, actual financing of asset is about 75% to 90%.
4.4-4 Distinction between hire purchase and financial lease
Both hire purchase and financial lease are methods of financing an asset. In both cases,
lessor (in case of lease) and owner (in case of hire purchase) continue to have 'property' over
the goods during period of lease/hire purchase.
Financial lease is theoretically 100% finance (less security deposit taken, if any, from lessee).
Hire purchase need not be 100% finance. Provisions relating to depreciation are different.
Hire purchase is but a loan and that hirer obtains goods from the seller and the banking and
financial institution finalised the purchase of the goods, with the title firmly resting with the
hirer with the financial institution vested with the right to acquire possession of the goods
through judicial intervention - Commissioner of CGST & Central Excise v. Shriram Transport
Finance Company Ltd. [2021] 124 taxmann.com 341 (Bombay HC DB).
4.5 Securities are neither 'goods' nor 'service'
Securities have been specifically excluded from definition of 'goods' and 'service' - see
section 2(102) which defines 'service' and section 2(52) of CGST Act which defines 'goods'.
Hence, 'supply of securities' will not be subject to GST.
Transaction in securities which involves disposal of securities is not a supply in GST and hence
not taxable. However, facilitation or arranging transactions in securities is taxable w.e.f. 1-
7-2017. The amendment to definition of 'service' w.e.f. 1-2-2019 (by adding explanation,
which stated that 'service' includes facilitating or arranging transactions in securities) is only
clarificatory - CBI&C circular No. 119/38/2019-GST dated 11-10-2019.
 92

"Securities" shall have the same meaning assigned to it in section 2(h) of the Securities
Contracts (Regulation) Act, 1956 - section 2(101) of CGST Act.
Section 2(h) of Securities Contracts (Regulation) Act, 1956 defines 'securities' as follows -
Securities - 'Securities' include -
(i) Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable
securities of a like nature in or of any incorporated company or other body corporate
(ia) Derivative
(ib) Units or any other instrument issued by any collective investment scheme to the
investors in such schemes
(ic) Security Receipt issued by Securitisation Company, as defined in section 2(1)(zg) of
'Securitisation & Reconstruction of Financial Assets & Enforcement of Security
Interest Act, 2002'
(id) Units or other such instruments issued to investors under any mutual fund scheme.
Explanation.—For the removal of doubts, it is herby declared that 'securities' shall not
include any unit linked insurance policy or scrips or any such instrument or scrip, by
whatever name called, which provides a combined benefit of risk on life of persons
and investment by such persons and issued by insurer referred in section 2(9) of
Insurance Act (The Explanation has been added w.e.f. 9-4-2010)
(ie) any certificate or instrument (by whatever name called), issued to an investor by any
issuer being a special purpose distinct entity, which possesses any debt or receivable,
including mortgage debt, assigned to such entity, and acknowledging beneficial
interest of such investor in such debt or receivable, including mortgage debt, as the
case may be.
(ii) Government securities
(iia) Such other instruments as may be declared by the Central Government to be
securities; and
(iii) Rights or interest in securities. [section 2(h)]

In Sahara India Real Estate Corpn. Ltd. v. SEBI (2012) 115 SCL 478 = 25 taxmann.com 18 (SC)
it has been held that 'security' covers hybrid also. Optionally Fully Convertible Debentures
(OFCD) is a 'security'. These are debentures in praesenti and shares in future.
In PCS Industries v. SEBI (2002) 35 SCL 939 (SAT), it was held that unit issued by mutual fund
is a 'security', as definition of 'security' is an inclusive definition. Now, this has been
specifically included in definition of 'security' w.e.f. 12-10-2004.
In Bhagwati Developers P Ltd. v. Peerless General Insurance (2013) 9 SCC 584 = 120 SCL 264
= 35 taxmann.com 596 (SC), it has been held that shares of public limited company not listed
on stock exchange are also 'securities'. Transfer of such shares is covered under Securities
Contracts (Regulation) Act, unless it is a spot delivery contract - confirming Bhagwati
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Developers P Ltd. v. Peerless General Finance and Investment Co. (2005) 128 Comp Cas 444
(Cal HC).
A security is 'marketable' only if it is permitted to be sold and purchased in any stock
exchange. [Some judgments quoted in Gramercy Emerging Market Fund v. Essar Steels
(2002) 39 SCL 435 (Guj HC) para 18, but the citations appear to be incorrect]. [This view is
not valid in view of contrary Supreme Court decision]
Optionally fully convertible debentures (OFCDs) are 'hybrid securities' and hence SEBI has
jurisdiction regulate issue of such OFCD - Sahara India Real Estate Corporation Ltd. v. SEBI
(2011) 110 SCL 217 = 14 taxmann.com 141 (SAT) - view confirmed in Sahara India Real Estate
Corpn. Ltd. v. SEBI (2012) 115 SCL 478 = 25 taxmann.com 18 (SC).
Units in mutual funds is security and hence neither goods nor service - Units of mutual fund
is included in definition of 'security'.
Earlier, in some cases, it was held as 'goods'.
In Geojit Financial Services Ltd. v. CCE (2007) 8 STR 390 (CESTAT), it was observed that SEBI
has categorized mutual fund as 'goods' - following Aknam Finvest P Ltd. v. CCE (2007) 7 STR
267 (CESTAT).
In CCE v. P N Vijay Financial Services (2008) 17 STT 107 = 23 VST 31 (CESTAT) also, it has been
held that unit of mutual fund is 'goods' as per section 2(7) of Sale of Goods Act - same view
in CCE v. Yogesh J Shah (2014) 45 GST 493 = 45 taxmann.com 137 (CESTAT).
Transaction in securities is 'exempt supply' for purposes of Input Tax Credit - As per section
17(3) of CGST Act, value of exempt supply shall include - (a) - - (b) transactions in securities
(c) - - (d) - - .
For determining the value of an exempt supply as per section 17(3) of CGST Act, the value
of security shall be taken as 1% of the sale value of such security - Explanation under Rule
45 of CGST and SGST Rules, 2017.
Facilitating or arranging transactions of securities is subject to GST - An Explanation,
inserted to section 2(102) of CGST Act (which defines 'services') vide CGST (Amendment) Act,
2018, effective from 1-2-2019 reads as follows -
For the removal of doubts, it is hereby clarified that the expression "services" includes
facilitating or arranging transactions in securities.
Since the amendment is only to remove doubts, it will have retrospective effect.
Thus, though supply of securities are not subject to GST, share brokers and stock exchanges
will be liable to pay tax on services supplied by them for facilitating or arranging transactions
in securities
This Explanation has been added 'for removal of doubts' and will have retrospective effect
from 1-7-2017. These services were even otherwise taxable, in view of wide definition of
'services' and 'business'. However, it was being argued that since securities is neither goods
nor services, there should be no tax on services of share brokers and stock exchanges. This
explanation is only to set such doubts at rest.
Transaction in securities which involves disposal of securities is not a supply in GST and hence
not taxable. However, facilitation or arranging transactions in securities is taxable w.e.f. 1-
 94

7-2017. The amendment to definition of 'service' w.e.f. 1-2-2019 (by adding explanation,
which stated that 'service' includes facilitating or arranging transactions in securities) is only
clarificatory - CBI&C circular No. 119/38/2019-GST dated 11-10-2019.
Dividend income is not taxable as not 'supply' - In Anil Kumar Agrawal, In re[2020] 116
taxmann.com 428 (AAR - Karn), it was held that dividend income, capital gain/loss on sale of
shares and amount received after maturity of LIC policy is not income received from 'supply'.
It is not 'exempt income' for purpose of calculating 'aggregate turnover'.
4.5-1 Share brokers and sub-broker are liable to pay GST
Since securities are neither goods or service, a view is expressed that the share brokers are
not liable to GST. In my view, this is not correct, as the share broker does not himself supply
securities. He only arranges, helps or coordinates supply of securities. Hence, the share
broker and sub-broker should be liable to charge and pay GST.
4.6 Supply of Services
'Services' means anything other than goods [Article 366(26A) of Constitution of India].
However, definition of 'services' in GST Act is different. Section 2(102) of CGST Act defines
'services' as follows—

"Services" means anything other than goods, money and securities but includes activities
relating to the use of money or its conversion by cash or by any other mode, from one
form, currency or denomination, to another form, currency or denomination for which a
separate consideration is charged.
Explanation.—For the removal of doubts, it is hereby clarified that the expression
"services" includes facilitating or arranging transactions in securities – The Explanation
inserted vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019.
Services can even cover immovable property - Though definition of 'service' can cover even
immovable property, sale of land and sale of completed building has been excluded from
definition of goods or services.
The definition of 'service' is so broad that practically sky is the limit for imposing any tax by
Union or State Governments.
 95

Classification of goods and services

5.1 Need for classification
There are innumerous variety of goods and services. It is not possible to apply one common
tax rate to all goods and services. It is also not possible to list all types of goods and services
and specify GST rate against each of such goods and services.
Hence, the only option is to classify the goods on basis of groups and sub-groups and specify
GST rate against each sub-group of items. In case of service also, only broad description can
be given for providing abatements and exemptions to various type of services.
The most scientific way of classifying goods is on basis of HSN. The HSN classification is used
in customs, central excise and Foreign Trade Policy. The classification is also followed by
DGCIS (Director General of Commercial Intelligence & Statistics).
The common classification reduces transaction costs and reduce diversion of classification
among different agencies.
Under GST, goods will have to be classified on basis of HSN. There is no other scientific way
the goods can be classified.
The Customs Tariff Act is based on HSN. That Tariff will be used to classify goods under GST.
The GST rates have been notified on basis of Customs Tariff.
5.1-1 Background of HSN
As international trade increased, need was felt to have universal standard system of
classification of goods to facilitate trade flow and analysis of trade statistics. Hence,
Harmonised Commodity Description and Coding System (Generally referred to as
'Harmonised System of Nomenclature' or simply 'HSN') was developed by World Customs
Organisation (WCO) [www.wcoomd.org].
This is an International Nomenclature standard adopted by about 200 Countries to ensure
uniformity in classification in International Trade.
HSN is multi-purpose international product nomenclature developed by WCO (World
Customs Organisation). It comprises about 5,000 commodity groups, each identified by a six
digit code, arranged in a legal and logical structure. The system is used by more than 200
countries. Over 98% of the merchandise in international trade is classified in terms of HS -
WCO website - quoted in Hitachi Home and Life Solutions v. CC (2012) 285 ELT 504 (CESTAT),
where it was held that HSN automatically classifies the trade parlance test.
Harmonised System (HS) provides commodity/product codes and description upto 4-digit
(Heading) and 6-digit (Sub-Heading) levels only and member countries of WCO are allowed
to extend the codes upto any level subject to the condition that nothing changes at the 4-
digit or 6-digit levels. India has developed 8-digit level classification to indicate specific
statistical codes for indigenous products and also to monitor the trade volumes - Chapter 4
Para 2.2 of Customs Manual, 2011.
HSN is amended periodically in a cycle of 4/6 years, taking note of the trade flow,
technological progress etc. Member countries including India are under obligation to amend
the Tariff Schedules in alignment with HS - Chapter 4 Para 2.3 of Customs Manual, 2011.
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For purpose of uniform interpretation of HS, the WCO has published detailed Explanatory
Notes to various headings/sub-headings. WCO in its various committees discusses
classification of individual products and gives classification opinion on them. Such
information, though not binding in nature, provides a useful guideline for classifying goods
- Chapter 4 Para 2.4 of Customs Manual, 2011.
5.1-2 Sections, Chapters and headings in Tariff
A 'section' is a grouping of a number of Chapters which codify a particular class of goods.
Each of the sections is related to a broader class of goods e.g. Section I is 'Animal Products',
Section VII is 'Plastics and Articles thereof', Section XI is 'Textile and Textile Articles', Section
XVII is 'Vehicles, Aircrafts, Vessels and associated transport equipment', etc. Section Notes
are given at the beginning of each Section, which govern entries in that Section. These notes
are applicable to all Chapters in that section.
Central Excise Tariff is divided in 20 sections, while there are 21 sections in case of Customs
Tariff.
Section divided in Chapters and chapters in sub-chapters - Each of the sections is divided
into various Chapters and each Chapter contains goods of one class. For example, Section XI
relates to Textile and Textile Articles and within that Section, Chapter 50 is Silk, Chapter 51
is Wool, Chapter 52 is Cotton, Chapter 53 is other vegetable textile fabrics, Chapter 61 is
Articles of Apparel and so on.
Some Chapters are divided into sub-chapters e.g. Chapter 72 (Iron and Steel) is divided into
I - Primary Materials, II - Iron and Non-Alloy Steel, III - Stainless Steel and IV - Other Alloy
Steel.
Chapter Notes - Chapter Notes are given at the beginning of each Chapter, which govern
entries in that Chapter.
Headings and sub-headings within the Chapter - Each chapter and sub-chapter is further
divided into various headings depending on different types of goods belonging to same class
of products.
For instance, Chapter 50 relating to Silk is further divided into 5 headings. 5001 relates to
Silk worm cocoons, 5002 relates to raw silk, 5003 relates to silk waste etc. The headings are
sometimes divided into further sub-headings. For example 5003 10 means 'silk waste not
carded or combed', while 5003 90 means 'other silk waste'. These are preceded by single
dash. 5003 90 is further classified as 5003 90 10 (Mulberry silk waste), 5003 90 20 (Tussar
waste) and 5003 90 90 (Other).
Grouping of goods - In the HSN, commodities/products are arranged in a fixed pattern with
the duty rates specified against each of them. The pattern of arrangement of goods in the
HSN is in increasing degree of manufacture of commodities/products in the sequence of
natural products, raw materials, semi finished goods and fully manufactured
goods/article/machinery etc. - Chapter 4 Para 1.2 of CBE&C's Customs Manual, 2011.
Eight Digit classification in customs - All goods are classified using 4 digit system. These are
called 'headings'. Further 2 digits are added for sub-classification, which are termed as 'sub-
headings'. Further 2 digits are added for sub-sub-classification, which is termed as 'tariff
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item'. Rate of duty is indicated against each 'tariff item' and not against heading or sub-
heading.
5.2 Overview of HSN
Following is broad grouping of goods in HSN :
Animal Products (Section I - Chapters 1 to 6)
Vegetable Products (Section II - Chapters 6 to 14)
Animal or vegetable fats and oils (Section III - Chapter 15)

Prepared foodstuffs, beverages (Section IV - Chapters 16 to 24)

Mineral Products (Section V - Chapters 25 to 27)
Products of Chemicals and allied industries (Section VI - Chapters 28 to 38)
Plastics and Rubber and their articles (Section VII - Chapters 39 and 40)
Raw hides and Skins, Leather and articles (Section VIII - Chapters 41 to 43)

Wood, cork, straw and their articles (Section IX - Chapters 44 and 46)
Pulp of wood, Paper, Paper-board and articles (Section X - Chapters 47 to 49)
Textile and Textile Products (Section XI - Chapters 50 to 63)
Footwear, Headgear, Umbrellas, Articles of human hair (Section XII - Chapters 64 to
67).
Articles of stone, plaster, ceramic, mica, glass (Section XIII - Chapters 68 to 70)
Pearls, precious metals (Section XIV - Chapter 71)

Base metals and articles of base metal (Iron, Steel, Copper, Nickel, Zinc, Tin etc.).
(Section XV - Chapters 72 to 83)
Machinery and mechanical appliances, electrical equipments, television etc. (Section
XVI - Chapters 84 and 85)
Vehicles, Aircrafts, vessels and associated transport equipment (Section XVII -
Chapters 86 to 89)
Optical, photographic, medical, surgical instruments, clocks, musical instruments
(Section XVIII - Chapters 90 to 92)
Arms and Ammunition (Section XIX - Chapter 93)
Misc. Manufactured articles like Furniture, toys etc. (Section XX - Chapters 94 to 96)
Works of Art, collectors' pieces and antiques (Section XXI - Chapters 97 to 99).

5.2-1 Rules for Interpretation of HSN

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Rules for Interpretation of HSN are given in the HSN itself. These are termed as 'General
Interpretative Rules' (GIR).
GIR (General Interpretative Rules) are to be applied for interpretation of Tariff, if
classification is not possible on the basis of tariff entry and relevant chapter notes and
section notes.
Following are the steps of classification of a product as per GIR :
(1) The titles of Sections and Chapters are provided for ease of reference only; for legal
purposes, refer the heading and sub-heading. Read corresponding Section Notes and
Chapter Notes (Rule 1 of GIR). If there is no ambiguity or confusion, the classification
is final. You do not have to look to classification rules or trade practice or dictionary
meaning. If classification is not possible, then only go to GIR. The rules are to be
applied sequentially.
(2) If meaning of word is not clear, refer to trade practice. If trade understanding of a
product cannot be established, find technical or dictionary meaning of the term used
in the tariff. You may also refer to BIS or other standards, but trade parlance is most
important.
(3) If goods are incomplete or unfinished, but classification of finished product is known,
find if the unfinished item has essential characteristics of finished goods. If so, classify
in same heading - Rule 2(a).
(4) If ambiguity persists, find out which heading is specific and which heading is more
general. Prefer specific heading.- Rule 3(a).
(5) If problem is not resolved by Rule 3(a), find which material or component is giving
'essential character' to the goods in question - Rule 3(b).
(6) If both are equally specific, find which comes last in the Tariff and take it - Rule 3(c).
(7) If you are unable to find any entry which matches the goods in question, find goods
which are most akin - Rule 4.
(8) In case of mixtures or sets too, the procedure is more or less same, except that each
ingredient of the mixture or set has to be seen in above sequence. As per rule 2(b),
any reference to a material or substance includes a reference to mixtures or
combinations of that material or substance with other material or substance.
(9) Packing material is classified along with the goods except when the packing is for
repetitive use - Rule 5

5.2-2 Coding of dashes

Single dash (-) at the beginning of description of any article in Tariff indicates a group, while
two dashes (- -) at the beginning indicate a sub-group. The single dash (-) indicates primary
classification of article covered by the heading, while double dash (- -) is the sub-
classification of the preceding article which has single dash (-) i.e. it is a sub-classification of
primary classification.
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Triple dash (- - -) and quadruple dash (- - - -) indicate sub-sub-classification of immediately

preceding description of article, which has '-' or '- -'. In other words, a single dash or double
dash may be followed by either three dashes or four dashes. Both three dashes or four
dashes are used to indicate 8 digit classification i.e. 'tariff item'.
Goods to fall in tariff entry with double dash (- -) have to satisfy specification of single dash
(-) preceding them - Schnectady Herdilla Ltd. v. CCE (2007) 208 ELT 110 (CESTAT).
Following hypothetical example illustrating classification of 'Ready Made Garments' will
make the distinction clear [Note that this is not actual extract from the tariff]
A Ready Made Garments

AA - Men's wear
AA-1 -- Suits
AA-2 -- Shirts
AA-3 -- Other
AB - Ladies wear

AB-1 -- Salwar
AB-2 -- Skirts
AB-3 -- Other
AC - Other

The 'ready made garments' are classified as (a) Men's wear (b) Ladies wear (c) Other. The
men's wear and ladies wear are further sub-classified. Thus, 'Other' in AA-3 means men's
wear other than suits and shirts, while 'other' in AC means all ready made garments
excluding Men's wear and Ladies wear.
Rule 6 of Interpretation Rules of Schedule to Tariff state that Classification of goods in sub-
headings shall be determined in terms of those sub-headings. Only sub-headings at the same
level are comparable e.g. in aforesaid example, AB-1 and AB-3 can be compared, but AB-3
cannot be compared with (say) AA-3.
5.2-3 Standard unit of quantity
Third column of tariff is 'Unit' which is unit of measure. The unit of measure is indicated by
abbreviations. Some abbreviations are as follows - cc - Cubic Centimetre, cm - Centimeter(s),
g - gram(s), g/cm3 - Gram per cubic centimeter, l - litre, m - metre, mt - Metric Tonne, t -
Tonne, Tu - Thousand in number, u - Number, Vol. - Volume, W- Watt.
In many cases, these units are impractical in trade.
5.3 Application of GIR in Tariff
GIR (General Interpretative Rules) are to be applied for interpretation of Tariff, if
classification is not possible on the basis of tariff entry and relevant chapter notes and
section notes.
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Rules to be applied sequentially - The Rules are to be applied sequentially. Rule 1 gives
precedence to Section Notes/Chapter Notes while classifying a product - Chapter 4 Para 2.6
of CBE&C's Customs Manual, 2011. Classification is to be first tested in light of Rule 1. Only
when it is not possible to resolve the issue by applying this rule, recourse is taken to Rules 2,
3 and 4 in seriatim [Though rules nowhere state that these should be applied sequentially,
the general arrangement and wording does clearly indicate that intention].
Titles are for reference - Titles of sections or chapters cannot be used for classification. The
titles of sections and chapters are provided for use of reference only, and have no legal
importance for purposes of classification. (Rule 1)
Rule 1 - The titles of Sections and Chapters are provided for ease of reference only; for legal
purposes, classification shall be determined according to the terms of the headings and any
relative Section or Chapter Notes and, provided such headings or Notes do not otherwise
require, according to the provisions hereinafter contained.
Section Notes and Chapter Notes have overriding effect - Classification is to be determined
only on the basis of description of the heading, read with relevant section or chapter notes.
Since these notes are part of the Act itself, these have full statutory (legal) backing.
If the description read with section or chapter notes is not enough to correctly classify the
goods, following further rules have been provided :
5.3-1 Classification of Incomplete or un-assembled Goods
Any reference to complete goods also includes incomplete or un-finished goods, if such
incomplete or un-finished goods have the essential characteristic of finished goods. [First
part of Rule 2(a)]. The heading will also include finished goods removed un-assembled or
disassembled i.e. in SKD or CKD packs. [second part of Rule 2(a)].
Some illustrations in HSN Explanatory notes are - * a machine or apparatus normally
incorporating an electric motor is classified in the same heading even if presented without
motor. * Passenger coach not fitted with seats will still be a passenger coach * Motor vehicle
not yet fitted with wheels, battery or tyres * Bicycles without saddles and tyres *
Photographic camera without an optical element * Electric supply meter without its totalling
device.
In Salora International Ltd. v. CCE (2012) 9 SCC 662 = 284 ELT 3 (SC), assessee manufactured
various components of TV sets. These were assembled for testing of each set. Then the sets
were disassembled and then transported as parts to other units (satellite units) of assessee
to be reassembled and marketed. Individual serial numbers were given. It was held that the
goods have to be classified as finished/complete goods and not as parts. It was held that if
only parts were manufactured and matching and numbering functions were done at satellite
units, it would have been removal of parts of TV sets.
Functional test is test for 'essential character' - In Shivaji Works Ltd. v. CCE - 1994 (69) ELT
674 (CEGAT); it was held that functional test is correct test for determining character of a
product, i.e. 'primary function' is 'essential characteristic'. Unless the incomplete goods are
able to function as finished goods, this rule is not applicable.
5.3-2 Un-assembled finished goods
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Second part of rule 2(a) of GIR further provides that the heading will also include finished
goods removed un-assembled or disassembled i.e. in SKD or CKD packs. [second part of Rule
2(a)].
This provision is essential because sometimes, goods cannot be despatched in fully
assembled condition. These are despatched in SKD (semi-knocked down) or CKD (completely
knocked down) condition and assembled at site. As we saw in previous chapter, in such
cases, assembly at site does not amount to manufacture. The goods are, in fact, fully
manufactured in the factory itself. These are sent in SKD or CKD condition only for
convenience of transport.
5.3-3 Classification of Mixture or Combinations
Any reference in heading to material or substance will also include the reference to mixture
or combination of that material or substance with other materials or substance e.g. 'Article
of Gold' will include an Article which is made partly of Gold. Reference to goods of a given
material or substance shall also include reference to goods consisting wholly or partly of
such material or substance. [Rule 2(b)].
5.4 Classification in case of conflict between various headings
While applying the aforesaid rules, some conflict may arise e.g., (a) a mixture or combination
containing more than one material may be classifiable under more than one headings by
applying rule 2(b). If it contains two items A and B, one classification may be on the basis of
'A' and other on the basis of 'B' (b) There may be two descriptions which may both seem
possible.
In such cases, rule 3 states as follows—
Rule 3 - When by application of sub-rule (b) of rule 2 or for any other reason, goods are,
prima facie, classifiable under two or more headings, classification shall be effected as given
in rule 3(a), 3(b) or 3(c).
In CCE v. Simplex Mills Co. Ltd. 2005 (181) ELT 345 = 140 STC 125 (SC 3 member bench), it
was observed that rule 3 must be understood only in the context of rule 2(b).
Specific Description preferable over general heading - The heading which provides most
specific description shall be preferred to heading providing a general description. [Rule 3(a)]
- noted in Speedway Rubber v. CCE 2002 AIR SCW 2181 = 50 RLT 255 = 143 ELT 8 (SC) * CCE
v. Maharshi Ayurveda Corpn Ltd. 2006 (193) ELT 10 (SC).
Only such goods as cannot be brought under the various specific entries in the tariff could
be attempted to be brought in residual entry - State of Karnataka v. Durga Projects Inc.
(2018) 4 SCC 633 (SC 3 member bench).
Rule 3(a) - The heading which provides the most specific description shall be preferred to
headings providing a more general description. However, when two or more headings each
refer to part only of the materials or substances contained in mixed or composite goods or
to part only of the items in a set, those headings are to be regarded as equally specific in
relation to those goods, even if one of them gives a more complete or precise description of
the goods.
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VIP bag is a 'Plastic Article' in common parlance, but if there is a specific entry 'suitcases',
that entry will prevail over general entry 'plastic articles'. - A Nagaraju Bros. v. State of AP -
(1994) 95 STC 1 = 72 ELT 801 (SC).
5.4-1 Classification as per Essential Character
If Mixture and Composite goods consisting of different materials or different components
cannot be classified based on above rule i.e. rule 3(a), it should be classified as if they
consisted of the material or component which gives it their essential character [Rule 3(b)].
For example, if a set consists of drawing instruments (90.17), pencil (96.09) and pencil
sharpener (82.14), put up in a leather case (4201.90); the set will be classifiable under 90.17
i.e. drawing instrument.
Rule 3(b) can be applied only when identification under rule 3(a) providing for preference to
more specific heading is impossible - CCE v. Jocil Ltd. (2011) 1 SCC 681 = 263 ELT 9 (SC).
Meaning of 'set of articles' - Distinction between laptop and desktop - 'Set of article' should
consist of more than one item, each complementing the work of another and retaining their
individual identity all the time - CC v. Acer India P Ltd. (2007) 218 ELT 17 (SC). In this case, it
was held that a desktop computer is a combination of CPU with monitor, mouse and
keyboard as a set. A desktop computer does not lose individual identities of CPU, monitor,
mouse and keyboard. Not only they are marketable as separate items but are also used
separately. On the other hand, a laptop (notebook computer) comes in an integrated and
inseparable form. It is a combination of CPU, monitor, mouse and keyboard. A laptop cannot
be said to be set of CPU with monitor mouse and keyboard - confirming Tribunal decision in
CC v. Acer India P Ltd. (2007) 208 ELT 132 (CESTAT).
Tablet computer - A tablet computer is Automatic Data Processing Machine (8471) and not
mobile phone (8517) - MF(DR) circular No. 20/2013-Cus dated 14-5-2013.
5.4-2 If both are specific - Latter the better
If two or more headings seem equally possible and the dispute cannot be resolved by any of
the aforesaid rules, if both the headings appear equally specific, the heading which occurs
last in numerical order is to be preferred (i.e. latter the better). [rule 3(c)].
If product can fall under 4406.90 or 4408.90, classification under 4408.90 would be
appropriate heading for classification - CCE v. Kitply Industries (2011) 272 ELT 3 (SC).
5.5 Other provisions relating to classification
Other provisions are as follows:
Akin Goods - Last Rule of classification - If the classification is not possible by any of the
aforesaid rules 1, 2 and 3, then it should be classified under the heading appropriate to goods
to which they are most akin [rule 4 of GIR].
This is only a last resort and a desperate remedy to resolve the classification issue, as the
matter of classification cannot be kept hanging indefinitely.
5.5-1 Classification of packing containers and packing materials
Rule 5 for interpretation of schedule to Customs Tariff Act and CETA specifically provides for
classification of packing material and packing cases.
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Rule 5. In addition to the foregoing provisions, the following rules shall apply in respect of
the goods referred to therein :
(a) Camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace
cases and similar containers, specially shaped or fitted to contain a specific article or set of
articles, suitable for long-term use and presented with the articles for which they are
intended, shall be classified with such articles when of a kind normally sold therewith. This
rule does not, however, apply to containers which give the whole its essential character.
(b) Subject to the provisions of (a) above, packing materials and packing containers
presented with the goods therein shall be classified with the goods if they are of a kind
normally used for packing such goods. However, this provision does not apply when such
packing materials or packing containers are clearly suitable for repetitive use.
As per this rule, cases for camera, musical instruments, drawing instruments, necklaces etc.
specially shaped for that article, suitable for long term use will be classified along with that
article, if such articles are normally sold along with such cases. Further, packing materials
and containers are also to be classified with the goods except when the packing is for
repetitive use.
This provision is obviously made to ensure that the packing and the goods are charged at
same rate of duty.
In Print-O-Pack v. CCE (2012) 275 ELT 95 (CESTAT), assessee was placing sugar cone (ice-
cream cone) in Aluminium foil cone. It was held that Aluminium foil cone is used only as
packing and entire goods will be classified as 'ice-cream cone' only.
5.5-2 Goods can be compared at the same level only
Sub-Headings can be compared only at the same level [Rule 6].
This means that if one heading contains 5-6 sub-headings, these sub-headings can be
compared with each other. However, sub-heading under one heading cannot be compared
with sub-heading under a different heading. Thus, first heading has to be decided and then
one of the sub-headings within that heading has to be selected.
5.6 Classification of Parts
Classification of parts is subject to notes in Sections and Chapters. Question of classification
of parts is relevant for parts of machinery, electrical equipment, vehicles, instruments, arms,
furniture and toys (Chapters 82 to 96).
In Electrosteel Castings v. CCE 1989 (43) ELT 305 (CEGAT), it was observed that 'part' is a
component whose absence will disable a machine or appliance. It must be regarded as an
essential ingredient or part of that machine.
A part is an essential component of the whole without which whole cannot function
Accessory is something supplementary or subordinate in nature and need not be essential
for actual functioning of the product - CCE v. Insulation Electricals (2008) 224 ELT 512 (SC).
Broadly, parts suitable solely for a particular machine generally fall in the same heading
number in which main item falls. However, there are many exceptions -
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Parts of general use are not to be classified as part of any particular machine. 'Parts
of General Use' are to be classified in their respective specified heads and not to be
classified under the heading of the machine where they are used.
Parts are to be classified as parts if separate heading is available for parts, as per
section note 2 to section XVI and section note 2 to section XVIII (e.g. there is separate
heading for parts of engine).
Various articles as specified in notes to sections XVI and XVII are not to be classified
as parts of any particular machine [e.g. articles of leather, belts, tools and appliances,
instruments, clocks, watches etc.]
The direction that parts are to be classified along with that machine appears only in
section XVI. However, in Camlin Ltd. v. CCE 2000 (121) ELT 178 (CEGAT), it was held
that application of this note should be made to goods falling under other sections
also. Where parts are not of general use, these are to be classified under the heading
of main article (even when the Article falls under section other than section XVI).

5.6-1 Parts of General Use

Parts of general use are defined as (a) tube and pipe fittings, stranded wire, ropes, cables,
chains, nails, screws, bolts, springs (other than clock springs) of base metal i.e. Iron and Steel,
Copper, Aluminium, Tin, Nickel, Lead, Zinc etc. or of plastic (b) Padlocks, locks; mountings
and fittings suitable for furniture, doors, windows etc.; clasps, buckles, eyelets; sign-plates,
name plates; frames of pictures; mirrors; of Iron and Steel, Copper, Aluminium, Tin, Nickel,
Lead, Zinc etc. or of plastic.
These parts are to be classified in their respective heading and not as part of the machine or
equipment e.g. a bolt used in a vehicle will be classified as 'bolt' and not as 'motor vehicle
part'. Plastic piping and fitting will be classified under Plastic articles (3917) only, even if used
as machine component.
5.6-2 Part of part is part of whole
A part of part is part of whole.
Tyre is a part of cycle. 'Valve' is a part of the tyre. Hence, 'valve' will be treated as part of
'cycle'.
Part of a cycle tyre is part of cycle.- CCE v. MP(I) Ltd. - 1990 (46) ELT 68.
It is settled law that a part of part is also a part of the main product - Lakhanpal National Ltd.
v. CCE - 1996 (88) ELT 87 (CEGAT SMB).
A starter armature which is a part of automobile starter motor is a part of automobile. -
Sahney Steel and Press Works Ltd., Bombay v. UOI - 1988 (36) ELT 94 (Bom HC).
A component of component of a machine is a component of machine. - Audio Vision
Electronics v. CC - 1987 (31) ELT 796 (CEGAT).
Ball bearing is part of machine. Hence part of ball bearing is also part of machine as part of
part is also a part. - Needle Roller Bearings v. CCE 2000(124) ELT 577 (CEGAT).
5.7 Classification of services
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Scheme of Classification of Services has been notified by Government as Annexure to

Notification No. 11/2017-CT (Rate) dated 28-6-2017.
The classification of services is based on United Nations Central Product Classification –
CBI&C press release dated 11-6-2018.
Since Customs Tariff has 1 to 98 Chapters, chapter No. 99 has been given for services. The
service classification is 6 digit code.
The services have been classified in five broad sections as follows :
Section 5 - Construction service
Section 6 - Distributive Trade Services, Accommodation, Food service
Section 7 - Financial and related Services
Section 8 - Business and Production Services
Section 9 - Community, social and personal services
This section number forms third digit e.g. construction services commence with '995'.
The sections are divided into headings which is a four digit code. These are divided in groups
which becomes a fifth digit code. Its further division is made in 'Tariff Item' which is a six
digit code.
Often there is overlapping and some activities can fall in more than one tariff items.
In this book, the classification of services, as given above, has been followed, as far as
possible.
Explanatory Notes to the scheme of classification of services – CBI&C has issued
explanatory notes to scheme of classification of services, vide CBI&C press release dated 11-
6-2018, as a guiding tool. It has been clarified that when a service is based on its description,
specific description shall be preferred over a more general description.
5.7-1 Most unscientific way of classification of services
The classification of services is based on United Nations Central Product Classification –
CBI&C press release dated 11-6-2018.
The classification as done is not at all suitable to Indian conditions.
The grouping of services is haphazard. Many of the services as given in the classification are
not relevant for India at all.
On the other hand, many services which are relevant in the context of Indian GST law, do
not find proper place in classification of services.
In some cases, services fall under two or more heads.
Service code is not SAC - The term often used in returns under GSTN is 'SAC' i.e. Service
Accounting Code. This term was used in service tax law. This is really hang over of the past,
as there is no concept of 'accounting code' in GST. It seems in the application for registration
under GST, they are still using old service tax accounting codes, though the classification of
services under GST is entirely different.
5.8 Principles of Classification
Classification is to be done on basis of entries in Tariff. However, there are some general
principles of classification.
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Words used in Tariff are to be understood in the sense these are understood in the trade.
This is 'trade parlance theory'. The trade parlance is more important than dictionary or
technical meaning, unless the word is specifically defined in the Tariff itself.
HSN is very important guide in classifying a product and it should be normally followed.
End use is generally not relevant for classification, except when the tariff description so
requires and classification is relating to function of the product.
5.8-1 Trade Parlance Theory
Since the primary objective of the Excise Act is to raise revenue, resort should not be had,
for purpose of classification, to the scientific and technical meaning of the terms and
expressions used therein, but to their popular meaning, that is to say, the meaning attached
to that by those using the product.
The burden of proof that a product is classifiable under a particular tariff head is on the
revenue and must be discharged by proving that it is so understood by the consumers of
product in common parlance - CCE v. Vicco Laboratories 2005 (179) ELT 17 (SC 3 member
bench).
Criteria for classifications are given in the Tariff. However, basic principle of classification,
devised more than a century ago by Justice Pollok in Grenfell v. IRC (1876) 1 Ex D 242
continues. As per this principle, a word in statute should be construed in its popular sense
and not in the strict or technical sense. 'Popular sense' means that which people conversant
with the subject matter with which the statute is dealing, would attribute to it. This has been
confirmed by Supreme Court in various cases like Indo International Industries v. CST (1981)
3 SCR 294 = 8 ELT 325 = AIR 1981 SC 1079 = 1981 (2) SCC 528 = 47 STC 359 (SC) * Ramavatar
Budhaiprasad v. Asstt. STO 12 STC 286 = (1962) 1 SCR 279 = AIR 1961 SC 1325 * Dunlop India
Ltd. v. UOI - (1976) 2 SCC 241 = (1976) 2 SCR 98 = AIR 1977 SC 597 = 13 ELT 1566 (SC) *
Pleasantime Products v. CCE (2010) 1 SCC 265 = 243 ELT 641 (SC) * CTT v. Kartos International
(2011) 6 SCC 705 = 6 GST 144 = 10 taxmann.com 202 = 40 VST 210 = 268 ELT 289 (SC) * CCE
v. Wockhardt Life Sciences (2012) 5 SCC 585 = 277 ELT 299 (SC) * CCE v. Connaught Plaza
Restaurant P Ltd. (2012) 286 ELT 312 (SC) * CCE v. Hindustan Lever Ltd. (2015) 10 SCC 742 =
51 GST 81 = 60 taxmann.com 470 = 323 ELT 209 (SC) * CCE v. Uni Products India Ltd. 2020
(372) ELT 465 (SC).
Natural and ordinary meaning to be considered - When an expression is not defined in the
Act, natural and ordinary meaning of such expression must be kept in view - CC v. Gujarat
Perstorp Electronics Ltd. (2005) 7 SCC 118 = 186 ELT 532 (SC 3 member bench).
5.8-2 Dictionary meaning/technical literature
Apex Court in Indo International Industries v. CST, UP - AIR 1981 SC 1079 = (1981) 3 SCR 294
= 1981 (2) SCC 528 = 47 STC 359 = 8 ELT 325 (SC) - held "In interpreting items in statutes like
Excise Tax Act or Sales Tax Act, where diverse products, articles and substances are classified,
resort should be had, not to the scientific and technical meaning of terms and expressions
used, but to their popular meaning i.e. the meaning attached to them by those dealing with
them. If any term or expression has been defined in the enactment then it must be
understood in the sense in which it is defined, otherwise, common parlance or commercial
parlance has to be obtained.".
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In absence of any definition of any word or expression in statute, it would be permissible to

refer to the dictionary meaning of that expression. - Star Paper Mills Ltd. v. CCE - 1989 (43)
ELT 178 (SC).
If final conclusion cannot be derived from 'Trade Parlance', dictionary meaning or technical
meaning can be looked into. However, normally, words and terms used in a taxing statute
are to be construed as per trade practice and not in the sense attached to it for scientific or
technical purposes unless intention of legislation to the contrary is shown. - CCE v. Cellulose
Products of India Ltd. - 1995 (75) ELT 882 (CEGAT).
In CCE v. Krishna Carbon Paper Co. - 1988 (37) ELT 480 (SC) = 1989 (20) ECR 273 (SC) = (1989)
72 STC 280 (SC) = 1988 (Supp) 3 SCR 12 = AIR 1988 SC 2223 = (1989) 1 SCC 150 also, it was
held that in order to ascertain correct meaning of a fiscal entry, reference to a dictionary is
somewhat delusive guide, as it gives all the different shades of meaning.
In Kerala State Electricity Board v. CC, Madras - (1995) 80 ELT 346 (CEGAT) also, it was held
that dictionary meaning is a delusive guide for classification and the classification of goods
should be done in terms of section note, chapter note and description of the item and in
terms of trade parlance.
However, in some cases, e.g. CST v. Jaswant Singh Charan Singh – AIR 1967 SC 1454 = 19 STC
469 (SC), dictionary was used as an aid.
Limited use of ISI/BIS standards - ISI classification is for quality control and is not relevant
for classification of goods, which has to be determined according to popular or commercial
meaning - Indian Aluminium Cables Ltd. - AIR 1985 SC 1201 = 21 ELT 3 (SC) = 1985 (3) SCC
284 = (1987) 64 STC 180 (SC) * also Wetoco v. CCE 1992 (62) ELT 584 * Ugar Sugar Works
Ltd. v. CCE - 1993 (68) ELT 224 (CEGAT). * Veto Co. v. CCE - 1992 (62) ELT 584 (CEGAT) *
Wipro Ltd. v. CCE (2001) 136 ELT 885 (CEGAT) * Goodrich Farewell Exporters v. CC (2010) 252
ELT 428 (CESTAT).
Wikipedia and google not an authentic source, but can be looked at for gathering
information - In a short time of its existence, the powerful Wikipedia (free Encyclopedia)
and Google have caught attention of Courts. In Ponds India v. CTT (2008) 8 SCC 369 = 227
ELT 497 = 15 VST 256 (SC). It was noted that Wikipedia is an external aid of construction of
Statute. It may be looked into for gathering information but is not an authentic source. It
was noted that in USA, since 2004, more than 100 decisions have cited Wikipedia, including
13 from Federal Appeals Court. However, it cannot be used for judicial decisions or in critical
issues.
5.8-3 HSN and Classification
Customs Tariff is based on Harmonised System of Nomenclature (HSN), GST rates are
specified on basis of tariff heads in customs.
In CCE v. Wood Craft Products Ltd. - 77 ELT 23 = (1995) 3 SCC 452 = 1995 AIR SCW 1963 (SC
- 3 member bench order), it has been held that as per Statement of Objects and Reasons of
Central Excise Tariff Bill, 1985, new tariff has been introduced, based on HSN to reduce
classification disputes. Thus, in case of doubt, HSN is a safe guide for ascertaining true
meaning of any expression used in the Act, unless there is an express different intention
indicated in the Tariff itself. - confirmed in CC v. Business Forms 2002 (142) ELT 18 = 50 RLT
 108

375 = (2005) 7 SCC 143 (SC 3 member bench) - same view in O K Play (India) v. CCE AIR 2005
SC 1023 = (2005) 2 SCC 460 = 180 ELT 300 (SC 3 member bench) * CC v. Gujarat Perstorp
Electronics Ltd. (2005) 7 SCC 118 = 186 ELT 532 (SC 3 member bench) * CCE v. Phil
Corporation Ltd. (2008) 223 ELT 9 (SC) * Hindustan Unilever v. CCE (2008) 228 ELT 374
(CESTAT) * LML Ltd. v. CC (2010) 10 SCC 503 = 258 ELT 321 (SC) * M P Agencies v. State of
Kerala (2015) 7 SCC 103 = 50 GST 279 = 55 taxmann.com 420 = 318 ELT 22 = 79 VST 337 (SC)
* Holostick India Ltd. v. CCE (2015) 7 SCC 401 = 51 GST 38 = 57 taxmann.com 321 = 318 ELT
529 (SC).
5.8-4 Relevance of End Use in classification
Generally, a product can be used for various purposes and it is not correct to classify the
goods on the basis of its final use.
End use to which product is put is not determinative of classification. Statutory fiscal entry,
basic character, function and use of product are relevant factors - CCE v. Carrier Aircon Ltd.
(2006) 5 SCC 596 = 199 ELT 577 = 147 STC 421 (SC).
End use at hands of purchaser is not concern of assessee and cannot be consideration for
classifying the goods at the hands of manufacturer - CCE v. Gopsons Papers Ltd. (2015) 62
taxmann.com 220 = 324 ELT 5 (SC).
In Dunlop India v. UOI - 1983 (13) ELT 1566 (SC) = (1976) 2 SCR 98 = (1976) 2 SCC 241 = AIR
1977 SC 597 it has been held that end use is irrelevant for classification, unless definition so
requires - same view in CCE v. Mannampalakkal Rubber (2015) 7 SCC 124 = (2007) 217 ELT
161 (SC) - followed in Goodlass Nerolac Paints Ltd. v. CCE - 1992 (60) ELT 392 (CEGAT) - same
view in Goyal MG Glasses v. CCE (2014) 309 ELT 327 (CESTAT).
If the wording of heading is clear enough to understand the issue, there is no need to resort
to end use for classification unless specifically mentioned in the tariff - CCE v. Unicon
Connectors (2008) 232 ELT 205 (CESTAT 3 member bench). In this case, it was held that
connector with wire is still connector and cannot be treated as wire or cable.
In Mukesh Kumar Aggarwal v. State of MP - (1988) Supp SCC 232 = 68 STC 324 = 178 ELT 3 =
AIR 1988 SC 563, it has been held that 'user test' is logical but not conclusive. Particular use
to which an article can be applied in hands of a special consumer is not determinative of the
nature of the goods. Even description used by the seller or nature of business of buyer is not
conclusive - in this case, it was held that leftovers after extraction of 'poles' of eucalyptus
tree has to be considered as 'firewood' and not 'timber', even if the particular buyer was a
timber dealer and the dealer purchased goods to manufacture woodware and furniture etc.
as well as pulp - following this judgment, in Mysore Agro Service Centre v. State of Karnataka
- (1993) 90 STC 401 (Kar HC DB), it was held that lime - a chemical - cannot be classified as
'pesticide' only because some purchasers use it as pesticide. In this case, it was rightly
observed that if tax is levied depending on the purpose for which it is purchased, same article
may be taxed at different rates. That cannot be the legislative intention at all.
End use to be considered if classification is related to function of goods - If the tariff
demands, classification can and should be as per end use. Articles of Plastic are classifiable
under Chapter 39.26. However, a plastic article specially designed as automobile part will be
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classified as 'Part of Motor Vehicle' and not as 'Article of Plastic'. If an article has alternate
uses, its predominant use is highly relevant.
5.8-5 Technical and scientific term must be understood in technical sense only
If the legislature has adopted a technical term, then that technical term has to be understood
in the technical sense and not on basis of market parlance - Reliance Cellulose Products Ltd.
v. CCE 1997(93) ELT 646 (SC) = (1997) 1 SCC 215 = 1997 AIR SCW 3495 = AIR 1997 SC 3414. *
CCE v. Connaught Plaza Restaurant P Ltd. (2012) 286 ELT 312 (SC) * Parle Agro v. CCT (2017)
7 SCC 540.
Rule that the words should be construed in a popular sense is not applicable in all cases. The
said rule is a qualified rule. Where the nature of product in question is highly technical and
scientific in nature, the words used will have to be given technical or scientific meaning –
Chemical and Fibres India v. UOI 1982(10) ELT 917 (Bom HC) – quoted with approval in DCL
Polyester v. CCE 2005 (181) ELT 190 (SC).
Chemical compound has to be classified as per chemistry and explanatory notes and not as
per popular understanding. - Godrej Soaps Ltd. v. CC (2000) 115 ELT 710 (CEGAT). Where
classification is to be determined by scientific parameters, trade terminology is irrelevant. –
Benny Petrochem v. CCE 2000(123) ELT 634 (CEGAT).
Technical meaning prevails in certain cases - In Akbar Badruddin Jiwani v. CC – 1990 (2) SCC
203 = 47 ELT 161 (SC) = AIR 1990 SC 1579, it was held that if the tariff entry is used in a
scientific or technical sense or when there is conflict between entries in the tariff, common
parlance will not prevail - same view in CCE v. Wockhardt Life Sciences (2012) 5 SCC 585 =
277 ELT 299 (SC).
Provisions of Motor Vehicles Act do not determine classification - Provisions of Motor
Vehicles Act do not determine classification of a motor vehicle – Mahindra and Mahindra v.
CCE (2008) 222 ELT 474 (CESTAT).
5.8-6 Burden of classification on department
Onus of establishing that an article falls in a particular tariff lay upon the revenue. -. -. - Even
if evidence produced by assessee is rejected, the appeal of assessee has to be allowed (as
Revenue has not discharged the onus of establishing a classification) - Hindustan Ferodo Ltd.
v. CCE 1997(2) SCC 677 = 89 ELT 16 SC = 17 RLT 807 = 106 STC 214 (SC).
The burden of proof that a product is classifiable under a particular tariff head is on the
revenue and must be discharged by proving that it is so understood by the consumers of
product in common parlance - CCE v. Vicco Laboratories 2005 (179) ELT 17 (SC 3 member
bench).
The burden of proof is on the taxing authorities to show that the particular case or item in
question is taxable in the manner claimed by them -. -. - It is for the taxing authority to lay
evidence in that behalf even before the first adjudicating authority. - UOI v. Garware Nylons
Ltd. (1996) 10 SCC 413 = AIR 1996 SC 3509 = 87 ELT 12 (SC) - followed in Polyglass Acrylic
Mfg Co. v. CC 2003(153) ELT 276 (SC) * HPL Chemicals v. CCE (2006) 5 SCC 208 = 197 ELT 324
(SC) * Ponds India v. CTT (2008) 8 SCC 369 = 227 ELT 497 = 15 VST 256 (SC)* Voltas Ltd. v.
State of Gujarat (2015) 7 SCC 527 = 51 GST 357 = 57 taxmann.com 16 = 80 VST 12 (SC 3
 110

member bench) * CCE v. Hindustan Lever Ltd. (2015) 10 SCC 742 = 51 GST 81 = 60
taxmann.com 470 = 323 ELT 209 (SC).
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Value of taxable supply of goods or services or both

6.1 Transaction value is basis for valuation
The value of a supply of goods or services or both shall be the transaction value, that is the
price actually paid or payable for the said supply of goods or services or both where the
supplier and the recipient of the supply are not related and the price is the sole consideration
for the supply - section 15(1) of CGST and SGST Act.
Conditions for accepting transaction value for valuation - The conditions for accepting
transaction value are - (a) supplier and recipient should not be related (b) price is sole
consideration.
Reasonable nexus between measure and nature of levy of tax is sufficient . - It is not
necessary that there should be direct relation between measure of levy and nature of levy.
Measure is not controlled by nature of levy. Reasonable nexus between measure and nature
of levy of tax is sufficient - CCE v. Grasim Industries Ltd. (2018) 94 taxmann.com 312 = 360
ELT 769 (SC - 5 member bench).
6.1-1 Value does not include GST but includes other taxes
Any taxes, duties, fees and charges levied under any statute other than the SGST Act or the
CGST Act or the IGST Act or GST (Compensation to States for Loss of Revenue) Act; are
includible in value, if charged separately - section 15(2)(a) of CGST Act.
Thus, SGST and CGST will be payable on net value only.
'Value' for GST will not include IGST, CGST, SGST, UTGST and GST Compensation Cess.
However, other taxes (like entertainment tax or some other cess) will be includible if charged
separately in invoice.
Value for payment of IGST, CGST and SGST in Kerala State would not include Kerala Flood
Cess - As per rule 32A of CGST Rules inserted w.e.f. 28-6-2019, Value for payment of IGST,
CGST and SGST will not include Kerala Flood Cess payable under clause 14 of Kerala Finance
Bill, 2019.
'Value' does not include TCS under Income Tax Act - The Value does not include Tax
Collected at Source under Income Tax Act, as TCS is not a tax on goods but an interim levy
on income - para 5 of CBI&C circular No. 76/50/2018-GST dated 31-12-2018 as amended
vide corrigendum No. 20/16/04/2018-GST dated 7-3-2019.
What is meant is that if amount of invoice is 100 and TCS is Rs 2, GST is payable on 100 and
not 98.
6.1-2 Amount paid by recipient on behalf of supplier
Any amount that the supplier is liable to pay in relation to such supply but which has been
incurred by the recipient of the supply and not included in the price actually paid or payable
for the goods or services or both is includible in value - section 15(2)(b) of CGST Act.
This cannot cover free inputs or services supplied by recipient, as only 'amount' paid by
recipient on behalf of supplier is includible. This would be so only where there was
contractual liability on supplier to make those supplies.
However, if amount was contractual liability of supplier but paid by recipient on his behalf,
that amount will be includible in 'value' for purpose of payment of GST.
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Even if this amount is addible in value, obviously payment will not be received in respect of
this amount from recipient. Normally, if payment is not received from recipient,
proportionate input tax credit has to be reversed as per section 16(2) of CGST Act. However,
in such cases, it will be deemed that the payment has been received. Thus, reversal of
proportionate input tax credit will not be required – second proviso to rule 37(1) of CGST
Rules, inserted w.e.f. 13-6-2018.
This second proviso should apply with retrospective effect, though the rule does not
specifically say so.
Contract includes value of material but some material supplied by recipient and value
deducted from bill of supplier - In GVS Projects P Ltd. In re (2020) 82 GST 459 = 117
taxmann.com 911 (AAR-AP), the contract with customer included value of material.
However, some material was supplied by recipient and its value was recovered from running
bill of supplier. It was held that value of materials recovered on cost recovery basis by the
contractees from RA Bills of contractor is includible in value of supply as per section 15(2)(b)
of CGST Act [In my view, contractee should issue tax invoice to contractor, so that contractor
can take ITC of GST charged to him by contractee].
6.1-3 Incidental expenses incurred before supply
Incidental expenses, including commission and packing, charged by the supplier to the
recipient of a supply, including any amount charged for anything done by the supplier in
respect of the supply of goods or services or both at the time of, or before delivery of the
goods or, as the case may be, supply of the services are includible in value - section 15(2)(c)
of CGST Act.
Thus, expenses like weighment, loading in factory, inspection, testing before supply will be
includible in 'value'. Design charges incurred before supply will also be includible.
Development charges like design and tooling are includible in value - Development charges
like design and tooling are includible in value these are necessary concomitant of final sale
price - Tata Johnson Controls v. State of Maharashtra (2017) 105 VST 107 (Bom HC DB).
[decision in sales tax matter but principle applies in GST also, as it is a composite supply].
6.1-4 Interest, late fee or penalty for delayed payment
Interest or late fee or penalty for delayed payment of any consideration for any supply is
includible in value - - section 15(2)(d) of CGST Act.
The term 'delayed' obviously means 'delay beyond agreed terms'. This interpretation can
also be justified because the word 'interest' has been used with the words 'late fee' or
'penalty'. This is on the principle of 'Noscitur a sociis'- Meaning of a word should be gathered
from its context i.e. by associate words.
Thus, GST should not be leviable on normal interest payable by recipient as per agreed terms
of contract.
This is also justifiable from the fact that 'interest' is an exempt supply as per Notification No.
12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
GST on penal interest on EMI (Equated Monthly Instalment) - Often loan granted for
purchase of goods is repaid in Equated Monthly Instalments (EMI). The EMI includes both
 113

principal and interest. If EMI is not paid within scheduled time, additional/penal interest is
charged. CBI&C, vide circular No. 102/21/2019-GST dated 28-6-2019 has clarified as follows
-
(a) If the seller himself grants EMI instalments - In this case, if the seller charges penal
interest, it will be part of value of goods as per section 15(2)(d) of CGST Act and GST
will be payable by seller, even if charged separately at rate applicable to sale of
goods.
(b) If loan is provided by finance company directly to the buyer - If loan is granted by
finance company or Bank to buyer, the seller of goods is out of picture once sale is
made. The buyer pays EMI and penal interest amounts to finance company/Bank. In
this case, the interest (including penal interest) is exempt under Sr. No. 27 of
Notification No. 12/2017-CT (Rate) dated 28-6-2017.

In Infrastructure Development Finance Co. Ltd. v. ACIT (2019) taxmann.com 205 (Mad HC), it
has been held that liquidated damages recovered from borrowers in case of default in case
of payment of interest and other dues (which was 2.10%), was really 'interest'. [Decision
under section 10(23G) of Income-tax Act but principle can apply to GST)].
In a contrary view, it was held that Receipt of penal charges by finance companies on delayed
payment of EMIs would be receipt of amounts for tolerating act of their customers for having
delayed/defaulted on their EMI payments and would be taxable as supply as per Sr. No. 5(e)
of Schedule II of CGST Act - Bajaj Finance Ltd., In re [2018] 99 taxmann.com 236 (AAR -
Maharashtra). - confirmed in Bajaj Finance Ltd. In re (2019) 108 taxmann.com 1 (AAR -
Maharashtra), where it was held that this can get covered under 'tolerating an act or
situation'.
No GST in delayed payment charges/interest recovered on supply of electricity, as
electricity is exempt - In Madhya Pradesh Poorv Kshetra Vidyut Vitaran Co. Ltd. In re (2019)
72 GST 63 = 101 taxmann.com 100 (AAR-MP), it was held that distribution and supply of
electricity is exempt. Delayed payment surcharge (interest) is not a separate service. It is
included in value of supply and it is also exempt - same view in TP Ajmer Distribution Ltd., In
re (2019) 103 taxmann.com 227 (AAAR- Rajasthan).
No GST on delayed payment charges recovered from clients by stock broker - A stock
broker, who is engaged in business of purchasing and selling of shares on behalf of clients
on Stock Exchange platform, is not liable to pay GST on delayed payment charges collected
from clients - SPFL Securities Ltd., In re [2019] 76 GST 141 = 109 taxmann.com 109 (AAAR-
Uttar Pradesh). [The applicant had relied on FAQ No. 80 issued by CBI&C on banking sector
on 27-12-2018, where it was clarified that GST is not payable on delayed payment charges
for debit for settlement obligation or margin trading, as this is in nature of loan and advances
and interest is not taxable].
There is exactly contrary view in Indo Thai Securities Ltd. In re (2019) 111 taxmann.com 104
(AAR-MP), where it has been held the additional amount for delayed payment which is
termed as interest, late fee or penalty is part of stock broking service and is includible in
value for GST purposes.
 114

In my view, if interest is charged, there should be no GST, but some amount in nature of
penalty is charged, GST should be leviable on these amounts.
6.1-5 Tax payable when value is inclusive of GST
Legally, GST is to be indicated separately in tax invoice. However, provision has been made
for situations where GST is not shown separately in tax invoice.
If value of supply is inclusive of IGST, CGST, SGST or UTGST, the tax payable will be calculated
by back calculations as follows—
Tax amount = [Value inclusive of tax × Tax rate in % of IGST or CGST plus UTGST/SGST]/(100
+ sum of applicable tax rates in %). - rule 9 of Valuation Rules - Rule 35 of CGST and SGST
Rules, 2017.
Note that the provision applies only the value of supply included GST. The rule does not say
that the value is deemed to be inclusive of GST.
For example, when GST is payable under reverse charge, the amount charged by supplier of
goods or services cannot be taken as inclusive of GST.
Illustration - If value inclusive of IGST is Rs. 1180 and IGST rate is 18%, integrated tax amount
(IGST) = (1,180 × 18)/(100+18) = 21,240/118 = 180. Value = 1,000. Check that value plus
integrated tax = Rs. 1,180.
6.1-6 When demand is raised for past period
If a person has not paid GST and demand is made later, issue arises whether the amount
charged by him should be taken as inclusive of GST or exclusive of GST.
If goods are cleared without payment of duty and later demand is raised, the invoice value
should be taken as cum-duty price and duty payable should be calculated by back
calculations - CCE v. Maruti Udyog 2002 AIR SCW 1039 = 141 ELT 3 = 2002(3) SCC 547 = 49
RLT 1 = 122 Taxman 105 (SC 3 member bench) - review petitions and civil appeal dismissed
by 3 member bench of SC on 9-12-2004 (179 ELT A102) - informed to trade and earlier
circular No. 749/65/2003-CX dated 26-9-2003 withdrawn - CBE&C circular No. 803/36/2004-
CX dated 27-12-2004 - also quoted with approval in CCE v. Dugar Tetenal India Ltd. (2008)
224 ELT 180 (SC).
Let us hope that the case law will be valid in GST also.
However, since Input Tax Credit is not admissible if invoice is beyond one year, ITC cannot
be availed.
6.1-7 GST on outward freight, packing and other charges in tax invoice
In case of FOR basis contracts, the supplier arranges transport. In that case, he pays GST
under reverse charge on outward freight. He then charges outward freight in the tax invoice.
In such case, the outward freight charged is part of value of goods and GST is payable on
value including outward freight. Similarly, packing charges, weighment charges and other
charges are includible in value for levy of GST. The GST rate is same as applicable to goods,
as this is a composite supply as per section 2(30) of CGST Act.
It is not correct to charge freight separately and charge GST @ 5% as the service of supplier
of goods is not Goods Transport Agency Service at all.
 115

In FAQ Nos. 28 and 29 of FAQ on Mining issued by Directorate General of Taxpayer Services
on 31-7-2017. It has been clarified that in case of FOR contracts, it is a composite contract
and GST is payable on outward freight (GST rate will be same rate as for goods, as clarified
in FAQ No. 29). The supplier will pay GST on reverse charge on the freight charged by GTA
and the credit of same will be available. - - In case of ex-works contract, the service tax on
GTA will be paid by buyer under reverse charge and he can take its ITC. This will be so when
goods are booked by supplier but freight is paid by recipient (buyer).
6.2 Subsidies directly linked to supply other than Government subsidies
Subsidies directly linked to the price excluding subsidies provided by the Central and State
Governments are includible in 'value' for charge of GST.
Explanation.—The amount of subsidy shall be included in the value of supply of the supplier
who receives the subsidy - section 15(2)(e) of CGST Act.
This is also made clear in definition of 'consideration' in section 2(31) of CGST Act.
Subsidy payable to suppliers by person other than Government when part of sale price -
In Ponni Sugar (Erode) Ltd. v. DCTO (2005) 142 STC 543 (SC), it was held that total amount of
consideration, including other amounts which represent the expenses required for
completing the sale are includible in taxable turnover, as the seller would ordinarily include
all of them in the price at which he would sale the goods. In this case, it was held that
transport charges for bringing sugar cane from factory to mills, incurred by mill owner, are
includible in taxable turnover, as otherwise, the seller would be required to incur these
expenses. This would be so even if the cane growers were to receive transport subsidy from
the purchaser (sugar mill owner).
Any subsidy paid to suppliers or to others on behalf of suppliers to ensure scheduled delivery
is component of selling price. These are not post sale expenses - EID Parry v. ACCT (2000) 2
SCC 321 = 2000 AIR SCW 86 = 117 STC 457 = AIR 2000 SC 551 [In this case, the sugar factory
had paid planting subsidy to cane growers (suppliers) and transport subsidy to transporters.
The cane growers were to give delivery at the factory gate. Hence, it was held that if the
subsidy was not given, the suppliers would have to spend the amount and would have
included these payments in the sale price].
Subsidy received from Government was not includible even earlier - In Neyveli Lignite v.
CTO 124 STC 586 = (2001) 9 SCC 648 = 2001 AIR SCW 3917 (SC 3 member bench), it was held
that subsidy received from Government of India under Fertilizer (Control) Order is not part
of taxable turnover. It is de hors the contract of sale with buyer. - followed in EID Parry v.
ACCT (2002) 126 STC 112 (Mad. HC DB).
In COT v. Bongaigaon Refinery (1999) 114 STC 26 (Gau HC DB), it was held that subsidy
received from oil pool account for difference between ex-factory price and retention price
is not part of sale price - - view confirmed in COT v. Bongaigaon Refinery (2006) 147 STC 358
(SC).
Subsidy not connected with specific sale not includible? - It may be noted that a general
subsidy which is not specifically connected to sale of any specific goods will not be includible.
In Tisco General Office Recreation Club v. State of Bihar (2002) 126 STC 547 (SC), appellant,
a dealer, was running canteen for employees of the company. The prices were below cost
 116

price. However, TISCO, without any statutory obligation, as a staff welfare measure, was
making good the excess of expenditure over income. The subsidy was not relatable to any
item of food. It was held that the lump sum subsidy made ex gratia cannot form part of sale
price [validity of this judgment in GST will have to be tested, as value for purpose of GST is
transaction value only if price is 'sole consideration'].
6.3 Discount or incentive given after supply
The value of the supply shall not include any discount that is given:
(a) before or at the time of the supply provided such discount has been duly recorded
in the invoice issued in respect of such supply; and
(b) after the supply has been effected, provided that (i) such discount is established in
terms of an agreement entered into at or before the time of such supply and
specifically linked to relevant invoices; and (ii) input tax credit as is attributable to
the discount has been reversed by the recipient of the supply - section 15(3) of CGST
Act.

Thus, discount after supply is permissible as deduction only if it was known before or at the
time of supply.
There is provision of issue of 'credit note' for deficiency in supply. However, section 34(1) of
CGST and SGST Act do not make provision for issue of credit note for passing of discount
which was not contemplated at the time of supply.
Further, if incidence of GST and interest has been passed on to another person, reduction in
output tax liability of the supplier shall not be permitted - proviso to section 34(2) of CGST
and SGST Act.
Ad hoc discount given after supply is not eligible for deduction from 'value' – InUltraTech
Cement Ltd., In re [2018] 95 taxmann.com 289 (AAR - Maharashtra), the post supply amounts
were paid to the Dealer towards "rate difference" and "special discount" There was no pre
fixed criteria, basis or rationale for arriving at the quantum of these discounts. It was held
that these discounts are not complying with the requirements of section 15(3)(b)(i) of the
CGST Act and therefore cannot be considered and allowed as discount for the purpose of
arriving at the 'transaction value' in terms of Section 15 of the CGST Act.
However, in my view, credit note without GST can be issued by supplier. In that case, the
recipient can avail entire ITC of GST charged by supplier, as credit note is as good as 'payment
made to supplier' and hence any reversal of ITC is not required.
Giving trade discount after sale is a regular trade practice - In Maya Appliances P. Ltd. v.
ACCT (2018) 2 SCC 756 = 90 taxmann.com 317 = 66 GST 210 (SC 3 member bench), giving
benefit of discount at a point of time subsequent to original sale/purchase is a regular trade
practice and qualifies for deduction. All regular trade discounts are allowable as permissible
deductions. It is a matter of common experience that in the present contemporary
competitive market, trade discounts not only are dependent on variable factors but also
might be strategically not disclosable at the time of original sale/purchase – confirming
Southern Motors v. State of Karnataka (2017) 3 SCC 467.
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Trade discount can be given later through credit note - In IFB Industries Ltd. v. State of
Kerala (2012) 4 SCC 618 = 49 VST 1 = AIR 2012 SC 1466 = 295 ELT 186 (SC), it was held that
trade discounts are allowable as deduction even if not shown in invoice but given separately
by credit note - same view in T V Sundaram Iyengar v. State of Karnataka (2012) 51 VST 249
(Kar. HC DB) * State of Karnataka v. Reliance Industries Ltd. (2012) 51 VST 274 (Kar. HC DB)
* Nagarjuna Fertilizers v. ACCT (2012) 51 VST 453 (WBTT) * Pratham Motors (P.) Ltd. v. ACCT
(2014) 51 taxmann.com 74 = 71 VST 522 (Kar. HC DB) * Southern Motors v. State of
Karnataka (2017) 3 SCC 467 = 59 GST 502 = 77 taxmann.com 251 = 98 VST 207 (SC).
Trade discounts given on basis of performance of dealers in the previous quarter is allowable
as deduction from value – Maya Appliances v. ACCT (2018) 66 GST 210 = 90 taxmann.com
317 (SC).
The statutory provision in respect of discount is clearly against normal business practice.
Incentive in nature of discount is not consideration of service - Incentives received by
vehicle dealer from automobile manufacturer is not consideration for service and not liable
to service tax (now GST) - Rohan Motors Ltd. v. CCE [2020] 122 taxmann.com 24 (CESTAT).
Supplier can issue credit note with GST or without GST - As per section 34(1) of CGST Act,
credit note with GST can be issued only by supplier. Supplier can issue credit note with GST
if tax charged in invoice exceeds the tax payable or where goods are returned or where
goods or services are found to be deficient.
As per section 34(1) of CGST Act as amended vide CGST (Amendment) Act, 2018 w.e.f. 1-2-
2019, one credit note can cover multiple invoices [ease of doing business].
This credit note with GST reduces the GST liability of supplier and reduces availability of Input
Tax Credit of the recipient.
In case of discounts, such discount can be passed on in tax invoice itself at the time of supply.
Such credit note can be issued after supply of goods or services only if such discount was
established by agreement before or at the time of supply and specifically linked to relevant
invoices, i.e. discount was known at the time of supply though quantified and passed on
later.
In my view, even if discount was known at the time of supply, credit note without GST
(financial credit note) can be issued and in that case, any adjustment of GST liability of
supplier and ITC eligibility of recipient is not required, as issue of credit note with GST is not
mandatory under section 34(1) of CGST Act. It is only a facility.
Often, such discount is passed on after supply due to commercial reasons after negotiations,
where such discount was not contemplated at the time of supply.
In such case, the supplier can issue credit note without GST (termed as financial credit note).
This view is confirmed in Para D of CBI&C circular No. 92/11/2019-GST dated 7-3-2019.
In such case, GST liability of supplier and ITC eligibility of recipient does not get affected.
Issue of credit note by supplier is as good as receiving payment from recipient and hence
reversal of ITC by recipient under section 16(2)(c) of CGST Act is not required.
If supplier does not issue credit note, recipient should issue debit note without GST - If
supplier does not issue credit note, recipient should issue debit note without charging GST.
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If he does not do so, it can be argued that the recipient has not made full payment to supplier
and hence proportionate ITC is reversible as per provisions of section 16(2)(c) of CGST Act.
It may be noted that debit notes and credit notes are accounting methods of making and
receiving payments.
No adjustment of GST on bad debts - There is no provision for adjustment of GST in case of
bad debt - FAQ No. 48 issued by CBI&C on banking sector on 27-12-2018.
6.3-1 Quantity discounts - Buy more, save more - Discounts known before supply
In some cases, discounts are known before supply of goods or services but may be given
after supply. In some case, staggered quantity discounts are offered based on quantity
purchased by recipient.
Para C of CBI&C circular No. 92/11/2019-GST dated 7-3-2019 clarifies as follows -
Discounts offered by suppliers to customers (including staggered discount under 'Buy more,
save more scheme' and post supply volume discounts established before or at the time of
supply) are excluded to determine value of supply if such discount fulfils requirements of
section 15(3) of CGST Act. Recipient is required to reverse ITC. However, supplier is entitled
to full ITC of inputs, input services and capital goods in relation to supply of goods or services
or both on such discounts (i.e. it is not necessary to reverse ITC proportionate to such
discounts).
6.3-2 'Buy one get one free' or 'one item free' offers
Often there are schemes like two soaps at the price of one or free tooth brush with tooth
paste. Really, it is not 'free supply'. In fact, it is case of two or more supplies with a single
price. At the most, it can be treated as supply of two goods for the price of one. In such
cases, rate of tax will depend on whether it is composite supply or mixed supply. Further,
ITC will be available in relation to supply of goods or services or both as part of such offer
Para B of CBI&C circular No. 92/11/2019-GST dated 7-3-2019.
6.3-3 Discounts offered after supply - Secondary discounts
Often, discounts are offered after supply of goods or services are made. Such discounts are
not known before supply. In such cases, financial/commercial credit note(s) can be issued
without GST. The recipient of goods or services can avail entire ITC of GST charged by
supplier in his original invoice - Para D of CBI&C circular No. 92/11/2019-GST dated 7-3-2019.
This view was reiterated in para 5 of CBI&C circular No. 105/24/2019-GST dated 28-6-2019.
The CBI&C circular dated 28-6-2019 has been withdrawn ab initio vide CBI&C Circular No.
112/31/2019-GST dated 3-10-2019.
Really, departmental circular is not a statutory provision. The departmental circular only
explains department's view on any matter, which is not binding on assessee (In fact, it is not
binding on department also). Thus, if circular explains some provision which is legally
correct, it continues to be valid even after withdrawal of circular.
In my view, the aforesaid provision as explained in CBI&C circular dated 28-6-2019 is legally
correct and continues to be valid, even if circular has been withdrawn [In this case, it is more
so as that provision was explained in earlier circular dated 7-3-2019 also].
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Financial/commercial credit note means credit note other than that specified in CGST Rules,
i.e. without any GST implication.
This is correct as credit note is one mode of adjusting liability and issue of credit note means
payment has been received by supplier in full.
Often, discounts are offered after supply of goods or services are made. Such discounts are
not known before supply. In such cases, financial/commercial credit note(s) can be issued
without GST. The recipient of goods or services can avail entire ITC of GST charged by
supplier in his original invoice, without reversal of ITC - Para D of CBI&C circular No.
92/11/2019-GST dated 7-3-2019 - view reiterated in para 5 of CBI&C circular No.
105/24/2019-GST dated 28-6-2019.
Post sale discounts without requiring dealer to do any further act - In some cases, post
sales discounts are given by manufacturer or wholesaler (supplier) to dealer without any
further obligation or action required at the dealer's end. Such post sale discount will relate
to original supply of goods. It would not be included in value of supply if conditions of section
15(3)(b) of CGST act are satisfied i.e. discount was known prior to supply. In such case, credit
note with GST can be issued as per provisions of rule 53 of CGST Rules. If such discount was
not known prior to supply, financial/commercial credit note can be issued without GST. In
that case, reduction is GST liability is not possible, but the recipient of goods or services is
not required to reverse the Input Tax Credit of tax charged to him in the invoice of supplier
- paras 3 and 5 of CBI&C circular No. 105/24/2019-GST dated 28-6-2019.
The CBI&C circular dated 28-6-2019 has been withdrawn ab initio vide CBI&C Circular No.
112/31/2019-GST dated 3-10-2019.
Really, departmental circular is not a statutory provision. The departmental circular only
explains department's view on any matter, which is not binding on assessee (In fact, it is not
binding on department also). Thus, if circular explains some provision which is legally
correct, it continues to be valid even after withdrawal of circular.
In my view, the provision as explained in CBI&C circular dated 28-6-2019 is legally correct
and continues to be valid, even if circular has been withdrawn.
In Kwality Mobikes P Ltd. In re (2019) 110 taxmann.com 369 (AAR - Karnataka), the applicant
had received volume discount for sales and purchases of motor vehicles over and above the
target. The credit note was issued by supplier without GST. It was held that the credit note
issued by dealer does not have any effect on the value of supply. It is only financial document
to account adjustment for incentives received. There is no effect on liability of discount.
GST not payable on additional post sale discount given by supplier to dealer to augment
sales - In some cases, the dealer may have to sale the goods at lower prices (may be even
below purchase price) to augment sales, due to market conditions. In such cases the supplier
(manufacturer/wholesaler) gives additional discount to the dealer, to enable dealer to sale
at lower prices. This additional discount is additional consideration by supplier of goods
(manufacturer/wholesaler) to the dealer. The dealer would be liable to pay GST on that
amount - para 4 of CBI&C circular No. 105/24/2019-GST dated 28-6-2019.
The CBI&C circular dated 28-6-2019 has been withdrawn ab initio vide CBI&C Circular No.
112/31/2019-GST dated 3-10-2019.
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The circular said that this additional consideration would be liable to be added to the
consideration payable by the customer for the purpose of arriving value of supply in the
hands of dealer. However, the final customer can get ITC only on basis of amount paid by
him.
For example, normal sale price of a product is Rs. 1,00,000. However, in view of market
conditions, the dealer is able to sale the product only at Rs. 75,000. In that case, the supplier
(manufacturer/wholesaler) may give additional discount of (say) Rs. 20,000 to the dealer. In
that case, the dealer is liable to pay GST on Rs. 95,000 [Rs. 75,000 sale price plus Rs. 20,000
additional consideration received in form of additional discount]. However, the customer
will be eligible to avail ITC (if he is otherwise eligible) on Rs. 75,000 only (as stated in para 4
of CBI&C circular No. 105/24/2019-GST dated 28-6-2019).
The CBI&C circular dated 28-6-2019 has been withdrawn ab initio vide CBI&C Circular No.
112/31/2019-GST dated 3-10-2019.
Practically, what is stated in the circular not possible. The customer is not even aware of the
additional discount given by manufacturer/wholesaler to the dealer. He is aware of only net
price to be charged to him. Thus, invoice on him can be only for Rs. 75,000.
Further, if market conditions are bad, it is common business practice to lower prices so that
goods get sold at whatever price market can accept.
The circular was impractical as it was difficult to establish that such discount was (or was
not) to augment sales. To that extent what was stated in the circular dated 28-6-2019 was
highly litigation prone and it is good that the circular dated 28-6-2019 has been withdrawn.
Post Sale discount where dealer is required to do further act - In some cases, post sale
discount is given by manufacturer/wholesaler to dealer requiring dealer to undertake
further obligation like special sales drive, advertisement campaign, exhibition etc. In that
case, the additional discount given is for undertaking such activity and would be in relation
to service supplied by dealer to supplier of goods (manufacturer/wholesaler). In that case,
the dealer will be liable to issue tax invoice to supplier (manufacturer/wholesaler) and
charge GST. The supplier of goods (manufacturer/wholesaler) can take Input Tax Credit of
such tax of GST charged to him by the dealer - para 3 of CBI&C circular No. 105/24/2019-
GST dated 28-6-2019. The CBI&C circular dated 28-6-2019 has been withdrawn ab initio vide
CBI&C Circular No. 112/31/2019-GST dated 3-10-2019.
In fact, in that case, it is not discount on sales, but payment for sales promotion expenses
incurred by dealer on behalf of manufacturer/wholesaler, though termed as discount. If
some amount is paid by manufacturer/wholesaler for sales promotion, dealer should issue
tax invoice to manufacturer/wholesaler and the manufacturer/wholesaler can take Input
Tax Credit of GST charged in the tax invoice of dealer. To that extent, in my view, what is
stated in the circular dated 28-6-2019 is correct.
However, it is difficult to establish that such discount was (or was not) for sales promotion
expenses and to that extent what was stated in the circular dated 28-6-2019 was highly
litigation prone. It is good that the circular has been withdrawn.
Issue of credit note means payment received by supplier - In Shiva Electricals v. CST (2007)
7 STR 35 = 3 STT 105 (CESTAT), it was held that issue of credit notes also amounts to payment
 121

(to recipient) - relying on Mohd. Ekram Khan v. CTO 2004(6) SCC 1083 (SC), where it was held
that issue of credit note to client is also a form of payment - view upheld in CST v. Shiva
Analyticals (2009) 21 STT 328 (Karn HC DB).
In MRF Ltd.,In re [2019] 75 GST 542 = 108 taxmann.com 65 (AAAR - Tamilnadu), applicant
was getting post sale, post supply and post issue of invoices discount. Thus, the appellant
was making net payment to supplier after deducting such discount. It was held that the
appellant (recipient of goods or services) is not required to reverse the ITC on such discount
and issue of commercial credit note (without GST) is sufficient [reversing decision in MRF
Ltd. In re (2019) 73 GST 485 = 103 taxmann.com 278 (AAR-TN)].
In Kwality Mobikes P Ltd. In re (2019) 110 taxmann.com 369 (AAR - Karnataka), the applicant
had received volume discount for sales and purchases of motor vehicles over and above the
target. The credit note was issued by supplier without GST. It was held that the credit note
issued by dealer does not have any effect on the value of supply. It is only financial document
to account adjustment for incentives received. There is no effect on liability of discount.
Ad hoc discount given after supply is not eligible for deduction from 'value' - In Ultra Tech
Cement Ltd., In re [2018] 69 GST 188 = 95 taxmann.com 289 (AAR - Maharashtra), the post
supply amounts were paid to the Dealer towards "rate difference" and "special discount"
There was no pre fixed criteria, basis or rationale for arriving at the quantum of these
discounts. It was held that these discounts are not complying with the requirements of
section 15(3)(b)(i) of the CGST Act and therefore cannot be considered and allowed as
discount for the purpose of arriving at the 'transaction value' in terms of Section 15 of the
CGST Act.
However, as stated above, financial credit note without GST can be issued by supplier. In
that case, the recipient can avail entire ITC of GST charged by supplier, as credit note is as
good as 'payment made to supplier' and hence any reversal of ITC is not required.
6.3-4 Quantity Discount permissible
In some cases, quantity discount is given by way of additional supply e.g. 11 pieces are
supplied for price of 10.
In Golden Tobacco Ltd., In re [2019] 106 taxmann.com 409 (AAR - Maharashtra), applicant,
who was sellers of cigarettes, intended to offer extra quantity of cigarettes (quantity
discount) in addition to normal quantity against same consideration as a taxable supply to
its distributors. They intended to supply additional packs of cigarettes along with regular
supply of cigarettes without receiving any additional consideration for additional packs. It
was (indeed rightly) held that such extra packs of cigarettes wouldn't be exigible to GST
Case law in excise about quantity discount - In quantity discount, a dealer receives from
the assessee a stated extra quantity if he buys a certain other quantity. That this will happen
is known and agreed at the time the transaction is entered into. It is, therefore a trade
discount and is allowable as deduction. - CCE v. Hindustan Lever 2002(142) ELT 513 (SC 3
member bench).
Trade discount may be in form of cash discount or in the shape of goods. Quantity discount
has precisely the same effect as money discount, as in both cases, there is reduction in price
charged to customers and hence permissible - Queen's Chemists Mfg. Dept. v. CCE - 1979 (4)
 122

ELT (J 454) (Bom HC) - quoted with approval in Guljag Chemical and Plastics Pvt. Ltd. v. CCE
- 1993 (63) ELT 710 (CEGAT).
Case law in sales tax about quantity discount - Quantity discount given to stockists in form
of additional quantity (of medicines) for higher off-take is a form of trade discount. It is not
includible in taxable turnover - Mapra Laboratories v. State of Bihar (2004) 135 STC 157 (Pat
HC DB) - same view in State of Tamil Nadu v. Ultramarine and Pigments (1980) 46 STC 220
(Mad HC) * Dey's Medical Stores v. CTT (2004) 134 STC 14 (All HC) * Gulf Oil Lubricants v. CCT
(2017) 59 GST 443 = 77 taxmann.com 231 (Ker HC).
Year end quantity discount - Quantity rebate allowed as discount by dealer through credit
notes at end of the year as per scheme is allowable as deduction from value - Godavari
Fertilizers v. CCT (2004) 138 STC 133 (AP HC DB) - same view in State of AP v. T V Sundaram
Iyengar (1987) 65 STC 41 (AP HC DB).
6.3-5 Input Tax Credit to be reversed if payment is not made to supplier within 180 days
As per second proviso to section 16(2) of CGST Act, if payment of invoice amount is not made
to supplier within 180 days, input tax credit is required to be reversed.
It seems that the intention is to avoid bogus transfers of input tax credit e.g. if a person has
excess input tax credit, he can pass on this credit to others. However, the remedy thought
of seems to be worse than disease as many genuine transactions will get affected. It is not
clear why Government is acting as recovery agent of suppliers.
Further, the provision of interest is baffling. Interest is compensatory in nature. Here,
interest is payable even when Government money was not used at all.
Often in case of large works contracts, some retention money is kept which is released after
warranty period. Further, some deductions from invoice for various reasons is common. In
such case, this provision will create great nuisance to taxable persons. Post-sale discounts
after negotiations are common in business.
All such transactions will get affected. It will be necessary to issue credit notes and debit
notes.
Pay tax with interest even if supplier has paid full tax to Government - an unfair provision
- On one hand, post supply discounts are not allowed as deduction from 'value' for GST. On
the other hand, if less amount is paid to supplier, corresponding input tax credit is required
to be reversed with interest, even when entire tax amount has been paid to Government by
supplier. This is double whammy and absolutely unfair provision.
6.3-6 No unjust enrichment if discount amount returned to buyer by cheque or credit note
If credit note is issued after supply, its input tax credit can be adjusted in Electronic Credit
Ledger.
Even otherwise, there is ample case law that if the discount amount is refunded by supplier
by way of credit note or cheque, there is no unjust enrichment and refund is admissible.
In UOI v. A K Spintex (2009) 234 ELT 41 (Raj HC DB), it was held that once credit note is issued
to customer who has issued corresponding debit note, bill amount minus amount of
credit/debit note becomes price of goods. In such case, incidence of duty cannot be assumed
as passed on to purchaser. Doctrine of unjust enrichment does not apply. Refund is not
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deniable - followed in* RPG Cables v. CCE (2009) 240 ELT 684 (CESTAT SMB) *Hindalco
Industries v. CCE (2009) 240 ELT 693 (CESTAT SMB) * CCE v. Sirpur Paper Mills (2010) 253 ELT
269 (CESTAT) [The decision was noted but not followed in SPBL Ltd. v. CCE (2010) 254 ELT
104 (CESTAT)].
Same view has been held in CCE v. Solaris Chemtech (2011) 273 ELT 191 (Karn HC DB) * Sudhir
Papers v. CCE (2012) 276 ELT 304 (Karn HC DB) * CCE v. Jineshwar Malleables (2012) 281 ELT
43 (Karn HC DB) * CCE v. Gokak Mills (2013) 295 ELT 392 (Karn HC DB) * Hyderabad Chemical
Supplies v. CCE (2015) 320 ELT 756 (AP HC DB) * CCE v. Bhushan Steel (2015) 319 ELT 347
(CESTAT).
In Thermo Heat Tracers v. CCE 2001(132) ELT 455 (CEGAT), it was held that once
manufacturer has credited buyer's account with disputed amount of duty, manufacturer
took back incidence of duty on himself. In such case, the question of buyer passing on the
burden to third person does not arise. - same view in Indo Flogates Ltd. v. CCE 1997(20) RLT
443 (CEGAT SMB) * Siltap Chemicals v. CCE 2006 (193) ELT 461 (CESTAT) * CCE v. NVK Mohd
Sultan (2008) 223 ELT 276 (CESTAT SMB) * CCE v. Modest Infrastructure (2011) 33 STT 278 =
14 taxmann.com 28 (CESTAT) - view confirmed in CCE v. Modest Infrastructure (2012) 37 STT
505 = 27 taxmann.com 6 (Guj HC DB).
6.4 Meaning of 'consideration'
'Consideration' in relation to the supply of goods or services or both to any person, 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 said person or by any other person; but shall not include any subsidy given by Central or
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 Central or State Government -
section 2(31) of CGST Act.
Clause (b) would cover service of 'refraining from act or tolerating an act or situation'.
6.4-1 Deposit is not consideration
A deposit, whether refundable or not, given in respect of the supply of goods or services or
both shall not be considered as payment made for the supply unless the supplier applies the
deposit as consideration for the supply - proviso to section 2(31) of CGST Act.
Normally, term 'deposit' is used when amount is refundable and term 'advance' is used when
amount is adjustable (and not refundable). However, definition of 'consideration' envisages
non-refundable deposit also.
GST is payable when advance is received. Hence, instead of receiving advance from
customer, it is advisable to receive 'deposit'. In that case, GST will be payable only when such
deposit is adjusted against supply.
No GST on interest free refundable deposits received - In Maharashtra E-Square Leisure (P)
Ltd. In re (2019) 73 GST 547 = 104 taxmann.com 258 (AAR - Maharashtra), it has been held
that no GST is payable on refundable interest-free security deposit received by lessor.
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However, if, at the time of return of deposit, some amount is withheld, GST will be payable
on such amount.
However, this will raise issues under Companies Act, 2013.
GST on notional interest on interest free refundable deposit not includible – in Midcon
Polymers (P.) Ltd., In re[2021] 123 taxmann.com 408 (AAAR-Karnataka), it has been held that
notional interest on security deposit is not required to be added in taxable value of services,
as there is no connection between interest paid by third person (bank) and the renting
service supplied by owner of building.
[really no provision in law to consider 'notional income', except in case of related party
transactions].
In a contrary view, in Rajkot Nagarik Sahakari Bank Ltd. In re (2019) 76 GST 397 = 108
taxmann.com 515 (AAR-Gujarat), it was held that GST is payable on notional interest on
interest free refundable deposit.
6.4-2 Price should be 'sole consideration'
The term 'price is sole consideration' has been copied from valuation provisions in excise,
customs and service tax. This was required as excise duty or customs duty was on 'goods'
and service tax was on 'services'. However, in GST, the tax is on 'supply of goods or services
or both'.
The 'consideration' should be for supply of goods or services or both. Since the input tax
credit is integral part of law of GST, the term 'supply' has to be read with reference to 'input'
and 'input services' which are eligible for Input Tax Credit.
6.4-3 Free supplies made by recipient and amortized cost of patterns, tools, dies etc. are
not includible in value for GST
In excise, customs and service tax valuation provisions, free supplies made by recipient are
required to be added for valuation. Similarly, amortised cost of patterns, dies, tools etc.
supplied by customer are required to be added.
Controversy of 'reimbursement of expenses' which was there in service tax law will also
arise.
As regards addition of amortised cost of tools and dies supplies by principal manufacturer
(OEM i.e. Original Equipment Manufacturer) to supplier of components, it has been clarified
as follows – (a) The manufacturer who has supplied the tools and dies on Free of Cost (FOC)
basis is not required to reverse the ITC on such moulds and dies (b) The component
manufacturer is not required to add amortised cost of tools and dies in the value of
components supplied by him to the principal manufacturer (c) However, if the contract was
that the component manufacturer will himself manufacture and use the tools and dies but
are supplied by OEM, then OEM has to reverse the ITC and amortised cost of tools and dies
is required to be added in value of components supplied by manufacturer of components –
CBI&C circular No. 47/21/2018-GST dated 8-6-2018.
This view has been accepted and followed in Lear Automotive India (P.) Ltd.,In re [2018] 100
taxmann.com 311 (AAR - Maharashtra) – same view in Toolcomp Systems (P.) Ltd.,In re
[2019] 108 taxmann.com 107 (AAR - Karnataka).
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There was exactly contrary view in Nash Industries (I) (P.) Ltd.,In re [2018] 99 taxmann.com
134 = 71 GST 64 (AAR - Karnataka), where it was held that amortised cost of tools supplied
by customer is required to be added [seems CBIC circular was not brought to notice of
Advance Ruling Authority]. Luckily, this decision has been reversed in appeal in Nash
Industries (I) (P.) Ltd.,In re [2019] 103 taxmann.com 91 (AAAR - Karnataka).
In my view, the circular and decision of AAR-Maharashtra and AAAR-Karnataka are correct,
for following reasons.
The tax is on 'supply' and not on 'goods or services' as such. Thus, only what is supplied
should be added to 'value'.
Further, addition of these amounts to 'value' is against the concept of Input Tax Credit
principle as some costs will be added to 'value' on which the supplier will not be able to avail
any input tax credit.
This will also be against the second proviso to section 16(2) of CGST Act, which requires that
value of goods and tax thereon must be paid within 180 days, otherwise proportionate Input
Tax Credit is required to be reversed.
Thus, adding amortised cost of tools and dies and free supply items is not in harmony with
section 16 of CGST Act at all.
It is well settled that law has to be interpreted as whole and not piece meal, as per rule of
Harmonious construction, as discussed below.
In Moriroku UT India v. State of UP (2008) 224 ELT 365 = 15 VST 559 (SC), it has been held
that there is no provision of adding cost of tooling, etc., in UP Trade Tax Act and hence such
cost is not addible.
Decision in case of construction services applies here also - The provision of adding value
of free supplied material to contractor (service provider) in case of construction services has
been held invalid in Bhayana Builders v. CST (2013) 42 GST 76 = 38 taxmann.com 221
(CESTAT LB). This decision has been upheld in CST v. Bhayana Builders P Ltd. (2018) 3 SCC
782 = 66 GST 320 = 91 taxmann.com 109 (SC).
The ratio of this judgment should apply to tools, dies, fixtures also.
The decision was followed in case of supply of free diesel to transporter - CCE v. Karamjeet
Singh & Co. Ltd. (2018) 70 GST 821 = 100 taxmann.com 60 (SC).
The decision was followed in case of mining services in TCL-MMPL Consortium v.
Commissioner of Central Excise [2021] 125 taxmann.com 126 (CESTAT).
In ABL Infrastructure v. CCE (2019) 72 GST 102 = 102 taxmann.com 262 (SC), contrary view
of Tribunal was upheld. However, it seems earlier decision of Supreme Court was not
brought to notice of Supreme Court. The judgment of Supreme Court is brief and without
detailed reasons.
Supply of diesel free to supplier by recipient – no GST on value of fuel – In Vantage
International Management Company v. Commissioner of CGST, Mumbai [2021] 124
taxmann.com 355 (CESTAT), appellant was engaged in providing mining services to ONGC
for performing drilling operations on Oil Wells in East and West Costs of India. ONGC was
required to supply fuel (diesel) for running of drilling equipments without charge. It was held
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that value of fuel cannot be added to taxable value both under unamended and amended
provisions of section 67 ibid for payment of service tax [principle applies to GST also].
In a contrary view, in Pulluri Mining & Logistics (P.) Ltd., In re [2020] 82 GST 327 = 117
taxmann.com 917 (AAR-AP), the applicant was engaged in carrying out mining work. He
received HSD Oil from service recipient for equipments and vehicles used for executing
mining contract. It was held that in terms of section 15(2)(b), value of said HSD Oil would
form part of value of supply of service by applicant [Really, what is includible is 'amount' paid
on behalf of supplier. Further, GST is payable only on value of service supplied. In my view,
the decision is of doubtful validity].
In another contrary view, in Global Veera Helicorp Ltd. In re (2021) 83 GST 291 = 119
taxmann.com 268 (AAR-Gujarat), as per contract of hiring of aircraft (Non Scheduled Flights),
cost of fuel was responsibility of customer. However, where customer was unable to provide
fuel, the company (applicant) was procuring fuel and charging customer on actual basis. It
was held that this amount is includible in value of taxable services. This reimbursement does
not fall within the definition of 'pure agent'.
6.4-4 Returnable packing material
In some cases, goods are packed in returnable packing, like gas cylinder, drums etc. In such
case, tax is payable only on consideration received for the supply - S No. 61 of Tweet FAQ
released by CBE&C on 26-6-2017.
Thus, it is not required to add amortised cost of durable and returnable packing.
6.4-5 Transaction value acceptable even if supply is below cost
In West Coast Paper Millsv.CCE [2018] 92 taxmann.com 287 (CESTAT), service was supplied
to employees against consideration. There was no allegation by revenue that such
consideration received by assessee had been understated. Hence, it was held that there was
no scope for varying taxable value [really doubtful, as in such case price is not the sold
consideration. Lower price was charged only because it was indirect (cashless) benefit to
employees.
6.4-6 Charity (Dharamda) is not includible in value
In D J Malpani v. CCE (2019) 9 SCC 120 = 106 taxmann.com 29 = 74 GST 407 = 366 ELT 385
(SC 3 member bench), assessee was collecting dharamda (charity) separately in invoice. It
was voluntary on purchasers. The charity amount collected was not taken as income of
assessee. It was observed that dharamda is means 'an alms or a gift in charity'. Dharamda is
not includible in assessable value, as it is not consideration for sale [the decision in case of
Central Excise but principle should apply under GST also].
6.4-7 Value of goods transport service to include diesel supplied free by customer?
In Navodit Agarwal In re [2019] 73 GST 636 = 104 taxmann.com 420 (AAR-Chhattisgarh), the
appellant was providing goods transport service of cement. The recipient of service was
supplying diesel free to the appellant (transporter of goods). It was held that cost of free
diesel is includible in value of goods transport service, as diesel is important and integral part
of business process of transport of goods.
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This decision can be justified in view of peculiar provisions in respect of Goods Transport
Agency (GTA) Service as GST is payable only @ 5%. This rate is considering the cost of diesel
involved. Otherwise, GST will normally apply only on what is supplied.
6.4-8 Donation without consideration not subject to GST
Donation without any instructions for its use are not subject to GST. However, where donor
is receiving benefit in terms of advertisement or publicity, it is taxable under GST i.e. if
donations are with instructions would be taxable if donor is receiving identifiable benefits in
terms of advertisement or publicity - Students' Welfare Association In re (2019) 73 GST 650
= 103 taxmann.com 449 (AAR-Maharashtra).
6.5 Meaning of 'related person'
Explanation (a) to section 15 of CGST Act states that for the purposes of CGST Act, persons
shall be deemed to be "related persons" if -
(a) such persons are officers or directors of one another's businesses.
(b) such persons are legally recognized partners in business.
(c) such persons are employer and employee
(d) any person directly or indirectly owns, controls or holds twenty five per cent or more
of the outstanding voting stock or shares of both of them
(e) one of them directly or indirectly controls the other
(f) both of them are directly or indirectly controlled by a third person
(g) together they directly or indirectly control a third person; or
(h) they are members of the same family.

Explanation (b) - The term "person" also includes legal persons.

Explanation (c) - Persons who are associated in the business of one another in that one is
the sole agent or sole distributor or sole concessionaire, howsoever described, of the other,
shall be deemed to be related.
This definition has been practically copied from Rule 2(2) of Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007 and Rule 2(2) of Customs Valuation
(Determination of Value of Export Goods) Rules, 2007, except that in clause (d), the
percentage shareholding has been increased from 5% to 25%.
6.5-1 Meaning of 'family'
"Family" means,—(i) the spouse and children of the person, and (ii) the parents, grand-
parents, brothers and sisters of the person if they are wholly or mainly dependent on the
said person - section 2(49) of CGST Act.
The definition is very practical and sensible.
Otherwise, broad definition of 'family' includes many persons which whom the taxable
person has practically no financial transactions or often they are not even on speaking terms.
6.5-2 Price to related person acceptable if the recipient is eligible for entire ITC
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Even if the supply is to related person, if the recipient is eligible for full input tax credit, the
value declared in the invoice shall be deemed to be the open market value of goods or
services - proviso to rule 28 of CGST and SGST Rules.
This is a very sensible provision as when the recipient can take entire input tax credit, there
cannot be any intention to evade tax.
Really, this provision should apply to all transactions, as in such cases, there can be no
intention to evade tax.
6.5-3 Price to related person acceptable if it is same as charged to others
Merely because two parties are related to each other will not amount to under valuation per
se. It will depend on facts and circumstances of each individual case - CC v. Clariant (India)
Ltd. (2007) 210 ELT 481 (SC).
In Siemens Ltd. v. CC 2000(126) ELT 1134 (CEGAT), it was held that even if buyer is a
subsidiary company, invoice price should be accepted if the relationship has not affected the
invoice price and price is same as the price sold to other independent buyers.
In SRF Ltd. v. CC 2003 (158) ELT 642 (CESTAT), it was held that even if buyer and seller are
related persons, the transaction value is required to be accepted if relationship has not
influenced price. Once he demonstrates that, transaction value cannot be rejected on basis
of import of another person of much smaller quantity and of different variety - same view in
Gemplus India v. CC (2005) 185 ELT 269 (CESTAT) * General Motors India P. Ltd. v. CC (2009)
235 ELT 364 (CESTAT).
In Rehau Polymers v. CC (2014) 301 ELT 116 (CESTAT), the price between related parties was
based on cost plus method. There was no financial flow-back. It was held that the price is
required to be accepted.
In Prodelin India v. CCE 2005 (181) ELT 73 (CESTAT), it was held that even if importer is joint
venture in which foreign supplier is a partner, that itself is not ground to make addition to
sale price. If there is nothing on record to indicate that sale price was not full commercial
price, transaction value has to be accepted as assessable value - view confirmed in CC v.
Prodelin India 2006 (202) ELT 13 (SC).
A sole selling agent or sole distributor can be considered as 'related' only if he falls in one of
the aforesaid criteria. Whether the principal is in a position to 'control' the agent is a matter
of fact and should be considered on merits of each case. Thus, mere fact that Indian importer
is a sole agent or distributor does not make him a 'related person' - Hydrokrimp A.C. (P.) Ltd.
v. CC - (1996) 81 ELT 162 (CEGAT).
Agreement relating to maintenance of standards of quality of products to be manufactured
under licence from foreign supplier does not mean there is legal or operational control of
foreign collaborator. Transaction value is acceptable. CC v. Borasara Machines 1999(107)
ELT 408 (CEGAT).
Mere holding of 40% equity does not by itself sufficient to enable the one to have direct or
indirect control over other. -.- The question whether a person controls the other is a
question of fact and not question of law - CC v. Modi GBC Ltd. 1999(114) ELT 931 (CEGAT). -
departmental appeal dismissed by SC 2000(120) ELT A70.
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Mere shareholding by foreign supplier cannot be cause for rejecting transaction value -
Vivem Metalkat v. CC (2009) 240 ELT 127 (CESTAT).
If relationship between importer and supplier did not influence the price, invoice value has
to be transaction value - Thermon Heat Tracers Ltd. v. CC 2006 (198) ELT 37 (CESTAT).
In Bureau Veritas v. CC 2003 (156) ELT 688 (CESTAT), it was held that even if there was steep
fall in prices and even if buyer and seller are related, the transaction value is required to be
accepted, if it is not influenced by relationship between buyer and seller - decision upheld
in CC v. Bureau Veritas AIR 2005 SC 1292 = (2005) 3 SCC 265 = 2005 AIR SCW 993 = 181 ELT
3 (SC 3 member bench).
Even if importer and supplier are both 100% subsidiaries of another foreign company,
transaction value is acceptable if price is uniform world wide. - Procter and Gamble v. CC
2002(144) ELT 704 (CEGAT).
In CC v. East African Traders 2000(115) ELT 613 (SC), it was held that authorities can pierce
the corporate veil to ascertain whether the buyer and seller are indeed related persons
within the meaning of the rule. [Piercing corporate veil means looking behind the facade to
see the persons who are in real control]. [The Tribunal had held that even if MD of supplier
company is brother of importing firm, supplier and importer cannot be treated as related
person. However, Supreme Court has said that they can be treated so by piercing the
corporate veil].
6.5-4 Piercing corporate veil
Legally, company has identity which is independent of its members. However, if company is
only a facade, Court can look behind the scene and see the real state of affairs. This is called
'lifting of corporate veil'.
In Calcutta Chromotype Ltd. v. CCE AIR 1998 SC 1631 = 1998 AIR SCW 1379 = 1998(3) SCC
381 = 25 RLT 866 = 99 ELT 202 (SC), it was observed - 'If persons behind manufacturer and
buyer are same, authorities can lift the veil of a company, to see it was not wearing that
mask. -. - As to when the veil should be lifted will depend upon facts and circumstances of
each case'.
Thus, if Court finds that company is only a facade and actually there is unity of interest
between two companies and two companies are really one, Court can lift the corporate veil
and treat the two companies as 'related' even if legally, two companies cannot be 'relative'
of each other.
In CCE v. 'J' Foundation (2015) 324 ELT 422 (SC), buyer and seller companies were of same
group. Selling pieces to such group companies was much lower compared to prices charged
to others. Hence, corporate veil was torn and it was held that test of mutuality of interest is
established. The group companies were held as 'related persons'.
In CC v. East African Traders 2000(115) ELT 613 (SC), it was held that authorities can pierce
the corporate veil to ascertain whether the buyer and seller are indeed related persons
within the meaning of the rule.
6.6 Government can notify any other method
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Notwithstanding anything contained in section 15(1) or section 15(4) of CGST Act, the value
of such supplies as may be notified by the Government on the recommendations of the
Council shall be determined in such manner as may be prescribed - section 15(5) of CGST
Act.
Thus, any other method (like value based on MRP) may be fixed. However, 'value' cannot be
determined on basis of production capacity.
6.7 Rate of exchange of currency for determination of value
Rate of exchange for value of taxable goods - The rate of exchange for determination of
value of taxable goods shall be the applicable rate of exchange notified in CBE&C under
section 14 of CGST Act as on date of supply of such goods in terms of section 12 of CGST and
SGST Act - rule 34(1) of CGST Rules, 2017 (amended w.e.f. 27-7-2017).
In Bharat Heavy Electricals Ltd. In re (BHEL) (2021) 83 GST 256 = 116 taxmann.com 115 (AAR-
Uttarakhand), BHEL was supplying goods in India but invoicing in foreign exchange as some
goods which BHEL was supplying were imported. It was held that rate of exchange will be as
applicable for import of goods (and not rate of exchange for export of goods).
6.7-1 Rate of exchange for determination of value of services
Determination of rate of foreign exchange is relevant for determination of value of services
in case of export of services and import of services. The rate is also relevant when place of
supply of service is India and hence GST is payable under reverse charge, but payment is
received in foreign exchange.
Rate of exchange for value of taxable services - The rate of exchange for determination of
value of taxable services shall be the applicable rate of exchange as per Generally Accepted
Accounting principles (GAAP) on the date of time of supply of such service, in terms of
section 13 of CGST Act - rule 34(2) of CGST Rules, 2017 (amended w.e.f. 27-7-2017).
This provision has been made, since, as per section 129(1) of the Companies Act, 2013.
Financial Statements of companies must comply with Accounting Standards, and shall be in
prescribed form.
Thus, it will be easy to reconcile value of service tax as per books of account and as per
service tax returns.
6.7-2 Generally Accepted Accounting principles on effects of changes in foreign exchange
rates
Generally Accepted Accounting Principles (GAAP) are contained in AS-11 [Accounting
Standard 11] in Companies (Accounting Standards) Rules, 2006 issued Central Government
in December 2006, on recommendation of NACAS [National Advisory Committee on
Accounting Standards] under section 210A of Companies Act, 1956.
The AS-11 is on 'Effects of Changes in Foreign Exchange Rates'.
Section 132 of the Companies Act, 2013 envisages constitution of National Financial
Reporting Authority (NFRA). One of function of NFRA is to recommend Accounting
Standards. However, this section is not yet notified.
Till constitution of NFRA under the 2013 Act, National Advisory Committee on Accounting
Standards (NACAS) constituted under section 210A of the 1956 Act will continue to function.
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Thus, presently accounting standards as notified in December 2006 are in force.

The highlights [only as relevant for service tax valuation] are as follows -
Initial recognition of foreign currency transactions - Initially, foreign currency transactions
shall be recorded by applying an exchange rate at the time of transaction [In case of service
tax, it should as on date of Point of Taxation as per POT Rules]. Alternatively, average for a
week or month can be used if there is no significant fluctuation in exchange rate.
Valuation at the balance sheet date - (a) Monitory items like cash, debtors, creditors and
loans shall be valued at closing rate of foreign exchange [This provision would become
relevant if payments in foreign exchange were not made as on date of balance sheet].
(b) Non-monetary items like fixed assets, long term investments shall be carried at historical
cost. Non monetary items like inventory, current investments shall be calculated on basis
fair exchange value [This provision may not normally apply in respect of service tax
valuation].
Treatment of foreign exchange rate difference - This can arise if (a) transaction is being
reported at a rate different form the rate at which it was initially recorded [i.e. actual
realisation or payment was different than that initially recorded in books of account] (b)
transaction is settled at a rate different from the one taken for reporting in the last financial
statement (as at that time payment was not made or received).
All types of exchange differences will be charged to profit and loss account for that period.
Difference between amount booked in accounts and actual amount received to be taken
as gain/loss in foreign exchange -Difference between amount booked in accounts as per
prevailing rate and actual amount received in rupees is to be taken as gain/loss in foreign
exchange. This appears as separate figure in annual accounts.
Thus, the initial amount as booked in the accounts remains unaltered. Since the service tax
is paid on amount as booked at the time of invoice, that amount does not change later due
to fluctuations in foreign exchange rates.
Thus, the service tax as charged originally on basis of prevailing rate at that time does not
change even if actual amount received is less or more.
Accounting treatment of forward foreign exchange contracts - In forward contract, there
is agreement to buy from or sale to other party at a future date for an agreed foreign
exchange rate :
(a) If the forward foreign exchange contract was entered to minimize risk due to
fluctuations in exchange rate is mainly contract for managing risk. The difference
between the foreign exchange rate at the date of inception of the foreign exchange
contract and the forward rate as specified in the contract is termed as 'premium' or
'discount'. The exchange difference should be recognized by crediting/debiting profit
and loss account. The forward premium paid should be expensed out over the tenor
of contract.
(a) If the forward exchange contract was entered for trading of speculation in foreign
exchange. Here object is not to reduce risk but to gain [such contracts are not
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normally envisaged in normal business transactions of providing or receiving goods

or services].

Treatment of foreign exchange rate difference in case of capital assets - The normal
accounting treatment for foreign exchange rate differences is that these should be
recognized as gains or losses in foreign exchange in financial accounts.
However, in case of depreciable capital assets, para 46A of AS-11 provides optional method.
As per this option, exchange difference (positive or negative) related to depreciable capital
assets is to be deducted or added in the cost of depreciable assets (both tangible and
intangible), and then depreciation is to be charged on the revised carrying amount.
Para 46A is optional to company i.e. company can decide either to add/the difference in
foreign exchange rate in value of asset or to carry the difference directly to foreign exchange
gain/loss account in profit and loss account.
Income tax provisions - Section 43A of Income-tax Act provides that if there is difference
between rate of exchange when asset was entered into books of account and the actual rate
at which the payment was made, the difference shall be adjusted in the 'actual cost' of asset,
irrespective of method of accounting adopted by assessee.
Thus, though para 46A of AS-11 is optional to company for preparing accounts as per
Companies Act, for income tax purposes, the foreign exchange rate difference must be
added/deducted to arrive at 'actual cost' of such asset.
Then, depreciation will be calculated as per revised 'actual cost'.
Determination of foreign exchange rate - RBI publishes a 'reference rate of foreign
exchange' on daily basis. Foreign Exchange Dealers Association of India (FEDAI) also publish
'Fixing rate' on daily basis and weekly/quarterly average rates. These are only average rates.
These rates give only rough indication of exchange rate at which transaction is likely to take
place, after considering variations due to difference between buying rate and selling rate,
bank commission etc.
Foreign Exchange Rates as announced by Banks - The Authorised Dealers (mostly Banks)
dealing in foreign exchange quote different rates as follows -
Bid Rate Selling of foreign exchange among banks (Inter Bank Rate)
Ask Rate Purchasing of foreign exchange among banks (Inter Bank Rate)
DD Purchasing rate of foreign exchange inclusive of bankers margin.
TT Selling of foreign exchange inclusive of bankers margin.

The Inter Bank Rate (IBR) for both Bid/Ask are the universal rates traded between banks.
This does not consider any form of margin.
Bid Rate is the rate at which a bank can sell foreign currency and Ask Rate is the rate at which
a bank can buy foreign currency. All rates quoted by the bank will be in the form of Bid Rate
and Ask Rate.
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IBR (Inter Bank Rate) is formed by the demand and supply of foreign currency at any point
in time. This is quoted by two main service providers i.e. Thomson Reuters and Bloomberg
terminals available with banks and other financial institutions.
The DD/TT rates are conversion rates provided by banks to customers for receivables or
payables which include bank margin.
In other words Bid Rate and Ask Rate is the universal worldwide rates, whereas DD and TT
are the rates inclusive of banker's margin.
The DD and TT rates are considered for transactions between bank and customer. This rate
can be considered for calculation of exchange rate for the purpose of service tax also.
Source of getting the foreign exchange rate - There are various websites (some free and
some paid). Information about world currencies is available on www.xe.com or
www.oanda.com.
However, most authentic foreign exchange rate to be taken for valuation would be the DD
and TT rate from bankers of taxable person, as that is the rate at which actual transaction
will be taking place.
6.8 Valuation Rules if transaction value not ascertainable
If valuation is not possible on basis of provisions of transaction value under section 15 of
CGST and SGST Act, valuation will be on basis of Valuation Rules as contained in CGST Rules.
These are discussed in next chapter.
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Valuation Rules if value for GST not ascertainable

7.1 Determination of value when value not ascertainable
The value of the supply of goods or services or both which cannot be valued under section
15(1) of CGST and SGST Act, shall be determined as per rules - section 15(4) of CGST Act.
Such valuation may be required in following situations—
(i) the consideration, whether paid or payable, is not money, wholly or partly.
(ii) the supplier and the recipient of the supply are related.

7.2 Value of supply of goods or services where the consideration is not wholly in money
Where the supply of goods or services is for a consideration not wholly in money, the value
of the supply shall be as follows - Rule 27 of CGST and SGST Rules, 2017.
(a) the open market value of such supply,
(b) if open market value is not available, the sum total of consideration in money and
any such further amount in money as is equivalent to the consideration not in money
if such amount is known at the time of supply,
(c) if the value of supply is not determinable under clause (a) or clause (b), the value of
supply of goods or services or both of like kind and quality,
(d) if value is not determinable under clause (a) or clause (b) or clause (c), the sum total
of consideration in money and such further amount in money that is equivalent to
consideration not in money as determined by rule 30 or 31 of CGST and SGST Rules,
2017, in that order.

Invoice should declare some value not Nil value, if valuation under rule 28 - As per proviso
to rule 28 of CGST and SGST Rules, where the recipient is eligible for full input tax credit, the
value declared in the invoice shall be deemed to be the open market value of goods or
services.
However, if value declared is Nil, input tax credit will not be available - Assistant
Commissioner, CGST & CX, In re [2018] 69 GST 783 = 97 taxmann.com 636 (AAAR-West
Bengal) [In fact, if no value is declared, rule 27 of CGST Rules will apply and GST will be
payable on open market value].
7.2-1 Meaning of "open market value"
"Open market value" of a supply of goods or services or both means the full value in money,
excluding the integrated tax, central tax, State tax, Union territory tax and the cess payable
by a person in a transaction, where the supplier and the recipient of the supply are not
related and price is the sole consideration, to obtain such supply at the same time when the
supply being valued is made - Explanation(a) of Rule 35 of CGST and SGST Rules, 2017.
"Supply of goods or services or both of like kind and quality" means any other supply of
goods or services or both made under similar circumstances that, in respect of the
characteristics, quality, quantity, functional components, materials, and reputation of the
goods or services or both first mentioned, is the same as, or closely or substantially
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resembles, that supply of goods or services or both - Explanation(b) of Rule 3 of CGST and
SGST Rules, 2017.
The important points are as follows—
Value should be exclusive of IGST, CGST, UTGST and GST Compensation Cess (but all
other taxes, if applicable).

Price should be full value in money to unrelated buyer and price should be sole
consideration.
Supply should be at the same time when supply being valued is made.
'Such supply' means of 'like kind and quality'.
Even brand image is relevant. For example, Lux and Lifebuoy of same weight are not
'like goods'.
Quantity and quality should be comparable.

7.2-2 Price should be of supply similar in all respects

The price should be at same commercial level e.g. whole price and retail price or OE price
and spare parts price cannot be compared.
Selling price of 100 Kg. of goods to an unrelated buyer in India cannot be considered for
comparison of sale price of sale of 10,000 Kg. of similar goods to related person in India -
same view in - CC v. Hewlett Packard Ltd. 1999(108) ELT 221 = 29 RLT 290 (CEGAT) * Stahl
India v. CC 2005 (184) ELT 408 (CESTAT).
In Volvo India v. CC 2005 (180) ELT 489 (CESTAT), it has been held that even if assessee and
exporter are related persons, prices of OE (Original Equipment) parts cannot be taken to
level of price of spare parts, unless department after investigation comes with evidence to
show that relationship has influenced the price.
In Mirah Exports P Ltd. v. CC 1998 AIR SCW 687 = AIR 1998 SC 928 =98 ELT 3 (SC), it was held
that giving quantity discount for higher quantity is not unusual and merely because such a
discount has been given during negotiations, it cannot be said that there is any under-
valuation.
7.2-3 Value in case of exchange or barter
In case of exchange or barter, the actual value of goods is higher than the amount received
for such exchange e.g. exchange of old mixer or computer for new mixer or computer. In
such case, the real price of such goods should be considered, as illustrated below.
Where a new phone is supplied for Rs. 20,000 along with the exchange of an old phone and
if the price of the new phone without exchange is Rs. 24,000, the open market value of the
new phone is Rs. 24,000 - Illustration 1 to Rule 27 of CGST and SGST Rules, 2017.
Where a laptop is supplied for Rs. 40,000 along with a barter of printer that is manufactured
by the recipient and the value of the printer known at the time of supply is Rs. 4,000 but the
open market value of the laptop is not known, the value of the supply of laptop is Rs. 44,000
- Illustration 2 to Rule 27 of CGST and SGST Rules, 2017.
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The first illustration is correct but second illustration does not appear to be correct as it is
not full barter.
7.3 Value of supply of goods or services or both between distinct or related persons, other
than through an agent
The value of the supply of goods or services or both between distinct persons as specified in
section 25(4) and 25(5) of CGST Act or where the supplier and recipient are related, other
than where the supply is made through an agent, shall be as follows -
(a) the open market value of such supply
(b) if open market value is not available, the value of supply of goods or services of like
kind and quality
(c) if value is not determinable under clause (a) or (b), the value as determined by
application of rules 30 and 31 of CGST and SGST Rules, in that order.

Section 25(4) and 25(5) of CGST Act covers those cases where same person has taken
separate registration in different States or even in the same State.
7.3-1 Value declared accepted when recipient is eligible for full input tax credit
Where the recipient is eligible for full input tax credit, the value declared in the invoice shall
be deemed to be the open market value of goods or services - proviso to rule 28 of CGST and
SGST Rules.
This is not a general provision. This applies only in following cases - (a) distinct person as
specified in section 25(4) and 25(5) of CGST Act i.e. where same person with single PAN has
taken separate registration in different States or even in the same State (b) Related person.
This is a very sensible provision as when the recipient can take entire input tax credit, there
cannot be any intention to evade tax.
Really, this provision should apply to all transactions, as in such cases, there can be no
intention to evade tax.
In Kansai Nerolac paints Ltd.,In re [2019] 106 taxmann.com 288 (AAR - Maharashtra), it was
held that Rule 28 of the CGST Rules, 2017 can be applied to determine value of supply of
goods for supply of goods by one distinct entity (factory/depot) as defined under section
25(4) of CGST Act to another distinct entity having same PAN (factory/depot), when full ITC
is available to another entity. It is not necessary to follow rule 30 i.e. cost plus 10% [It seems
the assessee just wanted to avoid departmental harassment. Otherwise, the rule is very
clear].
InThirumalai Chemicals Ltd. In re [2021] 124 taxmann.com 343 (AAR – Tamil Nadu), it was
held that when goods procured as such are despatched to branches outside State (with
different GSTIN but same Income Tax PAN), applicant can adopt any one of three methods
provided under rule 28 of CGST/TNGST Rules, 2017, read with section 15 to arrive at value
in respect of supply to distinct persons viz., (a) Open Market Value (b) 90 per cent of ultimate
sale value as raised by distinct persons to unrelated ultimate customers based on Purchase
Orders in cases of 'as such' supplies; and (c) distinct persons being eligible for full Input Tax
Credit of taxes paid by applicant, 'Invoice value' is deemed 'Open Market Value'.
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In GKB Lens P. Ltd. In re (2018) 68 GST 314 = 93 taxmann.com 477 (AAR), it has been held
that stock transfer/branch transfer to branch in another State can be on cost price instead
of on basis of 90% of MRP [In fact, such stock transfer/branch transfer can be at any price as
per proviso to rule 28 of CGST and SGST Rules].
In Specsmakers Opticians (P.) Ltd., In re[2020] 82 GST 283 = 113 taxmann.com 25 (AAAR -
TAMILNADU), it was held that in case of branch transfer, value declared by assessee will be
'open market value', as per second proviso to rule 28 [In appears that this order is in appeal
against decision in case of GKB Lens, though name of applicant is different].
However, if value declared is Nil, input tax credit will not be available - Assistant
Commissioner, CGST & CX, In re [2018] 69 GST 783 = 97 taxmann.com 636 (AAAR-West
Bengal).
In fact, if no value is declared, rule 27 of CGST Rules will apply and GST will be payable on
open market value. Hence, invoice should declare some value and GST should be paid on
that value.
In Specsmakers Opticians (P.) Ltd., In re [2019] 113 taxmann.com 25 (AAAR - Tamilnadu), it
was held that in case of branch transfer, value declared by assessee will be 'open market
value', as per second proviso to rule 28 [It appears that this order is in appeal against decision
in case of GKB Lens, though name of applicant is different].
Manipulation is possible - Though provision is sound, some manipulation is possible e.g.
lower price may be shown to reduce blockage of funds in tax. Some times, higher price may
be charged so that available ITC is fully utilized. Such manipulation is possible to some
extent, but it has to be ensured that there is no loss of Input Tax Credit at either end.
7.3-2 Value of supply of goods made or received through an agent
Specific provisions have been made where sale is made through Consignment Agent. This is
because property in goods does not pass to Consignment Agent when goods are despatched
to him on consignment basis.
"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 -
section 2(6) of CGST Act.
"Principal" means a person on whose behalf an agent carries on the business of supply or
receipt of goods or services or both - section 2(88) of CGST Act.
Liability only of Consignment Agent, not of commission agents - As per aforesaid clause
(a), the agent will be liable for GST on value goods or services only if he undertakes to supply
any goods or services or both on behalf of any principal (like consignment agent). However,
if the agent does not supply goods or services, he is not liable for GST on value of goods or
services. For example, in case of commission agent, he does not undertake supply of goods
or services. He will be liable for GST only on his commission. He is not covered under this
clause.
Clause (b) will cover cases where agent returns goods to Principal.
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Value of supply by Principal to Agent - The value of supply of goods between the principal
and his agent shall be as follows—
(a) the open market value of the goods being supplied, or at the option of the supplier,
90% of the price charged for the supply of goods of like kind and quality by the
recipient to his customer not being a related person, where the goods are intended
for further supply by the said recipient.
(b) where the value of a supply is not determinable under clause (a), the same shall be
determined by application of rules 30 and 31 in that order - Rule 29 of CGST and SGST
Rules, 2017.

Illustration : Where a principal supplies groundnut to his agent and the agent is supplying
groundnuts of like kind and quality in subsequent supplies at a price of Rs 5,000 per quintal
on the day of supply. Another independent supplier is supplying groundnuts of like kind and
quality to the said agent at the price of Rs. 4,550 per quintal. The value of the supply made
by the principal shall be Rs. 4,550 per quintal or where he exercises the option the value
shall be 90% of the Rs. 5,000 i.e. is Rs. 4,500 per quintal.
Provision does not apply when sale is to selling agent on principal to principal basis - The
rule 29 really covers only C&F Agents who store and sale goods on behalf of Principal. This
rules does not cover distributor or selling agents who purchase goods from Principal and
then sale on their own. Here, their relations are on Principal to Principal basis.
The Consignment Agent merely stores goods and sales on behalf of Principal. That is the
reason why provision of 90% price charged to final customer can be taken for valuation
purposes.
7.4 Value of supply of goods or services or both based on cost
Where the value of a supply of goods or services or both is not determinable by any of the
preceding rules, the value shall be one hundred and ten percent of the cost of production or
manufacture or cost of acquisition of such goods or cost of provision of such services - Rule
30 of CGST and SGST Rules, 2017.
In Cummins India Ltd. In re [2019] 73 GST 517 = 103 taxmann.com 126 (AAR-Maharashtra),
it was held that in case of services supplied by HO to its branches/divisions having distinct
GSTIN, valuation should be as per rule 30 of CSGT Rules i.e. 110% of cost [really, in my view,
it can be on basis of rule 31 of CGST Rules also, for which principles as applicable to
distribution by Input Service Distributor can apply].
7.4-1 Principles of cost analysis for captive consumption
Institute of Cost Accountants of India (ICAI) has issued Cost Accounting Standard CAS-4 titled
'Cost of Production for Captive Consumption'. The standard deals with determination of cost
of production for captive consumption. CBE&C, vide circular No. 692/8/2003, dated 13-2-
2003, has clarified that in case of captive consumption, cost calculation should be as per
CAS-4 standard only.
7.5 Residual method for determination of value of supply of goods or services or both
Where the value of supply of goods or services or both cannot be determined under rules
27 to 30 of CGST and SGST Rules, the same shall be determined using reasonable means
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consistent with the principles and general provisions of section 15 of CGST Act and provisions
of rules 27 to 30 of CGST Rules - rule 31 of CGST and SGST Rules, 2017.
Value of service can be on basis of rule 31 instead of on cost plus 10% basis - In case of
supply of services, the supplier may opt for rule 31 ignoring rule 30 - proviso to Rule 31 of
CGST and SGST Rules, 2017.
7.6 Composition schemes when value cannot be easily determined
In some cases, it is not easy to find value of 'supply'. In such cases, composition schemes
have been provided. These are (a) Exchange of foreign currency (b) Booking of air tickets (c)
Life Insurance business (d) Sale of second hand goods.
These schemes are discussed below.
7.6-1 Value of service of exchange of foreign currency
The value of supply of services in relation to purchase or sale of foreign currency, including
money changing, shall be determined by the supplier of service as follows -
(a) For a currency, when exchanged from, or to, Indian Rupees (INR), the value shall be
equal to the difference in the buying rate or the selling rate, as the case may be, and
the Reserve Bank of India (RBI) reference rate for that currency at that time,
multiplied by the total units of currency:

In case where the RBI reference rate for a currency is not available, the value shall
be 1% of the gross amount of Indian Rupees provided or received by the person
changing the money:

In case where neither of the currencies exchanged is Indian Rupee, the value shall be
equal to 1% of the lesser of the two amounts the person changing the money would
have received by converting any of the two currencies into Indian Rupee on that day
at the reference rate provided by RBI - Rule 32(2)(a) of CGST and SGST Rules, 2017.

The taxable person can opt for composition scheme as detailed below.
7.6-2 Optional Composition scheme for payment of tax on exchange of foreign currency
A person supplying the services may exercise option to ascertain value in terms of rule
32(2)(b) for a financial year. Such option shall not be withdrawn during the remaining part
of that financial year - third proviso to Rule 32(2)(a) of CGST and SGST Rules, 2017.
The optional scheme under rule 32(2)(b) of CGST and SGST Rules, 2017 is as follows -
At the option of supplier of services, the value in relation to supply of foreign currency,
including money changing, shall be calculated as follows—
(i) 1% of the gross amount of currency exchanged for an amount up to one lakh rupees,
subject to a minimum amount of Rs 250.
(ii) Rs. 1,000 and half of a per cent of the gross amount of currency exchanged for an
amount exceeding one lakh rupees and up to ten lakh rupees; and
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(iii) Rs. 5,000 and one tenth of a per cent of the gross amount of currency exchanged for
an amount exceeding ten lakh rupees, subject to maximum amount of sixty thousand
rupees.

7.6-3 Value of supply of services of booking of air travel tickets

The value of supply of services in relation to booking of tickets for travel by air provided by
an air travel agent, shall be deemed to be an amount calculated at the rate of five per cent
of the basic fare in the case of domestic bookings, and at the rate of ten per cent of the basic
fare in the case of international bookings of passage for travel by air.
For the purposes of this sub-rule, the expression "basic fare" means that part of the air fare
on which commission is normally paid to the air travel agent by the airline - Rule 32(3) of
CGST and SGST Rules, 2017.
7.6-4 Value of supply of services in relation to life insurance
The value of supply of services in relation to life insurance business shall be as follows (if the
premium includes risk premium plus investment portion) :
(a) the gross premium charged from a policy holder reduced by the amount allocated
for investment, or savings on behalf of the policy holder, if such amount is intimated
to the policy holder at the time of supply of service
(b) in case of single premium annuity policies other than (a), ten per cent of single
premium charged from the policy holder; or
(c) in all other cases, twenty five per cent of the premium charged from the policy holder
in the first year and twelve and a half per cent of the premium charged from policy
holder in subsequent years - Rule 32(4) of CGST and SGST Rules, 2017.

Tax on entire premium if the policy is only to cover the risk - If the entire premium paid by
the policy holder is only towards the risk cover in life insurance, GST is payable on entire
premium amount [as such policy does not have any investment portion. It has only risk
portion] - proviso to Rule 32(3) of CGST and SGST Rules, 2017.
7.6-5 Margin scheme for valuation in buying and selling second hand goods
A 'margin scheme' has been provided for dealers in second hand goods.
If a taxable supply is provided by a person dealing in buying and selling of second hand goods
(i.e. used goods as such or after such minor processing which does not change the nature of
the goods) and where no input tax credit has been availed on purchase of such goods, the
value of supply shall be the difference between the selling price and purchase price and
where the value of such supply is negative it shall be ignored - Rule 32(5) of CGST and SGST
Rules, 2017.
'Value of supply is negative' means sale price is less than purchase price. In such case, no
GST is payable.
The provision applies to all taxable persons dealing in second hand goods, including old and
used empty bottles - PIB press release, dated 15-7-2017 15:35 IST - CBE&C press release No.
79/2017, dated 15-7-2017.
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In Shambhu Traders (P.) Ltd., In re [2019] 103 taxmann.com 375 (AAR- Rajasthan), applicant
was engaged in business of selling used lead acid batteries to various manufacturers. It was
held that he is entitled to operate under Margin Scheme, in respect of used lead acid
batteries, even if he makes inter-State supplies.
GST is payable on auction of second hand or used goods and value for tax purposes will be
difference between selling price and purchase price in respect of old cars, old jewellery and
old watches - Safset Agencies (P.) Ltd.,In re [2019] 106 taxmann.com 188 (AAR -
MAHARASHTRA)[In respect of antiques, it was held that normal GST rate will apply, as these
cannot be termed as 'second hand'. However, this part of decision has been reversed in
appeal by AAAR in [2020] 81 GST 283 = 117 taxmann.com 710 (AAAR-MAHARASHTRA). - see
below]
Margin scheme available for antiques as these are second hand goods - Paintings from art
collectors/antiques watches/antique jewellery, although falling under category of valuable
goods are at same time also second hand or used goods, hence appellant dealing in buying
and selling of above goods could not have been denied benefit of rule 32(5) - Safset Agencies
(P.) Ltd., In re[2020] 81 GST 283 = 117 taxmann.com 710 (AAAR-MAHARASHTRA).
Margin scheme available for antiques as these are second hand goods - Paintings from art
collectors/antiques watches/antique jewellery, although falling under category of valuable
goods are at same time also second hand or used goods, hence appellant dealing in buying
and selling of above goods could not have been denied benefit of rule 32(5) - Safset Agencies
(P.) Ltd., In re [2020] 117 taxmann.com 710 (AAAR-Maha).
No reverse charge on purchase of old goods - The taxable person may purchase second
hand goods from an unregistered person. However, he is not required to pay GST under
reverse charge on such purchases.
When a taxable person is engaged is business of buying and selling old goods, he is not
required to pay tax on reverse charge basis if he is paying tax under this rule - Notification
No. 10/2017-CT (Rate), dated 28-6-2017.
Really, even otherwise, GST cannot apply as the individual selling his old goods is not it is in
the course of business (as selling of old goods is not the business of an individual. This view
has been expressed in PIB press release, dated 13-7-2017 18:57 IST - CBE&C press release
No. 78/2017, dated 13-7-2017) [Though the view is in respect of old jewellery, principle
applies to all sales made by individual in his individual capacity].
Problem in margin scheme - One problem in margin scheme is that if the supplier charges
GST on difference, the buyer knows purchase price of supplier and then can start negotiating
the price. No seller would like to disclose his margin to the recipient.
Tax rate on sale of old and used motor vehicles under margin scheme - The tax rate on
motor vehicles was 28% plus GST Compensation Cess. This was too high for sale of old and
used vehicles. Hence, w.e.f. 25-1-2018, the rates have been reduced as follows [Ref -
Notification No. 8/2018-CT (Rate) dated 25-1-2018 and No. 1/2007- Compensation Cess
(Rate) dated 28-6-2017 as amended on 25-1-2018].
The following concessional rates are not available if input tax credit under GST or Cenvat
Credit under Cenvat Credit Rules or ITC under State Vat was availed.
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The tax rate will be 18% IGST or 18% [9% CGST plus 9% SGST/UTGST] (no GST Compensation
Cess) for (a) petrol, LPG or CNG driven motor vehicles with engine capacity of 1200 cc or
more and length of 4000 mm or more (b) diesel driven motor vehicles with engine capacity
of 1500 cc or more and length of 4000 mm or more (c) Sports Utility Vehicles and Utility
Vehicles motor vehicles with engine capacity of 1500 cc or more.
The tax rate will be 12% IGST or 12% [6% CGST plus 6% SGST/UTGST] for old and used
vehicles other than above (no GST Compensation Cess)
GST is payable on supply of old motor vehicles as scrap - CMS Info Systems Ltd. In re (2018)
68 GST 79 = 93 taxmann.com 95 (AAR - Maharashtra).
Margin in case of other taxable persons selling old motor vehicles - The aforesaid tax rates
are also applicable to all taxable persons selling old cars which were their business asset. In
their case, the margin will be the consideration received for supply of old and used motor
vehicle and the depreciated value as per depreciation claimed under section 32 of Income
Tax Act.
However, the concessional rates are not available if input tax credit under GST or Cenvat
Credit under Cenvat Credit Rules or ITC under State Vat was availed.
7.6-6 Value in case of lottery ticket, gambling, horse races
Value of supply of lottery will be 100/128 of the face value w.e.f. 1-3-2020 - rule 31A of CGST
Rules amended w.e.f. 1-3-2020.
Till 1-3-2020, value of lottery ticket was as follows - (a) Value of supply of lottery run by State
Government is 100/112 of face value of ticket or price as notified in the Official Gazette of
State Government, whichever is higher (b) Value of supply of lottery authorised by State
Government is 100/128 of face value of ticket or price as notified in the Official Gazette of
State Government, whichever is higher - Rule 31A as existing upto 1-3-2020.
It is not clear how unsold lottery tickets are valued.
Value of actionable claim in the form of chance to win in betting, gambling or horse racing
in a race club shall be 100% of the face value of bet or the amount paid into the totalizator -
Rule 31A(c) of CGST Rules, inserted w.e.f. 23-1-2018.
7.7 Value of token, voucher or coupon
The value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which
is redeemable against a supply of goods or services or both shall be equal to the money value
of the goods or services or both redeemable against such token, voucher, coupon, or stamp
- Rule 32(6) of CGST and SGST Rules, 2017.
7.8 Value Nil in transaction of service between branches or related persons only in respect
of notified transactions
The value of taxable services provided by such class of suppliers of service as may be notified
by the Government on the recommendations of the Council, as referred to in Entry 2 of
Schedule I between distinct persons as referred to in section 25, other than those where
input tax credit is not available under section 17(5), shall be deemed to be NIL - Rule 32(7)
of CGST and SGST Rules, 2017.
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Entry 2 of Schedule I reads as follows - Supply of goods or services or both between related
persons or between distinct persons as specified in section 25, when made in the course or
furtherance of business.
Thus, in case of transaction of services between two branches or divisions of a person in
different States, GST will not be payable if the branches are entitled to get 100% input tax
credit.
So far, no notification has been issued under this provision.
Such exemption will reduce compliance burden of taxable persons, though the States where
such services will be losers in share of their tax revenue.
In fact, as discussed in earlier chapter, GST is payable on such transactions, unless specific
notification is issued under the aforesaid provisions.
In my view, at least services of employees of one branch to branch in other States should be
excluded from provisions of GST, as really services of employees to employer are neither
goods nor services.
7.9 Value of supply of services in case of pure agent
Often, a supplier incurs some expenditure on behalf of recipient and then recovers the
amount from him. Such expenditure is not part of value of supply provided by him to service
recipient, but is incurred by him as per business practice or convenience.
Following illustrations may clarify the provisions—
Outward transport charges paid on behalf of recipient.
Entry tax amount paid by Clearing & Forwarding Agent, Customs Broker or
Transporter on behalf of owner of goods/Principal.
Customs duty, dock dues, demurrage, transport charges etc. paid by Customs Broker
on behalf of client.
Special inspection arranged as per specific requirement of recipient.

Advertisement charges paid by Advertising Agency to newspaper on behalf of clients.

Ticket charges paid by Travel Agent to railways or airlines and recovered from his
customer.

Expenses incurred as pure agent of recipient - The aforesaid amounts are not part of value
of 'supply' and hence are not includible in value of supply.
Hence, Rule 33 of CGST Rules, 2017 provide as follows—
Notwithstanding anything contained in these rules, the expenditure or costs incurred by the
supplier as a pure agent of the recipient of supply of services shall be excluded from the
value of supply, if all the following conditions are satisfied:-
(i) the supplier acts as a pure agent of the recipient of the supply, when he makes
payment to the third party on authorization by such recipient.
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(ii) the payment made by the supplier on behalf of the recipient of supply has been
separately indicated in the invoice issued by the supplier to the recipient of service
and
(iii) the supplies procured by the pure agent from the third party as a pure agent of the
recipient of supply are in addition to the services he supplies on his own account.

7.9-1 Meaning of 'pure agent'

For the purposes of rule 33, "pure agent" means a person who—
(a) enters into a contractual agreement with the recipient of supply to act as his pure
agent to incur expenditure or costs in the course of supply of goods or services or
both.
(b) neither intends to hold nor holds any title to the goods or services or both so
procured or provided as pure agent of the recipient of supply.
(c) does not use for his own interest such goods or services so procured, and
(d) receives only the actual amount incurred to procure such goods or services, in
addition to the amount received for supply he provides on his own account.

Illustration - Corporate services firm A is engaged to handle the legal work pertaining to the
incorporation of Company B. Other than its service fees, A also recovers from B, registration
fee and approval fee for the name of the company paid to Registrar of the Companies. The
fees charged by the Registrar of the companies registration and approval of the name are
compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees.
Therefore, A's recovery of such expenses is a disbursement and not part of the value of
supply made by A to B - Illustration to Rule 33 of CGST and SGST Rules, 2017.
7.9-2 Other illustrations of 'pure agent'
Illustration 1 (Given in service tax law).—X contracts with Y, a real estate agent to sell his
house and thereupon Y gives an advertisement in television. Y billed X including charges for
television advertisement and paid service tax on the total consideration billed. In such a case,
consideration for the service provided is what X pays to Y. Y does not act as an agent on
behalf of X when obtaining the television advertisement even if the cost of television
advertisement is mentioned separately in the invoice issued by X. Advertising service is an
input service for the estate agent in order to enable or facilitate him to perform his services
as an estate agent.
This illustration clearly shows distinction between payments made as 'pure agent' and
payment made as 'Principal'.
Expenses incurred by Customs Broker - In Bax Global India v. CST (2008) 13 STT 263
(CESTAT), it was held that activity of CHA relates to entry or departure of conveyances or
import or export of goods any customs station. It cannot extend beyond it. Charges collected
for freight, cartage, MSIL/JWG charges, examination charges, DO fees, Bill of Lading fee, CFS
charges, storage and handling etc. do not pertain to CHA service. In case of charges collected
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by CHA for activities not related to CHA, he is not liable to pay service tax. Even if he earns
profit on these activities, it is not includible in value of CHA services.
No service tax on registration fee and stamp duty of immovable property - Service tax is
not payable on reimbursable expenses like registration charges and stamp duty, recovered
by builder from the customer - LCS City Makers P Ltd. v. CST (2012) 36 STT 228 = 23
taxmann.com 169 (CESTAT).
No service tax on passenger service fee and airport tax collected by airlines - In Lufthansa
German Airlines v. CST (2016) 56 GST 58 = 70 taxmann.com 60 (CESTAT), it has been held
that passenger service fee and airport tax which is collected from passengers and paid over
to airport/Government authorities is not includible in value of service as it is collected as
pure agent - same view in Lufthansa German Airlines v. CST (2016) 56 GST 196 = 70
taxmann.com 169 (CESTAT), * China Eastern Airlines v. Commissioner of Service Tax [2018]
94 taxmann.com 172 (CESTAT).
Transaction charges collected from clients and paid to stock exchange – In Shreyas Stocks
(P.) Ltd. v. Commissioner of CGST [2018] 93 taxmann.com 229 (Chennai - CESTAT), assessee,
a stock-broker, collected transaction charges from clients and remitted same to concerned
stock exchange. It was held that said charges would not form part of gross value of taxable
service.
No service tax on stamp duty and Security Transaction Tax (STT) - Stamp duty and Security
Transaction Tax (STT) is liability of buyer and stock broker pays it acting as pure agent of the
customer. These are not includible in taxable amount for service tax - CBE&C letter No.
187/107/2010-CX.4, dated 17-9-2010 - view reiterated in FAQ No. 77 issued by CBI&C on
banking sector on 27-12-2018.
Reimbursement of expenses which is liability of service receiver as per agreement is not
includible - In Scott Wilson Kirkpatrick India P. Ltd. v. CCE (2007) 8 STT 58 (CESTAT), the
customer (NHAI - National Highways Authority of India) was to provide some basic facilities
as per agreement. NHAI agreed that service provider (assessee in this case) can procure the
facilities and claim reimbursement from NHAI. It was held that such tax is not payable on
reimbursement of such expenses.
Salary paid on behalf of Principal as his pure agent - In DRS Marine Services (P.) Ltd.,In re
[2018] 100 taxmann.com 323 (AAR - MAHARASHTRA), applicant, a Crew Recruitment and
Placement Agency, was involved in selecting and recruiting shipping personnel on behalf of
their principal/client (RMS) who is a Foreign Ship Owner . They were disbursing salary to
crew members on behalf of Principal, for which Principal was sending amount to them. It
was held that applicant will be acting as a pure agent of RMS. Applicant will not be liable to
pay GST on salary amount received from RMS and disbursed to crew.
Additional discount for early payment given by principal passed on to final customer as
pure agent - In K.K. Polymers (Prop. Advantage Agency (P.) Ltd.), In re [2018] 100
taxmann.com 17 (AAR - Rajasthan), applicant was working as del credere agent (DCA) of
Principal. The Principal supplier was giving additional discount to del credere agent for early
payment, which was passed on by del credere agent (DCA) to final customer. It was held that
such passing on of additional discount is as pure agent of Principal and no GST is payable.
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However, any amount retained by the DCA on account of early payment is in the nature of
supply made to the principal as business support services on which the DCA is already paying
GST.
Collecting examination fees from students and remitting to Government - Collecting
examination fees from students and remitting to Government is service as 'pure agent' and
is not taxable - Arivu Educational Consultants P Ltd. In re (2020) 77 GST 28 = 110
taxmann.com 426 (AAR - Karn).
Valuation of services of C&F Agent - The C&F Agent gets his commission or remuneration
for the services provided to Principal. In addition, he claims reimbursement of expenses
incurred by him for providing the service e.g. transport, godown charges, office expenses
etc. Issue is whether service tax is payable on these expenses also.
In Sangamitra Services Agency v. CCE (2006) 5 STT 85 (CESTAT), prima facie view was held
that in case of services of clearing and forwarding agent, service tax is only on commission
or remuneration and not on incidental expenses like loading expenses, godown charges,
freight, electricity, telephone, labour etc. - confirmed in Sangamitra Services Agency v. CCE
(2007) 12 STT 103 (CESTAT) - followed in Nandini Warehousing Corporation v. CCE (2007) 11
STT 352 and 12 STT 120 (CESTAT) * Marakadham Agencies v. CCE (2007) 11 STT 133 (CESTAT)
* Veerappan Traders v. CCE (2008) 12 STT 87 (CESTAT) * Tulsiram Hanumanbags Gilada v.
CCE (2008) 16 STT 33 (CESTAT) * CST v. Sangamitra Service Agency (2010) 24 STT 106
(CESTAT) * CCE v. Feroke Agencies [2018] 96 taxmann.com 4 (CESTAT).
This view has been confirmed in CST v. Sangamitra Services Agency (2014) 44 GST 644 = 43
taxmann.com 363 = 66 VST 451 (Mad HC DB). It was observed, 'The commission or
remuneration of clearing and forwarding agent, by whatever name called, must necessarily
have some link with or reference or nature to the receipt of remuneration or commission.
Mere act of reimbursement, per se, would not justify its addition to value of remuneration
or commission.'
The view was also confirmed in Venkatesh Merchantiles v. CST (2014) 46 GST 591 = 47
taxmann.com 129 (CESTAT) on basis of decision of Delhi High Court.
In Dimensions Logistics Services v. CST (2014) 48 GST 50 = 49 taxmann.com 413 (Bom HC DB),
a strong prima facie view was held that freight and destination charges (sum received from
foreign service provider) is not includible in value for purpose of service tax.
In K.D. Associates v. CCE (2008) 17 STT 188 (CESTAT), it was held that service tax is only on
amount received for rendering C&F services and not on godown rent and salary reimbursed
by Principal - same view in K.D. Sales Corporation v. CCE (2007) 10 STT 284 (CESTAT).
Service tax is not payable on loading and unloading charges - U M Thariath v. CCE (2008) 12
STT 378 (CESTAT) * Keralam Enterprises v. CCE (2008) 15 STT 280 (CESTAT) * Sri Sastha
Agencies v. ACCE (2009) 18 STT 31 (CESTAT).
Service tax is payable on commission as C&F Agent and not on reimbursement of expenses
- CCE v. Pratik Agencies (2008) 17 STT 12 (CESTAT SMB) * Nazeer & Co. v. CCE (2009) 20 STT
425 (CESTAT).
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In DHL Lemuir Logistics v. CST (2009) 22 STT 398 (CESTAT), it was held that rental income,
distribution charges, warehousing and transportation charges recovered under separate
contracts is not taxable under Clearing & Forwarding Agent's service.
Service tax is payable on commission of C&F Agent and not on rental, telephone, handling,
electricity, salary of employees etc. reimbursed by Principal - Popular Cement v. CCE (2007)
8 STT 120 (CESTAT) * S&K Enterprises v. CCE (2008) 15 STT 36 (CESTAT SMB) * Apco Agencies
v. CCE (2008) 14 STT 305 = 33 VST 191 (CESTAT) * Keralam Enterprises v. CCE (2009) 19 STT
155 (CESTAT).
In U.M. Thariath v. CCE (2008) 12 STT 378 (CESTAT), it was held that service tax is not payable
on commission collected on behalf of Principal.
There are many contrary views also. However, since GST is on 'supply of service', aforesaid
judgments are likely to held valid in GST also.
Toll charges paid by transporter of goods includible - In Premier Vigilance & Security P Ltd.
In re (2018) 99 taxmann.com 79 = 71 GST 76 (AAR-WB), the taxable person was providing
service of transport of cash in specially built vehicles. He was paying toll charges at on
highways and recovering the same from customer. It was held that the applicant is not acting
as pure agent. Hence, value of service will include toll charges also [There can be different
view, if the contract is only for transport of goods or persons].
7.9-3 Problems arising out of concept of pure agent due to ITC provision
The concept of 'pure agent' will be difficult in GST. In GST, ITC is available only if tax invoice
contains GSTIN of recipient and the invoice is uploaded. The pure agent has to ensure that
invoices of supplier are in name of Principal with his GSTN number.
In many cases, the supplier issues tax invoice in name of pure agent with his GSTIN. In such
case, the only option is to include that amount in the invoice of agent and charge GST on
total amount, including amount paid as pure agent.
7.10 GST on Reimbursement of expenses
Reimbursements of expenses received by supplier of goods or services from the recipient of
goods or services are of two types. One type of expenses are those which are not part of his
scope of supply, but paid by supplier of goods or services on behalf of recipient of services
or goods for administrative convenience and then recovered from service receiver – e.g. port
expenses incurred by Customs Broker, air ticket charges paid by air travel agent,
advertisement bill paid by advertising agency etc. These are not part of value of service.
Other type of expenses are incurred by the supplier for supply of services or goods and
recovered from recipient of service separately on actual basis e.g. travelling expenses by
market survey agency, out of pocket expenses of auditors, consulting engineer or
maintenance engineer, design charges for special purpose of machinery etc.
These are essential for supplying the goods or services as goods or services cannot be
supplied without such expenses. In my view, these are part of value of goods or services.
Really, this aspect is directly linked with concept of 'pure agent'.
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As per section 2(31) of CGST Act. 'Consideration' includes any payment made or to be made,
in respect of, in response to, or for the inducement of, the supply of goods or services or
both, whether by the said person or by any other person.
Thus the payment made for travelling expenses, hotel expenses, etc., are in respect of supply
of service and should be includible.
However, in Intercontinental Consultants & Technocrats (P.) Ltd. v. UOI [2012] 28
taxmann.com 213 = 38 STT 75 = 59 VST 487 (Del HC DB), it was held that service tax is payable
'for such service'. The reimbursable expenses are not charges for 'such service' and hence
are not includible in value. The rule 5(1) providing for inclusion of such expenses is ultra vires
and sections 66 and 67 of Finance Act, 1994 – followed in ESPN Software India (P.) Ltd. v.
CST [2014] 70 VST 205 (CESTAT) * Aashita International v. CST [2014] 73 VST 195 (CESTAT) *
C.J. Shah v. CCE [2015] 77 VST 378 (CESTAT) – view confirmed in UOI v. Intercontinental
Consultants [2018] 66 GST 450 = 91 taxmann.com 67 (SC).
This decision should apply in GST also.
Thus, in view of judgment of Delhi High Court upheld by Supreme Court, GST should not be
payable on reimbursement of expenses.
This can be justified on the basis that tax is payable on 'supply' and scope of 'supply' of any
service is on basis of mutual agreement between supplier and recipient of service.
This can also be justified on the well settled principle that ambiguity in tax law, if any, should
be resolved in favour of taxable person
In Text Hundred India (P.) Ltd v. Commissioner of Service Tax, Delhi [2018] 94 taxmann.com
170 (CESTAT), assessee was providing service under category of event management. It
received reimbursable expenses from client on actual basis. It was held that such amount
not includible in gross value for purpose of payment of service tax.
Expenses directly incurred by recipient of service - In some cases, hotel or travel expenses
of supplier of service are directly paid by the service recipient. In such cases, it can be argued
that the tax is on 'supply of service' and since the supplier has not supplied these services,
these are not includible. Of course not a very strong argument, as 'consideration' can be paid
by third person also.
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VAT Concept and its application in GST

8.1 Background of VAT
VAT in core concept in GST.
Concept of VAT (Value Added Tax) was first proposed in 1918 by German Industrialist Dr.
Wilhelm von Siemens.
France was the first country to introduce VAT on 10th April 1954. European countries
introduced VAT on goods and services, after 1977 when European Union made adopting VAT
regime as condition precedent to joining European Union. VAT Rate in Europe varies
between 19% to 25%.
China introduced VAT in 1984 and full fledged VAT was implemented in China in 1994. The
rate is about 17%.
In Japan, there is 'consumption tax' of 5% [4% national levy and 1% regional levy].
About 130 countries have introduced VAT. USA has not introduced Vat since in USA, income
tax is major revenue at Central level and there is retail tax at State level.
Concept of VAT was developed to avoid cascading effect of taxes. VAT was found to be a
very good and transparent tax collection system, which reduces tax evasion, ensures better
tax compliance and increases tax revenue.
Modvat (modified value added tax) was introduced in India in 1986 (Modvat was re-named
as Cenvat w.e.f. 1-4-2000) at Central level. The system was termed as Modvat, as it was
restricted upto manufacturing stage and credit of only excise duty paid on manufacturing
products (and corresponding CVD paid on imported goods) was available.
System of VAT was introduced in service tax w.e.f. 16-8-2002.
Credit of excise duty and service tax was made inter-changeable w.e.f. 10-9-2004. Thus,
partial integration of goods and service tax has been achieved at Union level.
Cenvat was not extended to sales tax, as sales tax is under jurisdiction of State Governments.
However, State Governments have introduced sales tax VAT after 2005.
8.2 Basic Concept of VAT
Generally, any tax is related to selling price of product or value of services. In modern
production technology, raw material passes through various stages and processes till it
reaches the ultimate stage. Output of the first manufacturer becomes input for second
manufacturer, who carries out further processing and supply it to third manufacturer. This
process continues till a final product emerges. This product then goes to
distributor/wholesaler, who sells it to retailer and then it reaches the ultimate consumer.
For example, steel ingots are made in a steel mill by 'A'. These are rolled into plates by a re-
rolling unit 'B', while third manufacturer say 'C' makes furniture from these plates. He sales
it to 'D' who is final consumer. Of tax on a product is 10% of selling price, the transaction
would go as follows.
Details A B C D

Purchase - 110 165 220

 150

Value Added 100 40 35 30

Sub-Total 100 150 200 250

Add tax 10% 10 15 20 25

Total 110 165 220 275

The value added by B is only Rs. 40 while he is paying tax on Rs. 100 on which A has already
paid the tax. He is also paying tax on Rs. 10 which is actually tax paid by A. Similarly, C is
paying tax on material on which A and B have already paid the tax. Thus, tax is paid again
and again on the material which has already suffered tax. There is also tax on tax.
Similar situation arises when one service provider uses another service as his input service.
This is called cascading effect or 'snow balling effect' of taxes. 'Snow balling' means suppose
a small ice ball starts rolling from top of Himalaya, it accumulates ice as it rolls down and
become very big piece by the time it reaches bottom of hill.
This has the following disadvantages—
(a) Computation of exact tax content difficult.
(b) Varying Tax Burden as tax burden depends on number of stages through which a
product passes. If same product passes through 5 stages, tax burden will be less. If
same product passes through 10 stages, tax burden will be more.
(c) Discourages Ancillarisation and growth of small scale industries, since manufacturer
tends to manufacture himself instead of buying the parts from outside. This increases
cost of production.
(d) Concessions on basis of end use is not possible. For example, Government wants to
exempt product of D as it is for flood relief or for common man's consumption. Now,
even if Government gives tax exemption to D, the product or service does not
become tax free as relief of taxes earlier paid by A, B and C cannot be given.
(e) India is member of World Trade Organisation (WTO). As per WTO, there should be
free and fair competition. Hence, no country can give export incentives, but exported
product or service can be made tax free. In aforesaid example, if D is exporting his
product or his service, such exports cannot be made tax free, since Government does
not know how much tax was paid earlier and cannot give relief. Thus, exports cannot
be made tax free.

8.2-1 VAT to avoid the cascading effect

VAT was developed to avoid cascading effect of taxes. The basic principle is that at every
stage, tax should be paid only on value added at that stage and not on entire sale price.
'Value added' is the difference between sale price and cost of material and other inputs on
which tax has been paid.
In the aforesaid example, 'value added' by B is only Rs. 40 (150-110). In VAT, the idea is that
B will pay tax on only Rs. 40 i.e. value added by him.
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Then, it would make no difference whether a product passes through 5 or 10 stages or even
100 stages, as at every stage, tax will be paid only on 'value added' by him to the product
and not on total selling price.
8.2-2 Meaning of 'Value added'
In the above illustration, the 'value' of inputs is Rs. 110, while 'value' of output is Rs. 150.
Thus, the manufacturer has made 'value addition' of Rs. 40 to the product.
Simply put, 'value added' is the gross difference between selling price and the purchase price
in case of traded goods, and gross difference between selling price of final product and
purchase price of inputs, in case of manufactured goods.
8.2-3 Input Tax credit system to implement concept of VAT
VAT (Value Added Tax) removes the cascading effect of taxes by 'input tax credit' system.
Under this system, input tax credit is given at each stage of tax paid at earlier stage. For
example, B will get input tax credit of tax paid by A, C will get credit of tax paid by B and so
on. Thus, aforesaid example will be re-worked as follows in Vat.
Details A B C D

Purchase - 100 140 175

Value Added 100 40 35 30

Sub-Total 100 140 175 205

Add tax 10% 10 14 17.50 20.50

Total 110 154 192.50 225.50

Note - 'B' is purchasing goods from 'A'. His purchase price is Rs. 100 as he is entitled to input
tax credit of Rs. 10 i.e. tax paid on purchases. His invoice shows tax paid as Rs. 14. However,
since he has got input tax credit of Rs. 10, effectively he is paying only Rs. 4 as tax, which is
10% of Rs. 40, i.e. 10% of 'value added' by him. Similarly, you will find that C is actually paying
tax of Rs. 3.50 (17.50 - 14) which is 10% of Rs. 35 and D is actually paying tax of Rs. 3 on his
'value added' of Rs. 30.
If you see the invoice of D, it shows tax of Rs. 20.50, which is the total tax on that Government
paid as follows - Rs. 10 by A, Rs. 4 by B, Rs. 3.50 by C and Rs. 3 by D.
Thus, if D is granted exemption of Rs. 20.50, the product can be made tax free, which was
not possible earlier.
Exemption to D from total tax can be granted by any of the following ways—
(a) Allow him not to charge VAT on his sale and to take input tax credit of his inputs and
utilize it for payment of taxes on his other sales (thus, indirect refund of input taxes)
(b) Allow him to charge VAT (sales tax) on his sales and grant him rebate of that tax on
his sales
(c) Allow him not to charge VAT on his sale and grant him rebate of taxes paid by him
on his inputs [If majority of his final products or output services are exempt from tax]
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'D' can opt for any one of the benefits which suits him.
8.3 VAT is consumption based tax
GST is destination based consumption tax i.e. tax would accrue to the State in which goods
or services are finally consumed, which is also termed as 'place of supply' - FAQ on GST
Chapter 1 Q No. 2 issued by CBI&C on 15-12-2018.
You will find that actually tax is collected by Government only at final stage i.e. consumption
stage. Till then, the credit is passed on to next buyer. Thus, effectively Government does not
get any tax revenue.
In the aforesaid example, if 'D' does not make any further sale, he cannot pass on the input
tax credit to any subsequent buyer or customer. Hence, that tax goes entirely to
Government.
Hence, VAT is termed as 'consumption based tax'.
In case of inter-State transactions, if goods are manufactured in 'X' State, sent to 'Y' State
and sold in 'Y' State, the tax revenue will be collected only by 'Y' State and no revenue will
accrue to 'X' State Government.
This does not make difference in respect of Central Taxes (like CGST and IGST) as wherever
tax is paid, revenue goes to Central Government. However, this makes huge difference in
respect of SGST and UTGST.
8.3-1 Nature of VAT/GST
International VAT/GST guidelines issued by OECD (Organisation for Economic Cooperation
and Development) state as follows [quoted with approval in Coca Cola India v. CCE (2009)
22 STT 130 (Bom HC DB) and ABB Ltd. v. CCE (2009) 21 STT 77 = 15 STR 23 (CESTAT 3 member
bench)]
'Value added tax systems are designed to tax final consumption and as such, in most cases,
it is only consumers who should actually bear the tax burden. Indeed, the tax is levied,
ultimately, on consumption and not on intermediate transactions between firms, as tax
charged on these purchases is, in principle, fully deductible. This feature gives the tax its
main characteristic of neutrality in the value chain and towards international chain. - - Value
added taxes are taxes on consumption, paid, ultimately by final consumers. - - In principle,
business should not bear the burden of tax since there are mechanisms in place that allow
for a refund of the tax levied on intermediate transactions between firms'.
8.4 Revenue Neutral Rate to get same tax revenue
You will find that earlier Government was getting total tax revenue of Rs 70 (10+15+20+25)
while after VAT, Government revenue will be only Rs 20.50. The intention of Vat is neither
to increase Government revenue nor to reduce Government revenue. Hence, Government
has to find a rate where the tax revenue continues to be same as before. This is termed as
'Revenue Neutral Rate' (RNR).
In aforesaid example, the RNR is 34.146% as shown below.
Details A B C D

Purchase - 100 140 175

 153

Value Added 100 40 35 30

Sub-Total 100 140 175 205

Add tax 34.146% 34.15 47.80 59.76 70

Total 110 187.80 234.76 275

Here also, you will find that B is effectively paying tax of Rs 13.65 which is 34.146% of Rs 40
i.e. value added by him.
8.5 Zero rated and exempt transactions in GST
Vat system works on basic principle of granting input tax credit for payment of GST on supply
of goods or services. Thus, input tax credit is available only when GST is payable on supply
of goods or services.
Conversely, if GST is not payable on supply of goods and services, input tax credit of GST is
obviously not available. Transactions where input tax credit is not available (as GST is not
payable on supply of goods and service) are termed as 'exempt transactions'.
Zero rated transactions in GST - Certain supplies of goods and services are 'zero rated' i.e.
GST is not payable on supply of goods and services but still input tax credit is available.
Distinction between 'zero rated transaction' and 'exempt transaction' is that in case of 'zero
rated transactions', input tax credit is available, while in case of exempt transactions, input
tax credit is not available.
This is an indirect method of granting rebate/refund of input taxes to ensure that the final
supply of goods and services is free of all the indirect taxes.
Following transactions have been specified as 'zero rated' -
Export of goods and services
Supply of goods and services to SEZ (Special Economic Zones) for authorised operations.

Some transactions have been notified as 'deemed exports' and benefits comparable to
actual exports are extended to them.
Illustration 1 : A manufacturer manufactures 1,000 Nos. of product 'P', Assessable Value of
which is Rs. 2,000 per piece. SGST and CGST payable is 10% each. SGST and CGST paid on
input goods and services is Rs. 1,00,000 each. The manufacturer sells 700 pieces in DTA
(Domestic Tariff Area) i.e. within India and 300 pieces are exported. Calculate CGST and SGST
payable.
Details SGST CGST

Tax payable on supply of goods and services on 700 pieces in DTA [(700 x 2,000 1,40,000 1,40,000
x 10)/100]
Tax payable on export of 300 pieces Nil Nil

Input tax credit of taxes paid on input goods and services available in Electronic 1,00,000 1,00,000
Credit Ledger
 154

Net tax payable by cash by the dealer in Electronic Cash Ledger 40,000 40,000

Illustration 2 - In aforesaid illustration, if the manufacturer exports 700 units and sales 300
units in Domestic Tariff Area (DTA), what will be the tax liability.
Details SGST CGST

Tax payable on supply of goods and services on 300 pieces in DTA [(300 x 2,000 x 60,000 60,000
10)/100]
Tax payable on export of 700 pieces Nil Nil

Input tax credit of taxes paid on input goods and services available in Electronic 1,00,000 1,00,000
Credit Ledger
Net tax payable by cash by the dealer Nil Nil

Excess credit which can be claimed as refund 60,000 60,000

It can be seen that in both the situations, the exported goods are free of input taxes as well
as output taxes.
8.6 Highlights of scheme of GST
The highlights of proposed GST relating to input tax credit are as follows -
Input Tax Credit - Manufacturer or service provider will be entitled to input tax credit (ITC)
of tax paid on inputs and input services used by him in manufacture.
A trader (dealer) will be entitled to get credit of tax on goods which he has purchased for re-
sale and also input services availed by him.
Credit of GST paid on all input goods (other than capital goods) and input services used or
intended to be used in the course or furtherance of business - section 2(59) and 2(60) of
CGST Act. However, some input credit as specified in section 17(5) of CGST is blocked i.e. not
eligible even if used in course of or furtherance of business.
Credit will be available of (a) SGST and CGST paid on inputs procured and input services
received within the State (b) IGST paid on inputs procured and input services received from
outside the State.
Credit will not be available of certain inputs procured, like petroleum products, liquor,
petrol, diesel, motor spirit.
8.6-1 Credit of tax paid on capital goods
Credit will be available of GST paid on capital goods.
8.6-2 Instant credit
Credit will be available as soon as inputs or input services are received. It is not necessary to
wait till these are utilised or sold.
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Input Tax Credit (ITC)

9.1 ITC is core provision of GST
Input Tax Credit (ITC) is the core concept of GST as GST is destination based tax. ITC avoids
cascading effect of taxes and ensures that tax is collected in the State in which goods or
services or both are consumed.
"Input tax credit" means credit of 'input tax'- section 2(56) of CGST Act.
Wide definition of input, input services and capital goods - Definition of input (goods), input
services and capital goods is very wide. Any goods (and also capital goods) and any input
service used or intended to be used by supplier (of goods or services or both) in the course
of or furtherance of business is eligible for input tax credit [except 'blocked credit' as
specified in section 17(5) of CGST Act].
Burden of proof on taxable person availing input tax credit - Where any person claims that
he is eligible for input tax credit under this Act, the burden of proving such claim shall lie on
such person - section 155 of CGST Act.
Input Tax Credit is in nature of benefit/concession can be only as per provisions of statute
- Input Tax Credit is in nature of benefit extended to dealer under the statutory scheme. The
concession can be received by beneficiary only as per the scheme of statute - ALD
Automotive (P) Ltd. v. CTO (2018) 70 GST 751 = 99 taxmann.com 202 (SC). [In this case, it
was held that law can provide for time limit in availing ITC].
9.1-1 Input Tax
Section 2(62) of CGST Act defines 'input tax' as follows—
"Input tax" in relation to a registered person, means the Central tax (CGST), State tax (SGST),
Integrated tax (IGST) or Union territory tax (UTGST) charged on any supply of goods or
services or both made to him and includes--
(a) the integrated goods and services tax charged on import of goods
(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9 [reverse
charge of CGST]
(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the
Integrated Goods and Services Tax Act [reverse charge of IGST]
(d) the tax payable under the provisions of sub-section (3) and sub-section (4) of section
9 of the respective State Goods and Services Tax Act [reverse charge of SGST] or
(e) the tax payable under the provisions of sub-section (3) and sub-section (4) of section
7 of the Union Territory Goods and Services Tax Act [reverse charge of UTGST],

but does not include the tax paid under the composition levy.
 156

9.1-2 Whether expenditure is 'in the course of or furtherance of business' is for

businessman to decide, not revenue
A catena of judgments has held that commercial expediency has to be adjudged from point
of view of the assessee and that income tax department cannot enter into thicket of
 157

reasonableness of amounts paid by assessee - Shiv Raj Gupta v. CIT (2020) 272 Taxman 391
= 117 taxmann.com 671 (SC 3 member bench).
In applying test of commercial expediency for determining whether the expenditure was
wholly and exclusively laid out for the purpose of business, reasonableness of expenditure
has to be judged from the point of businessman and not of the revenue - CIT v. Walchand &
Co. (1967) 65 ITR 381 = AIR 1967 SC 1435 - quoted with approval in J K Woollen
Manufacturers v. CIT (1969) 1 SCR 525 - similar view in S A Builders v. CIT (2007) 1 SCC 781.
'For the purpose of business' is wider in scope than the expression 'for the purpose of
earning profit' - Hero Cycles v. CIT (2015) 16 SCC 359.
9.2 Manner of taking input tax credit
Every registered taxable person shall, subject to such conditions and restrictions as may be
prescribed and in the manner specified in section 49 of CGST Act, be entitled to take credit
of input tax charged on any supply of goods or services or both to him which are used or
intended to be used in the course or furtherance of his business and the said amount shall
be credited to the electronic credit ledger of such person - section 16(1) of CGST Act.
Electronic Credit Ledger means the electronic credit ledger referred to in section 49(2) of
CGST Act - section 2(46) of CGST Act.
"Electronic Credit Ledger" is the input tax credit ledger in electronic form maintained at the
common portal for each registered taxable person. This credit can be utilized for GST liability
as specified in section 49(4) of CGST Act.
"Input" means any goods other than capital goods, used or intended to be used by a supplier
in the course or furtherance of business - section 2(59) of CGST Act.
"Input Service" means any service used or intended to be used by a supplier in the course or
furtherance of business - section 2(60) of CGST Act.
"Outward supply" in relation to a person, means supply of goods or services, whether by
sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made
or agreed to be made by such person in the course or furtherance of business - section 2(83)
of CGST Act.
Input tax credit available only if supplier of goods and services has deposited the tax with
Government - As per section 16(2)(c) of CGST Act, the recipient of goods and services can
avail ITC only if supplier has deposited the tax with Government either in cash or through
utilisation of Input Tax Credit. This is subject to section 41 and section 43A of CGST Act, which
provides that the registered person can take ITC on self-assessment basis, which will be
credited on a provisional basis to his electronic credit ledger [The words in italics inserted
vide GST (Amendment) Act, 2018, but not notified on 1-2-2019 when other provisions were
notified. After introduction of revised procedure of returns under section 43A of CGST Act,
this provision will be subject to section 43A of CGST Act also].
No mechanism to know whether supplier of goods or services has paid the tax - At present,
there is no mechanism to know whether the supplier of goods or services has paid the tax
to Government.
9.2-1 Documentary requirements and conditions for claiming input tax credit
 158

The input tax credit shall be availed by a registered person, including the Input Service
Distributor, on the basis of any of the following documents - Rule 36 of CGST and SGST Rules,
2017 :
(a) an invoice issued by the supplier of goods or services or both in accordance with the
provisions of section 31 [Invoice of supplier of goods or services or both]
(b) an invoice issued in accordance with the provisions of section 31(3)(f), subject to
payment of tax [tax paid on reverse charge basis]
(c) a debit note issued by a supplier in accordance with the provisions of section 34.
(d) a bill of entry or similar document prescribed under Customs Act or Rules for
assessment of IGST
(e) an invoice or credit note issued by an Input Service Distributor in accordance with
rule 54(1) of CGST Rules, 2017.

Input Tax Credit available if tax invoice contains minimum specified details, even if it does
not contain all required details - Rule 36(2) of CGST Rules provides that Input Tax Credit
shall be availed by a registered person only if all the applicable particulars as prescribed in
Invoice Rules are contained in the said document,
However, it is possible that there may be some omissions.
Hence, now it is provided that if the said document does not contain all the specified
particulars but contains the details of the amount of tax charged, description of goods or
services, total value of supply of goods or services or both, GSTIN of the supplier and
recipient and place of supply in case of inter-State supply, input tax credit may be availed by
such registered person - Proviso to rule 36(2) of CGST Rules inserted w.e.f. 4-9-2018.
Good and practical relaxation indeed.
9.2-2 Input tax credit cannot be taken after one year from date of invoice or filing of annual
return
A taxable person shall not be entitled to take input tax credit in respect of any supply of
goods and/or services to him after the expiry of one year from the date of issue of tax invoice
relating to such supply - section 18(2) of CGST Act.
Further, a taxable person shall not be entitled to take input tax credit in respect of any
invoice or debit note for supply of goods or services or both, after the filing of the return
under section 39 of CGST Act for the month of September following the end of financial year
to which such invoice or (*) debit note pertains or filing of the relevant annual return,
whichever is earlier - section 16(4) of CGST Act.
* The words were 'invoice relating to such'. These words have been omitted vide Finance
Act, 2020, w.e.f. 1-1-2021. The practical effect is that debit note with GST in respect of an
invoice can be uploaded even after filing of return of September of the subsequent year.
The effect of the amendment is that date of debit note and date of underlying invoice have
been de-linked. Thus, debit note in respect of an invoice can be raised even after 30th
September following end of financial year to which the invoice pertains.
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In my view, the recipient can avail ITC of GST paid through debit note, even if the supply
pertains to previous financial years. However, possibility of disputes cannot be ruled out.
Relaxation for financial year 2017-18 - For the financial year 2017-18 (really only for the
period July 2017 to March 2018), the input tax credit can be taken till the due date of
furnishing return under section 39 of CGST Act till due date of filing return for the Month of
March 2019 in respect of any invoice or invoice relating to debit note for supply of goods or
services or both made during the financial year 2017-18, the details of which have been
uploaded by supplier under section 37(1) of CGST Act till due date of filing details under
section 37(1) of CGST Act for March 2019 - proviso to section 16(4) of CGST Act inserted vide
Removal of Difficulties Order No. 02/2018 dated 31-12-2018.
In short, invoices and debit notes pertaining to period July 2017 to March 2018 can be
uploaded by supplier in his GSTR-1 return upto return of March 2019 (which is to be filed by
10-4-2019) and the recipient can take its credit in his GSTR-3B return upto return for the
period upto March 2019 (which is to be filed by 20-4-2019).
In fact, in AAP And Co. v. UOI (2019) 107 taxmann.com 125 (Guj HC), it has been held that
GSTR-3B is only stop gap arrangement, it is not return in lieu of GSTR-3 return. Hence, the
time limit of availing ITC for 2017-18 upto March 2019 is not applicable.
Statute can prescribe time limit for availing Input Tax Credit - Input Tax Credit is in nature
of benefit extended to dealer under the statutory scheme. The concession can be received
by beneficiary only as per the scheme of statute. Law can provide for time limit in availing
ITC - ALD Automotive (P) Ltd. v. CTO (2018) 70 GST 751 = 99 taxmann.com 202 (SC).
9.2-3 No Input tax credit if GST was paid by supplier on advance paid to him
Normally, ITC is taken on basis of 'Electronic Credit Ledger'.
If advance payment was made to supplier of services before supply of services, the supplier
is required to issue receipt voucher and pay tax to Government.
However, at that stage the supplier cannot issue tax invoice and hence recipient cannot take
ITC. Input tax credit cannot be taken as services are not received and tax invoice is not issued
by supplier.
Presently, GST is payable on receipt of advance in case of services and not in case of goods.
9.2-4 Restriction on availing ITC if supplier has not uploaded details of supplies in his GSTR-
1 return
Supplier is required to upload details of his tax invoices and debit notes in his GSTR-1 return.
The details uploaded include GSTIN of recipient. On basis of GSTR-1 return filed by supplier,
the details of tax invoices and debit notes issued to recipient appear in GSTR-2A of the
recipient. The recipient can take ITC on basis of such tax invoices and debit notes. It is
possible that in some cases (like mistake in indicating correct GSTIN of recipient or GSTN
system mistake or non-filing of GSTR-1 by supplier), the details may not appear in GSTR 2A
of recipient. Even then, the recipient can take ITC in his GSTR-3B return and utilise the same.
This facility is being misused. Hence, to reduce misuse, it has been provided that the ITC
availed by recipient on basis of tax invoices or debit notes (which have been received by
recipient) not furnished by supplier under section 37(1) [i.e. in his GSTR-1] shall not exceed
 160

5% of eligible credit available in respect of invoices and debit notes which have been
furnished by supplier in his GSTR-1 return under section 37(1) of CGST Rules - rule 36(4) of
CGST Rules, inserted w.e.f. 9-10-2019 and amended w.e.f. 1-1-2021 [The limit was 20%
during 9-10-2019 to 1.1.2020 and 10% during 1-1-2000 to 31-12-2020. It is 5% w.e.f. 1-1-
2021]. The words 'uploaded' have been changed to 'furnished' w.e.f. 1-1-2021.
The provisions are discussed in detail in later chapter on 'Payment of Taxes'.
9.3 Requirements for availing Input Tax Credit
As per section 16(2) of CGST Act, registered taxable person shall not be entitled to the credit
of any input tax in respect of any supply of goods or services or both to him unless following
conditions are satisfied :
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under
GST Act or such other taxpaying document as may be prescribed,
(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by
the supplier in the statement of outward supplies [GSTR-1] and such details have
been communicated to the recipient of such invoice or debit note in the manner
specified under section 37 of CGST Act [in GSTR-2A and GSTR-2B of recipient] [this
clause inserted vide Section 109 of Finance Act, 2021 w.e.f. date to be notified]
(b) he has received the goods or services or both,
(c) Subject to section 41 or section 43A of CGST Act, the tax charged in respect of such
supply has been actually paid to the credit of the appropriate Government, either in
cash or through utilization of input tax credit admissible in respect of the said supply
[section 41 of CGST Act allows taking input tax credit in electronic credit ledger on
self assessment basis. Section 43A of CGST Act allows ITC on basis of invoices
uploaded by the supplier] (words in italics inserted vide CGST (Amendment) Act,
2018) This amendment has not been notified when other amendments were notified
on 1-2-2019, and hence not effective and
(d) he has furnished the return under section 39 [every taxable person is required to file
electronic return every month as per section 39 of CGST Act].

Inputs or capital goods received in instalments - Where the goods against an invoice are
received in lots or instalments, the registered taxable person shall be entitled to the credit
upon receipt of the last lot or instalment - first proviso to section 16(2) of CGST Act.
Credit on basis of invoices uploaded by supplier, even if goods or services are received later,
but before filing of return - As a simplification process, if the supplier uploads invoices by
10th of following month, input tax credit can be availed by recipient even if goods are
received later, but before filing of return of same month [the due date of return may vary].
Due dates for very large taxpayers will be 20th of following month. For smaller taxable
persons, due date may be earlier.
ITC eligible only if supplier uploads details of his outward supply in his GSTR-1 and recipient
accepts the same - ITC will be eligible only if supplier uploads details of his outward supply
(invoices, debit note, credit note and revised invoice) in his GSTR-1. Recipient will get these
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details in his GSTR-2A and GSTR-2B. The recipient is required to accept the same as per
section 37(2) of CGST Act.
As per section 16(2)(aa) of CGST Act inserted vide Section 109 of Finance Act, 2021 w.e.f.
date to be notified, registered person shall not be entitled to avail input tax credit, unless
the details of the invoice or debit note has been furnished by the supplier in the statement
of outward supplies [GSTR-1] and such details have been communicated to the recipient of
such invoice or debit note in the manner specified under section 37 of CGST Act [in GSTR-2A
and GSTR-2B of recipient].
Once this provision is made effective, the availment of ITC will be mostly system based.
Input tax credit available only if supplier of goods and services has deposited the tax with
Government - As per section 16(2)(c) of CGST Act, the recipient of goods and services can
avail ITC only if supplier has deposited the tax with Government either in cash or through
utilisation of Input Tax Credit. This is subject to section 41 and section 43A of CGST Act, which
provides that the registered person can take ITC on self-assessment basis, which will be
credited on a provisional basis to his electronic credit ledger [The words in italics inserted
vide GST (Amendment) Act, 2018, but not notified on 1-2-2019 when other provisions were
notified.
After introduction of revised procedure of returns under section 43A of CGST Act, this
provision will be subject to section 43A of CGST Act also].
Presently, there is no mechanism by which the recipient of goods or services would know
or verify whether supplier has deposited tax with Government.
Delivery to transporter or any person on direction of recipient by supplier is sufficient to
take input tax credit - For the purpose of section 16(2)(b) of CGST Act, it shall be deemed
that the taxable person has received the goods where the goods are delivered by the
supplier to a recipient or any other person on the direction of such registered person,
whether acting as an agent or otherwise, before or during movement of goods, either by
way of transfer of documents of title to goods or otherwise - Explanation (i) to section
16(2)(b) of CGST Act. [The Explanation has been re-numbered as Explanation (i) vide CGST
(Amendment) Act, 2018, w.e.f. 1-2-2019].
Thus, in case 'bill to ship to' transactions, the intermediary can take ITC when documents of
title (i.e. LR or Consignment Note) is endorsed in his favour.
Delivery of goods to transporter by suppliers delivery to the recipient - Section 39(1) of
Sale of Goods Act states that delivery of goods to carrier is prima facie delivery to buyer.
As per section 23(2) of Sale of Goods Act, if, in pursuance of the contract, the seller delivers
the goods to the buyer or to a carrier or other bailee, for the purpose of transmission to the
buyer, and does not reserve the right of disposal, he is deemed to have unconditionally
appropriated the goods to the contract. It does not make difference whether the bailee or
buyer was named by buyer or not.
In Manwar Tent Factory v. UOI AIR 1990 SC 1735, it was held that when contract stipulates
for delivery of goods F.O.R. basis at place of despatch, risk passes from consignor to
consignee as soon as goods are loaded at the place of despatch.
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Thus, transporter is agent of buyer for collection of goods. Hence, in my view, delivery to
transporter is delivery to agent and ITC can be taken even if goods do not physically reach
the place of taxable person.
Of course the supplier has to upload the invoice in his GSTR-1 and the recipient has to accept
it and include it in his GSTR-2.
Supply of service to final customer by contractor is receipt of service by Principal
(intermediary) - In many cases, services are sub-contracted. The Principal (or Contractor)
asks contractor (or sub-contractor) to supply service directly to customer. In such cases,
supply of service to customer will be supply of service to Principal, as per Explanation (ii) to
section 12(2)(a) of CGST Act, which reads as follows -
For the purposes of section 16(2)(b) of CGST Act, it shall be deemed that the registered
person has received the services where the services are provided by the supplier to any
person on the direction of and on account of such registered person - Explanation (ii) to
section 16(2)(b) inserted vide CGST (Amendment) Act, 2018, w.e.f. 1-2-2019.
Final Input tax credit only after supplier makes payment of GST - The receiver (of goods and
services) can take provisional credit on basis of return filed by supplier. However, he will be
eligible to take final Input Tax Credit only after the supplier of such goods and services has
paid the tax.
Taking input tax credit in respect of inputs sent for job work - Input tax credit is available
in respect of goods sent for job work and brought back for further use. Provisions are
contained in another chapter under job work.
9.3-1 Reversal of input tax credit if payment not made to supplier within 180 days
Where a recipient fails to pay to the supplier of goods or services or both (other than the
supplies on which tax is payable on reverse charge basis), the amount towards the value of
supply along with tax payable thereon within a period of 180 days from the date of issue of
invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall
be added to his output tax liability, along with interest thereon, in such manner as may be
prescribed - second proviso to section 16(2) of CGST Act.
If partial payment is made, the reversal will be proportionate to the amount not paid to the
supplier.
If the recipient later makes payment to supplier, he can take credit of input tax - third proviso
to section 16(2) of CGST Act.
Really, the recipient can take input tax credit only if tax has been actually paid by supplier.
Then how Government is concerned about payment of invoice amount to supplier? Why
Government is acting as recovery agent?
It seems that the intention is to avoid bogus transfers of input tax credit e.g. if a person has
excess input tax credit, he can pass on this credit to others. However, the remedy thought
of seems to be worse than disease as many genuine transactions will get affected.
Often in case of large works contracts, some retention money is kept which is released after
warranty period.
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Further, some deductions from invoice for various reasons is common. In such case, this
provision will create great nuisance to taxable persons.
Post-sale discounts after negotiations are common in business.
All such transactions will get affected.
Proportionate reversal if part amount paid - If (say) 90% amount of supplier's invoice
(including tax amount) is paid, only 10% tax amounts should be reversed.
Interest after 180 days or from first day itself - In my view, interest payment should start
after 180 days. The reason is that ITC was validly taken when goods/services were received.
The credit becomes ineligible only after 180 days.
Payment to supplier can be made through book adjustment - Consideration for supply can
be made through book adjustment, credit of input tax cannot be denied on this ground
alone. Recipient of goods and services can pay consideration for inward supplies by way of
setting off book debt - Senco Gold Ltd., In re [2019] 105 taxmann.com 143 (AAR-West
Bengal).
Reversal of ITC not required if Post sale discounts offered - Para D of CBI&C circular No.
92/11/2019-GST dated 7-3-2019 clearly states that the recipient of goods or services can
avail entire ITC of GST charged by supplier in his original invoice in case of post sales discount
- view reiterated in para 5 of CBI&C circular No. 105/24/2019-GST dated 28-6-2019.
Issue of credit note means payment received by supplier - In Shiva Electricals v. CST (2007)
7 STR 35 = 3 STT 105 (CESTAT), it was held that issue of credit notes also amounts to payment
(to recipient) - relying on Mohd. Ekram Khan v. CTO 2004(6) SCC 1083 (SC), where it was held
that issue of credit note to client is also a form of payment - view upheld in CST v. Shiva
Analyticals (2009) 21 STT 328 (Karn HC DB).
In MRF Ltd., In re [2019] 75 GST 542 = 108 taxmann.com 65 (AAAR - Tamilnadu), applicant
was getting post sale, post supply and post issue of invoices discount. Thus, the appellant
was making net payment to supplier after deducting such discount. It was held that the
appellant (recipient of goods or services) is not required to reverse the ITC on such discount
and issue of commercial credit note (without GST) is sufficient [reversing decision in MRF
Ltd. In re (2019) 73 GST 485 = 103 taxmann.com 278 (AAR-TN)]. - similar view in Santhosh
Distributors In re (2020) 80 GST 276 = 110 taxmann.com 496 (AAR-Kerala).
Reversal of ITC not required if Post sale discounts offered - Para D of CBI&C circular No.
92/11/2019-GST dated 7-3-2019 clearly states that the recipient of goods or services can
avail entire ITC of GST charged by supplier in his original invoice in case of post sales discount
- view reiterated in para 5 of CBI&C circular No. 105/24/2019-GST dated 28-6-2019.
Payment within 180 days required even when supply to own branches or depots? - Often
goods or services are supplied to own branch/depot in another State on payment of IGST.
Such payment is also required if goods are supplied to branch or depot in same State if it has
distinct GSTIN. The branch/depot avails ITC of IGST or SGST/CGST paid on goods/services
supplied by another branch/depot and then makes further supply.
The branch/division does not make any payment to HO, as you cannot pay to yourself.
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As per clause 2 of Schedule I to CGST Act, supply of goods or services to own branch/division
with distinct GSTIN is subject to GST, even when there is no consideration. Thus, no payment
is required for inter-branch or inter-division transactions. In that case, where is the question
of making payment within 180 days?
However, in Sanghvi Motors Ltd. In re (2019) 76 GST 162 = 108 taxmann.com 70 (AAR-TN),
it was held that if payment is not made to HO, ITC is not available. [Really that is not intention
of law at all].
In appeal, in Sanghvi Motors Ltd. In re (2020) 113 taxmann.com 24 (AAAR-TN), it was held
that branch office is entitled to avail full ITC where payments are netted off against
receivables [Really, these are only book entries].
In my view, provision of payment within 180 days has to be interpreted on basis of purposive
interpretation i.e. considering the purpose of the provision which is to avoid bogus
transactions. The provision cannot apply when supply is to own branch or depot. You cannot
pay to yourself. The transaction is taxable without consideration.
Pay tax with interest even if supplier has paid full tax to Government - An unfair provision
- On one hand, post supply discounts are not allowed as deduction from 'value' for GST. On
the other hand, if less amount is paid to supplier, corresponding input tax credit is required
to be reversed with interest, even when entire tax amount has been paid to Government by
supplier. This is double whammy and absolutely unfair provision.
Really, interest is compensation. When Government money is not used, why interest should
apply?
9.3-2 Procedure for reversal of input tax credit in case of non-payment of consideration
A registered person, who has availed of input tax credit on any inward supply of goods or
services or both, but fails to pay to the supplier thereof the value of such supply along with
the tax payable thereon within the time limit specified in the second proviso to section 16(2),
shall furnish the details of such supply and the amount of input tax credit availed of in form
GSTR-2 for the month immediately following the period of 180 days from the date of issue
of invoice - Rule 37(1) of CGST and SGST Rules, 2017.
In cases where GST is payable without consideration as specified in Schedule I of CGST Act,
the amount shall be deemed to have been paid - first proviso to Rule 37(1) of CGST and SGST
Rules, 2017 [The proviso re-numbered as first proviso w.e.f. 13-6-2018] [Thus, in such case,
actual receipt of payment is not required].
The amount of input tax credit as above shall be added to the output tax liability of the
registered person for the month in which the details are furnished - Rule 37(2) of CGST and
SGST Rules, 2017.
The registered person shall be liable to pay interest at the rate notified under section 50(1)
of CGST Act for the period starting from the date of availing credit on such supplies till the
date when the amount added to the output tax liability, as mentioned above is paid - Rule
37(3) of CGST and SGST Rules, 2017.
Payment deemed to be received if amount paid by recipient on behalf of supplier is added
in value for payment of GST - Section 15(2)(b) of CGST Act provides that any amount that
the supplier is liable to pay in relation to such supply but which has been incurred by the
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recipient of the supply and not included in the price actually paid or payable for the goods
or services or both is includible in value.
This cannot cover free inputs or services supplied by recipient, as only 'amount' paid by
recipient on behalf of supplier is includible. This would be so only where there was
contractual liability on supplier to make those supplies. However, if amount was contractual
liability of supplier but paid by recipient on his behalf, that amount will be includible in
'value' for purpose of payment of GST.
Even if this amount is addible in value, obviously payment will not be received in respect of
this amount from recipient. Normally, if payment is not received from recipient,
proportionate input tax credit has to be reversed as per section 16(2) of CGST Act. However,
in such cases, it will be deemed that the payment has been received. Thus, reversal of
proportionate input tax credit will not be required - second proviso to rule 37(1) of CGST
Rules, inserted w.e.f. 13-6-2018.
This second proviso should apply with retrospective effect, though the rule does not
specifically say so.
Re-availing the credit after payment to supplier - The credit of ITC so reversed can be taken
after payment is made to the supplier of goods or services or both. The time limit of one
year as specified in section 16 of CGST Act will not apply to such re-credit - Rule 37(4) of
CGST and SGST Rules, 2017.
9.3-3 Entire Input tax Credit available even if part of input goes in by-product or waste
Entire input tax credit is available, even if part of input goes in by-product or waste like
sludge which is not taxable. Principle of proportionate apportionment is not applicable -
Ruchi Soya Industries v. State of Madhya Pradesh (2014) 70 VST 40 (MP HC DB) - - following
CST v. Bharat Petroleum Corporation Ltd. (1992) 2 SCC 220 = 85 STC 220 (SC).
In CST v. Bharat Petroleum Corporation Ltd. (1992) 2 SCC 220 = 85 STC 220 (SC), it was held
that a refinery will be entitled to full set off (now ITC) even if part goes in sludge.
9.3-4 Process losses and handling loss are allowable
There will be some loss of inputs during manufacturing process. Cenvat (now ITC) is available
on entire quantity of input even if part of input goes in process loss, since all inputs are 'used'
in the manufacture of final product, even if it is not reflected in final product - Multimetals
Ltd. v. ACCE 57 ELT 209 (SC) = 1992 (1) SCC 715 = AIR 1992 SC 1532 = 1992 AIR SCW 1644 -
quoted with approval in UOI v. Indian Aluminium Co. Ltd. - 1995 (77) ELT 268 (SC - 3 member
bench order), where it was held that exact mathematical equation between quantity of raw
material purchased and the raw material found in finished product is not possible, and
should not be looked for. [This judgment is in respect of Proforma Credit, but its ratio is fully
applicable to Cenvat (now ITC).]
In CCE v. IPF Vikram India 2002(150) ELT 175 (CEGAT), it was held that Cenvat on inputs (now
ITC) which have gone in waste is not deniable - Departmental appeal dismissed by SC on
merits - 2003 (153) ELT A303.
Entire Cenvat credit (now ITC) is available if part of input is contained in waste, refuse or by-
product - Mahindra Hinoday Industries v. CCE (2014) 308 ELT 555 (CESTAT), relying on CBE&C
 166

circular No. B-4/7/2000-TRU dated 3-4-2000 - same view in Rupa and Co v. CESTAT (2015)
324 ELT 295 (Mad HC DB).
Even if waste is not returned by job worker, Cenvat credit of excise duty (now ITC of GST)
contained in such scrap or waste is not required to be reversed - Mukand Ltd. v. CCE (2015)
318 ELT 134 (CESTAT SMB).
Loss of input by evaporation during manufacturing processing is to be treated as ware or
loss and Cenvat credit (now ITC) on such loss is not required to be reversed - CCE v. BOC
(India) (2008) 223 ELT 33 (Guj HC DB).
Chlorine gas left in cylinder after use of gas in processing can be termed as 'process loss' and
its Cenvat credit (now ITC) is available - CCE v. Andhra Paper Mill (2011) 269 ELT 79 (AP HC
DB).
Even excess process loss is allowable if any evidence of clandestine removal is not available
- Rollex Electro Products v. CCE (2016) 338 ELT 736 (CESTAT).
Loss of inputs during handling eligible - In or in relation to the manufacture covers the
entire manufacturing process starting from initial stage of handling of inputs. Thus, if
wastage of input at the initial handling from tank discharge due to various reasons like
spillage, pipeline losses, handling losses etc., it is 'in or in relation to manufacture' and
Cenvat (now ITC) cannot be denied. Hindustan Petroleum Corporation v. CCE (2001) 136 ELT
943 (CEGAT) - followed in CCE v. Hydrogas Plg (I) P Ltd. 2006 (196) ELT 167 (CESTAT) - same
view in Zeneca ICI Agro Chemicals v. CCE (2009) 238 ELT 770 (CESTAT).
9.3-5 No credit on short received inputs but natural losses allowable
If inputs are short received and there is loss during transit, the goods short received cannot
be termed as 'used in or in relation to manufacture'. Hence, Cenvat credit (now ITC) on such
short received inputs is not available - Asea Brown Boveri Ltd. v. CCE 1994 (74) ELT 897
(CEGAT) - same view in Bombay Dyeing v. CCE 1999 (113) ELT 331 (CEGAT) * Sterlite
Industries v. CCE (2007) 212 ELT 193 (CESTAT) * Carborandum Universal v. CCE (2008) 227
ELT 535 (CESTAT SMB).
Loss in transit of inputs due to natural causes allowable - In CCE v. Bhuwalka Steel Industries
(2010) 24 STT 436 = 249 ELT 218 (CESTAT 3 member bench), it has been held that tolerances
in respect of hygroscopic, volatile and such other cargo has to be allowed as per industry
norms, excluding, however, unreasonable and exorbitant claims.
This was followed in CCE v. Somaiya Organo Chemicals (2012) 275 ELT 83 (CESTAT), where it
was held that loss of molasses upto 2% in transit and storage is permissible and Cenvat credit
is not required to be reversed.
It has been held that if the loss is due to dryage occurring in transit, i.e. moisture loss, full
Cenvat credit is available, as full quantity is received in the factory and loss is only due to
atmospheric changes - PKPN Spinning Mills v. CCE 1997(89) ELT 588 (CEGAT) * CCE v. Bombay
Dyeing & Mfg Co. Ltd. 1998 (97) ELT 101 (CEGAT) * Hindustan Lever v. CCE 2004 (166) ELT
273 (CESTAT) * Tata Motors v. CCE (2005) 1 STT 228 = (179) ELT 413 (CESTAT) * Ganges
Valley Foods v. CCE (2007) 217 ELT 147 (CESTAT) * UOI v. Hindustan Zinc (2013) 31
taxmann.com 376 = 294 ELT 378 (Raj HC DB).
9.3-6 One to one correlation not necessary in ITC of GST
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There is no requirement of establishing relation between inputs/input services and final

product.
There is no correlation of the raw material and the final product; that is to say, it is not as if
credit can be taken only on a final product that is manufactured out of the particular raw
material to which the credit is related - CCE v. Dai Ichi Karkaria Ltd. 112 ELT 353 = AIR 1999
SC 3234 = 1999 AIR SCW 3205 = (1999) 7 SCC 448 (SC 3 member bench) - quoted with
approval in CCE v. Bombay Dyeing (2007) 10 STT 286 (SC).
Credit on any input can be used for any taxable final product - Credit of input can be used
in any of the taxable final product.
In Pratap Steels Ltd. v. CCE 1997(95) ELT 584 (CEGAT), it was held that excess credit
accumulated on account of duty on final product being less than duty on inputs utilised
therefor, can be utilised for same final product manufactured out of non-duty paid inputs,
as one to one correlation is not required under Cenvat (now ITC).
9.3-7 Instant credit
Credit will be available as soon as inputs or input services are received. It is not necessary to
wait till these are utilised or sold.
9.4 Blocked credit - Supply of goods and services ineligible for ITC
Though definition of input tax is broad, input tax credit shall not be available in respect of
activities and transactions specified in section 17(5) of CGST Act [termed as 'blocked credit']
The specific exclusion means that but for such exclusion by blocking credit, the Input Tax
Credit (ITC) would have been available.
Section 17(5)(a) and 17(5)(b) of CGST Act have been amended substantially vide CGST
(Amendment) Act, 2018, w.e.f. 1-2-2019.
Some ITC which was not eligible earlier, is now eligible w.e.f. 1-2-2019. The blocked credit
as applicable w.e.f. 1-2-2019 is summarized below.
ITC is not available in respect of following -
Motor vehicles for transportation of persons having approved seating capacity of 13
persons or less including driver, except when used for further supply, transportation
of passengers or training. ITC on its leasing, renting or hire is also not allowable,
except when used for making outward supply of same category of goods or services,
or as element of mixed/composite supply [earlier, disallowance was in respect of all
motor vehicles. Now, the disallowance is only in respect of motor vehicles with
seating capacity upto 13 persons].
Vessels and aircrafts, except when used for (i) further supply, transportation of
passengers or training (ii) transportation of goods. ITC on its leasing, renting or hire
is also not allowable, except when used for making outward supply of same category
of goods or services, or as element of mixed/composite supply [no change]
General insurance, servicing, repairs and maintenance of motor vehicles, vessels and
aircrafts which are not eligible for ITC, except when used for making outward supply
of same category of goods or services, or as element of mixed/composite supply
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[Specifically provided now. Earlier, there was no specific exclusion and hence it can
be argued that these expenses were eligible earlier for ITC]
Food, beverages, outdoor catering, beauty treatment etc. except when used for
making outward supply of same category of goods or services, or as element of
mixed/composite supply.
Membership of club, health and fitness centre
Travel benefits extended to employees on vacation.
Works contract service for construction, repairs, renovations, additions, alterations,
re-construction of immovable property except when used for further supply of works
contract service
Construction, repairs, renovations, additions, alterations, re-construction of
immovable property except plant and machinery on his own account
Tax paid under composition scheme under section 10 of CGST Act

Goods and services received by non-resident taxable person except goods imported
by him

Goods and services used for personal consumption (may be of employees, directors
or even others)
Goods lost, stolen, destroyed, written off or given as gift or free samples
Tax paid under section 74 (tax paid after allegation of fraud, wilful misstatement or
suppression of facts), 129 (tax paid after detention of goods in transit for violations
of provisions of e-way bill) and 130 (penalty paid after confiscation of goods).

9.4-1 Text of section 17(5) of CGST Act, as amended w.e.f. 1-2-2019

The entire section 17(5) of CGST Act (as amended by CGST (Amendment) Act, 2018 w.e.f. 1-
2-2019) is given below for ready reference.
Notwithstanding anything contained in sub-section (1) of section 16 and sub- section (1) of
section 18, input tax credit shall not be available in respect of the following, namely:—
(a) motor vehicles for transportation of persons having approved seating capacity of not
more than thirteen persons (including the driver), except when they are used for
making the following taxable supplies, namely:— (A) further supply of such motor
vehicles; or (B) transportation of passengers; or (C) imparting training on driving such
motor vehicles;
(aa) vessels and aircraft except when they are used—(i) for making the following taxable
supplies, namely:— (A) further supply of such vessels or aircraft; or (B) transportation
of passengers; or (C) imparting training on navigating such vessels; or (D) imparting
training on flying such aircraft; (ii) for transportation of goods;
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(ab) services of general insurance, servicing, repair and maintenance in so far as they
relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):
Provided that the input tax credit in respect of such services shall be available— (i)
where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa)
are used for the purposes specified therein; (ii) where received by a taxable person
engaged— (I) in die manufacture of such motor vehicles, vessels or aircraft; or (II) in
the supply of general insurance services in respect of such motor vehicles, vessels or
aircraft insured by him;
(b) the following supply of goods or services or both—
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic
and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft
referred to in clause (a) or clause (aa) except when used for the purposes specified
therein, life insurance and health insurance: - - Provided that the input tax credit in
respect of such goods or services or both shall be available where an inward supply
of such goods or services or both is used by a registered person for making an
outward taxable supply of the same category of goods or services or both or as an
element of a taxable composite or mixed supply;
(ii) the following supply of goods or services or both— membership of a club, health and
fitness centre; and
(iii) the following supply of goods or services or both— travel benefits extended to
employees on vacation such as leave or home travel concession:
Provided that the input tax credit in respect of such goods or services or both shall
be available, where it is obligatory for an employer to provide to its employees under
any law for the time being in force.
(c) works contract services when supplied for construction of an immovable property
(other than plant and machinery) except where it is an input service for further supply
of works contract service;
(d) goods or services or both received by a taxable person for construction of an
immovable property (other than plant or machinery) on his own account including
when such goods or services or both are used in the course or furtherance of
business;

Explanation.—For the purposes of clauses (c) and (d), the expression "construction"
includes re-construction, renovation, additions or alterations or repairs, to the extent
of capitalisation, to the said immovable property;
(e) goods or services or both on which tax has been paid under section 10;
(f) goods or services or both received by a non-resident taxable person except on goods
imported by him;
(g) goods or services or both used for personal consumption;
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(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;
and
(i) any tax paid in accordance with the provisions of sections 74, 129 and 130.

9.4-2 Goods and services where ITC is blocked

Goods and services where ITC is blocked w.e.f. 1-2-2019 are discussed below. The position
prior to 1-2-2019 is also stated.
Motor vehicles - Motor vehicles for transportation of persons having approved seating
capacity of not more than thirteen persons (including the driver), are not eligible for ITC
except when used for making the following taxable supplies, namely— (A) further supply of
such motor vehicles (B) transportation of passengers (C) imparting training on driving of such
vehicles - section 17(5)(a) of CGST Act. The words in italics inserted w.e.f. 1-2-2019.
The ITC on motor vehicles used for transportation of goods was eligible prior to 1-2-2019
and continues to be eligible after 1-2-2019.
Services of leasing, renting or hiring of motor vehicles referred to in clause (a) are also not
eligible for ITC except when used for the purposes specified therein- section 17(5)(b)(i) of
CGST Act inserted w.e.f. 1-2-2019. This clause is inserted vide CGST (Amendment) Act, 2018.
In my view, even prior to 1-2-2019, these services were not eligible for ITC in view of the
words 'in respect of' used in section 17(5) of CGST Act.
ITC on hire of buses/cars for transportation of employees from various locations to factory
is not eligible for ITC - YKK India (P) Ltd. In re (2019) 102 taxmann.com 277 (AAR-Har). This
decision was modified in appeal in YKK India (P) Ltd. In re (2020) 80 GST 606 = 117
taxmann.com 290 (AAR-Har), where it was held that w.e.f. 1-2-2019, hirer will be eligible to
take ITC for hiring of buses having approved capacity of more than 13 persons (including
driver).
GST paid on purchase of motor vehicles for supplying rent-a-cab service is not admissible for
credit in terms of section 17(5)(a) of CGST Act- Mohana Ghosh, In re [2019] 106
taxmann.com 108 (AAR-West Bengal) [In initial order dated 10-6-2019, it was held that ITC
is not admissible under section 17(5)(b)(i) of CGST Act. In subsequent amended order dated
25-6-2019, AAR held that it is not admissible under section 17(5)(a) of CGST Act]
However, in Chowgule Industries (P.) Ltd., In re [2019] 107 taxmann.com 293 (AAR - GOA), it
was held that motor vehicle purchased as demo vehicles for promotion of sale by providing
trial run to customer and capitalised in books of account are eligible for ITC as they are for
purposes of business. - same view in Chowgule Industries (P.) Ltd., In re [2020] 78 GST 318 =
113 taxmann.com 365 (AAR -Maharashtra).
In Narsing Transport In re (2019) 194 taxmann.com 86 (AAR-MP), applicant was providing
motor vehicle on lease rent to various companies under lease agreement. It was held that
this is for 'further supply' and ITC is available.
Demo vehicle - whether eligible for ITC - In Chowgule Industries (P.) Ltd., In re [2019] 75 GST
355 = 107 taxmann.com 293 (AAR - GOA), it was held that motor vehicle purchased as demo
vehicles for promotion of sale by providing trial run to customer and capitalised in books of
 171

account are eligible for ITC as they are for purposes of business - same view in Chowgule
Industries (P.) Ltd., In re [2020] 78 GST 318 = 113 taxmann.com 365 (AAR - Maharashtra).
There is exactly contrary view in Khatwani Sales And Services L.L.P., In re [2021] 124
taxmann.com 149 (AAR - MP) * Platinum Motocorp LLP, In re [2021] 124 taxmann.com 460
(AAR - Haryana), where it was held that ITC is not available in respect of GST paid on demo
vehicles.
Vessels and aircraft - Vessels and aircrafts are not eligible for ITC except when used for
making the following taxable supplies, namely—(i) (A) further supply of such vessels or
aircrafts (B) transportation of passengers (C) imparting training on navigating such
conveyances (D) imparting training on flying such aircrafts (ii) for transportation of goods-
section 17(5)(aa) of CGST Act inserted w.e.f. 1-2-2019.
Services of leasing, renting or hiring of vessels or aircraft referred to in clause (aa) are also
not eligible for ITC except when used for the purposes specified therein - - section 17(5)(b)(i)
of CGST Act w.e.f. 1-2-2019.
In my view, even prior to 1-2-2019, these services were not eligible for ITC in view of the
words 'in respect of' used in section 17(5) of CGST Act.
Ineligible Repairs, maintenance and insurance of motor vehicles, vessels and aircrafts -
Services of general insurance, servicing, repair and maintenance in so far as they relate to
motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) is not eligible. [i.e.
when motor vehicle, vessel or aircraft is not eligible for ITC, its repairs, insurance and
maintenance expenses are also not eligible. - section 17(5)(ab) of CGST Act inserted w.e.f. 1-
2-2019.
The ITC on motor vehicles used for transportation of goods was eligible and continues to be
eligible after 1-2-2019
Even earlier, in my view, these expenses were not eligible for ITC for reasons discussed
below.
The term used in section 17(5) is 'in respect of motor vehicle or conveyance'. The phrase 'in
respect of' is usually treated as similar to 'in relation to'. This is a broad term and it is
expansive.
Thus, it should cover expenses relating to repair, insurance and maintenance of motor
vehicles and conveyances also and these should not be eligible for Input Tax Credit.
In respect of can be given wide meaning as 'in relation to' or 'with reference to' - Tularam
Relumlal v. State of Bombay AIR 1954 SC 496. The phrase 'in respect of' has wider
connotation that 'in' - Godavaris Misra v. Nandakishore AIR 1953 Ori 111, CIT v. Chunilal AIR
1968 Pat 364. The words 'in respect of' admit of a wide connotation - UOI v. Vijay Chand Jain
AIR 1977 SC 1302 = (1977) 2 SCC 405.
ITC for vehicle used for transportation of cash (money) and bullion is eligible - Cash (money)
can be considered as 'goods' as they are being transported as 'goods'. Hence, ITC for vehicle
used for transportation of cash and bullion is available - CMS Infor Systems Ltd. In re (2020)
80 GST 625 = 117 taxmann.com 318 (AAAR Maharashtra).
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Earlier, in CMS Infor Systems Ltd. In re (2018) 69 GST 471 = 96 taxmann.com 292 (AAAR -
Maharashtra), it was held that Cash (money) is not 'goods'. Hence, ITC for vehicle used for
transportation of cash is not available. In writ petition, in C.M.S.InfoSystems
Ltd.v.Commissioner, CGST, Mumbai[2019] 108 taxmann.com 26 = 75 GST 16 (Bombay HC
DB), the matter was remanded to AAAR for reconsideration as AAAR's had rejected
assessee's claim of ITC on purchase of vans used in cash carrying business without dealing
with assessee's primary submission that 'money' carried in cash form would be treated as
'goods'. On reconsideration, AAAR has decided that ITC is available.
When Repairs, maintenance and insurance of motor vehicles, vessels and aircrafts eligible
for ITC - The input tax credit in respect of insurance, maintenance and repair services of
motor vehicle, vessels and aircrafts shall be available— (i) where the motor vehicles, vessels
or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;
(ii) where received by a taxable person engaged— (I) in the manufacture of such motor
vehicles, vessels or aircraft; or (II) in the supply of general insurance services in respect of
such motor vehicles, vessels or aircraft insured by him - proviso to section 17(5)(ab) of CGST
Act inserted w.e.f. 1-2-2019.
This is new provision. This amendment in clause (ii) will be helpful in case of manufacturer
of motor vehicles and suppliers of general insurance service. The items mentioned in clause
(i) above were eligible even prior to 1-2-2019.
Goods and services for food, beauty treatment, health mainly for personal consumption -
Services of food and beverages, outdoor catering, beauty treatment, health services,
cosmetic and plastic surgery, life insurance and health insurance are not eligible for ITC
except where such inward supply of goods or services or both is used by a registered person
for making an outward taxable supply of the same category of goods or services or both or
as an element of taxable composite or mixed supply - section 17(5)(b)(i) of CGST Act, as
amended vide CGST (Amendment) Act, 2018, w.e.f. 1-2-2018.
Even earlier, the statutory provision was same.
These expenses are predominantly for personal use.
Input services used for providing common facilities (like hospital, sports complex, guest
house, school) within residential colony are not eligible for ITC - Kandla Port Trust In re (2021)
83 GST 748 = 120 taxmann.com 185 (AAR-Gujarat).
In Rotary Club of Mumbai Queens Necklace, In re [2019] 74 GST 762 = 107 taxmann.com 224
(AAR - Maharashtra), it was held that unless taxable person proves that their outward supply
is of same category of goods or services or their outward supply is an element of a taxable
composite supply or mixed supply, ITC of services of food and beverages, outdoor catering,
beauty treatment, health services, cosmetic and plastic surgery, life insurance and health
insurance is not eligible.
In Chennai Port Trust In re (2019) 108 taxmann.com 466 (AAR- Tamil Nadu), the applicant
had in-house hospital within its port premises for providing medical facilities to its
employees and pensioners. This was mandatory requirement as per Major Ports Act.
However, it was held that the medical facilities are for personal consumption of employees
and hence its ITC is not available.
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In All Rajasthan Corrugated Board and Box Manufacturers Association In re (2019) 75 GST
335 = 107 taxmann.com 264 (AAR-Rajasthan), appellant was providing exhibition and trade
shows organisation and assistance services under heading 998596 and brand promotion
services under heading 998397. It was held that ITC of (a) hotels accommodation and
beverages (b) supply of food (c) services of rent-a-cab for pickup and drop, exhibition stall
set up, tenting etc. are eligible as these are an element of an outward supply of event
organisation, which is a taxable supply.
Input tax credit in respect of such goods or services or both shall be available, where it is
obligatory for an employer to provide to its employees under any law for the time being in
force - - proviso to section 17(5)(b) of CGST Act inserted w.e.f. 1-2-2019.
This proviso is w.e.f. 1-2-2019 and does not have retrospective effect. Further, the
exemption is only in respect of rent-a-cab, life insurance and health insurance services (and
not applicable to ambulance) - Nipha Exports P Ltd., In re (2019) 72 GST 592 = 102
taxmann.com 449 (AAR- West Bengal).
ITC of canteen facility provided in factories under Factories Act - As per section 46 of
Factories Act, if 250 or more workers are employed, provision of canteen facility is
mandatory. Since this is mandatory, Input Tax Credit of canteen services provided to
employees should be available in view of proviso to section 17(5)(b) of CGST Act w.e.f. 1-2-
2019.
Really, under Factories Act, it is not legally required to provide free or subsidised meals.
In Musashi Auto Parts (P.) Ltd. In re [2021] 124 taxmann.com 87 (AAR - Haryana), it was held
that ITC is not available in respect of GST paid on canteen services, even if canteen is
mandatory under Factories Act. It was also held that if some amount is recovered from
employees (by way of coupons), GST will be payable on open market value i.e. amount paid
to canteen contractor [In my view, the decision is correct].
Membership of club, health centre - Service of membership of a club, health and fitness
centre is not eligible -section 17(5)(b)(ii) of CGST Act. This clause is inserted w.e.f. 1-2-2019.
Even prior to 1-2-2019, the statutory provision was same.
These expenses are predominantly for personal use.
Travel benefit to employees on leave or vacation - Services of travel benefits extended to
employees on vacation such as leave or home travel concession are not eligible for ITC -
section 17(5)(b)(iii) of CGST Act inserted w.e.f. 1-2-2019.
Even prior to 1-2-2019, the statutory provision was same.
These expenses are predominantly for personal use.
Works Contract service - Works contract services when supplied for construction of an
immovable property (other than plant and machinery) is not eligible, except where it is an
input service for further supply of works contract service - section 17(5)(c) of CGST Act [same
provision prior to 1-2-2019 - no change].
'Other than plant and machinery' means input tax credit of GST paid on plant and machinery
procured will be available.
 174

ITC available when supplier supplying works contract service, even when immovable
property emerges - The credit of works contract will be available to builder or contractor
who himself is undertaking works contract service, as he is using those services for further
supply of works contract service. This would be even if immovable property emerges -
confirmed in Sital Kumar Poddar, In re [2021] 125 taxmann.com 137 (AAR-West Bengal).
Meaning of 'construction' - The expression "construction" includes re-construction,
renovation, additions or alterations or repairs, to the extent of capitalisation, to the said
immovable property - explanation below section 17(5)(d) of CGST Act.
Thus, if expenses of renovation, repairs, reconstruction or alterations are not capitalised in
books of account of taxable person, its ITC is allowable.
Shed to protect plant and machinery is civil structure and its ITC is not available - Maruti
Ispat and Energy P Ltd. In re (2019) 72 GST 125 = 99 taxmann.com 103 (AAR-AP).
Input tax credit of works contract services received for maintenance and repairs of mall is
not admissible - Jabalpur Entertainment Complexes P Ltd. In re (2018) 70 GST 201 = 97
taxmann.com 587 (AAR - MP) [really, if expenses are not capitalized, the ITC should be
allowable].
ITC of GST paid on materials used for repair & maintenance of building not available to the
extent being capitalized - Rambagh Palace Hotels (P.) Ltd., In re [2019] 74 GST 177 = 106
taxmann.com 172 (AAR- RAJASTHAN).
Construction of wall near jetty (which is used for unloading the cargo of raw material) is not
eligible for ITC - Konkan LNG P Ltd. In re (2019) 75 GST 131 = 107 taxmann.com 225 (AAR -
Maharashtra) - view confirmed in appeal in Konkan LNG (P.) Ltd., In re [2020] 120
taxmann.com 26 (AAAR-Maharashtra), where it was held that breakwater wall does not
remotely fall under 'plant and machinery' or machinery.
ITC is not available on construction of marriage hall on its own account for letting out to
customers - Sree VaralakshmiMahaal LLP In re (2020) 78 GST 165 = 113 taxmann.com 56
(AAR-TN).
Transformers, DG set, lift, air handling unit, electrical wiring and fixtures, sewage treatment
plant etc. for construction of shopping mall are not eligible for ITC as these cannot be
considered separate from building or civil structure. It is blocked credit - Tarun Realtors P
Ltd. In re (2020) 77 GAT 158 = 110 taxmann.com 285 (AAR-Karn). - confirmed in appeal in
Tarun Realtors P Ltd. In re (2020) 81 GST 103 = 116 taxmann.com 201 (AAAR-Karn).
Warehouse constructed using pre-fabricated structure is immovable property and ITC of
inputs used in such construction is not eligible - Tewari Warehousing P Ltd. In re (2019) 72
GST 485 = 102 taxmann.com 295 (AAR-WB).
Warehouse constructed using pre-fabricated structure is immovable property and ITC of
inputs used in such construction is not eligible - Tewari Warehousing P Ltd. In re [2019] 102
taxmann.com 295 (AAR-WB).
No ITC on lift installed in building - ITC of GST paid on replacement of existing lift/elevator
is not eligible, as lift, after erection and installation is an immovable property because it
becomes part of an immovable property that is building, as it is a works contract - Las Palmas
Co-operative Housing Society Ltd., In re [2020] 114 taxmann.com 233 (AAR -
 175

MAHARASHTRA). - view confirmed in appeal in Las Palmas Co-Op. Housing Society, In re

[2020] 120 taxmann.com 128 (AAAR - Maharashtra) - same view in Jabalpur Hotels (P.) Ltd.,
In re [2020] 118 taxmann.com 42 (AAR - MP).
No ITC on preliminary work relating to construction - In Deendayal Port Trust In re (2020)
81 GST 714 = 117 taxmann.com 639 (AAR-Gujarat), ITC is not available on preliminary work
relating to construction like project management consultancy, marketing consultancy, land
levelling, road, water, electricity and drainage infrastructures.
No ITC on temporary structure? - Temporary structure (i.e. hall, pandal or shamiana or any
other place) built up with iron/steel pillars, tight up with nuts and bolts, specially created for
functions is an immovable property. ITC is not available - VDM Hospitality (P.) Ltd., In re
[2021] 124 taxmann.com 40 (AAR - Haryana) [Really, the attachment to earth is only
temporary and not permanent, by any stretch of imagination].
Construction service - Goods or services received by a taxable person for construction of an
immovable property (other than plant and machinery) on his own account including when
such goods or services or both are used in course or furtherance of business is not eligible
for Input Tax Credit - section 17(5)(d) of CGST Act [same provision prior to 1-2-2019 - no
change].
The expression "construction" includes re-construction, renovation, additions or alterations
or repairs, to the extent of capitalisation, to the said immovable property - explanation
below section 17(5)(d) of CGST Act.
Thus, if expenses of renovation, repairs, re-construction or alterations are not capitalised in
books of account of taxable person, its ITC is allowable.
Input tax credit of material purchased for maintenance and repairs of mall is not admissible
- Jabalpur Entertainment Complexes P Ltd. In re (2018) 70 GST 201 = 97 taxmann.com 587
(AAR-MP) [really, if expenses are not capitalized, the ITC should be allowable].
In CCE v. Dymos India Automotive P Ltd. (2019) 365 ELT 26 (Mad HC DB), it has been held
that Cenvat credit of construction of immovable property used for providing output service
of renting is eligible, as without construction of building, service of renting of immovable
property cannot be provided [This decision cannot apply under GST in view of specific
provision in section 17(5)(d) of CGST Act, though principle is still valid].
However in Safari Retreats (P.) Ltd. v. CCGST [2019] 105 taxmann.com 324 (Orissa HC DB), it
has been held that if GST is payable on rental income arising out of investment made in
construction of shopping mall, input tax credit of GST, which has been paid for construction,
is eligible. Restriction under section 17(5)(d) on ITC, i.e. blocked credit is not applicable [In
effect, it was held that the restriction is arbitrary and unreasonable and hence section
17(5)(d) of CGST Act has to be read down in line with section 16 of CGST Act] [In my view, it
is really risky to take input tax credit on construction services on basis of this judgment]
The above judgment has not been accepted and not followed in Ashish Arvind Hansoti, In re
[2020] 117 taxmann.com 513 (AAR - Maharashtra). In this case, it was held that ITC of GST
paid on input and input services used for construction of commercial immovable property,
subsequently used for renting is not available.
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ITC is not admissible on goods and works contract services received in construction of
warehouse used for letting out on rent - Unity Traders In re (2020) 81 GST 447 = 115
taxmann.com 147 (AAR-MP).
Input tax credit in respect of inputs/capital goods used for creation of warehouse to be
rented out for storage purposes is not eligible (as it becomes immovable property) - Dhingra
Trucking (P.) Ltd., In re [2021] 124 taxmann.com 134 (AAR - Haryana).
Land filling pit - Land filling pit is civil structure and not plant and machinery. Its ITC is not
available - Mother Earth Environ Tech (P.) Ltd., In re [2020] 119 taxmann.com 320 (AAR -
Kar.)
GST paid under composition scheme - Goods or services or both on which tax has been paid
under section 10 (composition scheme) are not eligible - section 17(5)(e) of CGST Act [same
provision prior to 1-2-2019 - no change].
Goods or services or both received by a non-resident taxable person - Goods or services or
both received by a non-resident taxable person are not eligible for input tax credit, except
on goods imported by him- section 17(5)(f) of CGST Act [same provision prior to 1-2-2019 -
no change].
Goods and services used for personal consumption - Goods or services or both used for
personal consumption are not eligible for input tax credit - section 17(5)(g) of CGST Act
[same provision prior to 1-2-2019 - no change].
What probably it means is that goods or services or both used for non-business purposes
like personal use on consumption by partners or directors or proprietor will not be eligible
for ITC.
Lost, stolen or destroyed goods and free samples - Goods lost, stolen, destroyed, written
off or disposed of by way of gift or free samples are not eligible for input tax credit - section
17(5)(h) of CGST Act [same provision prior to 1-2-2019 - no change].
If final product (dyes and dyes intermediates in this case) is destroyed in fire, Input Tax Credit
as availed on inputs (dyes intermediates in this case) contained in final product will have to
be reversed - Jay Chemical Industries Ltd., In re [2021] 124 taxmann.com 412 (AAR - Gujarat).
If goods were not received in the factory, ITC is not available - Exide Industries Ltd. v. CCGST
[2019] 105 taxmann.com 192 (SC).
Gifts to customers/distributors - If gold coins were distributed among customers as gift
based on target based sales, its ITC is not available -Biostadt India Ltd. In re [2019] 73 GST
393 = 103 taxmann.com 127 (AAR-Maharashtra).
In Surfa Coats (India) (P.) Ltd., In re [2019] 110 taxmann.com 204 (AAR - Karnataka), applicant
had purchased various items for giving to dealers as gift. It was held that its ITC is not
available.
Free Samples - Free samples to unrelated persons will not be subject to GST but input tax
credit will have to be reversed. However, free samples given to related persons will be
subject to GST (and then ITC will be available) - Para A of CBI&C circular No. 92/11/2019-GST
dated 7-3-2019.
 177

Free supplies under CSR - In Polycab Wires (P.) Ltd., In re [2019] 104 taxmann.com 36 (AAR
- Kerala), the applicant had supplied electrical items free to flood affected people under
Corporate Social Responsibility (CSR) activity. It was held that Input Tax Credit is not
available.
No ITC on goods supplied free for brand promotion or sales promotion - Input Tax Credit is
not available on GST paid on expenses incurred towards promotional schemes (like foreign
trip or gifts for achieving targeted sales) and goods given as brand reminders, as promotional
products are not given to customers under any contractual obligation and are voluntarily
given on certain conditions achieved by customers- Sanofi India Ltd., In re [2019] 106
taxmann.com 387 (AAR - Maharashtra).
Goods supplied free during promotion/marketing events are not eligible for avail Input Tax
Credit supplied in marketing events - BMW India (P.) Ltd., In re [2021] 124 taxmann.com 55
(AAR - Haryana).
GST paid after detection of fraud or suppression or goods removed in contravention of GST
Act - Any tax paid in terms of sections 74, 129 and 130 of CGST Act are not eligible for input
tax credit. This covers GST paid after detection of fraud or suppression or goods removed in
contravention of GST Act - section 17(5)(i) of CGST Act [same provision prior to 1-2-2019 -
no change]. - same provision in Rule 36(3) of CGST and SGST Rules, 2017.
In such cases, if the supplier issues Tax Invoice at a later stage, it should be clearly marked
as 'INPUT TAX CREDIT NOT ADMISSIBLE' - Rule 53(3) of CGST and SGST Rules, 2017.
9.4-3 Meaning of 'plant and machinery'
For purpose of Chapter V of CGST Act (Input Tax Credit) and Chapter VI of CGST Act
(Registration), expression 'plant and machinery' is defined as follows [Explanation below
section 17(6) of CGST Act].
"Plant and machinery" means apparatus, equipment, and machinery fixed to earth by
foundation or structural support that are used for making outward supply of goods or
services or both and includes such foundation and structural supports but excludes - (i) land,
building or any other civil structures (ii) telecommunication towers; and (iii) pipelines laid
outside the factory premises.
Shed to protect plant and machinery is civil structure and its ITC is not available - Maruti
Ispat and Energy P Ltd. In re (2018) 99 taxmann.com 103 (AAR-AP).
Pipeline outside factory for carrying LPG not eligible - ITC of GST paid on goods and services
used for construction of Tie-in pipeline, for delivery of re-gasified LNG from FSRU to National
Grid is not eligible, as it does not fall within definition of 'plant and machinery' - Western
Concessions (P.) Ltd. In re [2019] 106 taxmann.com 186 (AAR - Maharashtra).
Pipeline outside factory for carrying LPG not eligible -ITC of GST paid on goods and services
used for construction of Tie-in pipeline, for delivery of re-gasified LNG from FSRU to National
Grid is not eligible, as it does not fall within definition of 'plant and machiery' - Western
Concessions (P.) Ltd. In re [2019] 106 taxmann.com 186 (AAR - MAHARASHTRA) - confirmed
in appeal in Western Concessions (P.) Ltd. In re [2020] 78 GST 379 = 111 taxmann.com 131
(AAAR - Maharashtra).
 178

Can it be said that building is 'plant'? - Normally, 'plant' can include 'building', as per
following case law. However, in view of specific exclusion of building from definition of
'plant', it is doubtful if building can be held as 'plant' for purpose of ITC in GST.
9.4-4 Meaning of 'works contract'
"Works contract" means a contract for building, construction, fabrication, completion,
erection, installation, fitting out, improvement, modification, repair, maintenance,
renovation, alteration or commissioning of any immovable property wherein transfer of
property in goods (whether as goods or in some other form) is involved in the execution of
such contract - section 2(119) of CGST Act.
Only composite contracts relating to immovable property are covered under 'works
contract'.
9.4-5 Meaning of 'motor vehicle'
Motor Vehicle has meaning assigned to it in section 2(28) of Motor Vehicles Act - section
2(76) of CGST and SGST Act.
As per section 2(28) of Motor Vehicles Act, 1988, Motor vehicle or vehicle means any
mechanically propelled vehicle adopted for use upon roads whether the power of propulsion
is transmitted thereto from external or internal source and includes a chassis to which a
body has not been attached and a trailer; but does not include a vehicle running upon fixed
rails or vehicle of a special type adapted for use only in a factory or any other enclosed
premises or a vehicle having less than four wheels fitted with engine capacity of not
exceeding 25 (Twenty-five) cubic centimeters.
In Bose Abraham v. State of Kerala (2001) 3 SCC 157 = 121 STC 614 (SC) = AIR 2001 SC 835,
it was held that excavators and road rollers are 'motor vehicles'. Merely because a motor
vehicle is put to a specific use as such being confined to an enclosed premises, will not render
the same to be a different kind of vehicle - quoted in Vijaya Traders v. CTO (2011) 45 VST
113 (AP HC DB).
In RDS Projects v. CTO (2007) 8 VST 574 (Mad HC), it has been held that excavator moving
on chains mounted on belt and not meant for use on roads is not 'motor vehicle'.
No ITC of GST paid on excavators and road rollers, but available on tippers and dumpers -
The ITC of GST paid on excavators or road rollers will not be available, as they are 'motor
vehicles' as per MV Act (unless some specific provision is made).
However, ITC of GST paid on tippers and dumpers will be available as they are not 'motor
vehicle' - FAQ No. 21 of FAQ on Mining issued by Directorate General of Taxpayer Services
on 31-7-2017.
ITC of GST paid on tippers and dumpers will be available as they are not 'motor vehicle' -
FAQ No. 21 of FAQ on Mining issued by Directorate General of Taxpayer Services on 31-7-
2017 - same view in Purewal Stone Crusher In re (2018) 70 GST 444 = 98 taxmann.com 137
(AAR-Uttarakhand).
9.4-6 Eligible/Ineligible Input Tax Credit
Case law has started coming on GST ITC and important case law is discussed below.
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Guest House expenses not eligible for ITC - Services used for maintaining guest house for
temporary accommodation of employees and non-employees is not eligible for ITC, as not
in course of business - National Aluminium Co. Ltd., In re [2019] 102 taxmann.com 371 (AAAR
- Odisha) [very difficult to agree].
This decision was in appeal against decision in National Aluminium Co. Ltd., In re [2018] 98
taxmann.com 245 = 71 GST 1 (AAR - Odisha), where it was held that guest house, transit
house, and training hostels is a business requirement and is eligible for ITC, excluding food
and beverages, for employees [really food is not for personal consumption of employees, it
is part of guest house service as a composite supply].
Transport facility provided to employees by hiring vehicle eligible for ITC - In Tata Motors
Ltd., In re [2020] 119 taxmann.com 106 (AAR - Maharashtra), applicant had hired buses for
transport of their employees. It was held that ITC of GST charged by service provider on
hiring of bus/motor vehicle having seating capacity of more than 13 persons for
transportation of employees to and from workplace is eligible with effect from 1-2-2019 as
with effect from 1-2-2019, ITC has been allowed on leasing, renting or hiring of motor
vehicles, for transportation of persons, having approved seating capacity of more than 13
persons (including driver). - - Applicant was charging nominal amount from its employees on
monthly basis. It was held no services are provided by employer to its employees and in view
of (Schedule III, Section 7) GST is not applicable on the nominal amounts recovered by
employer from their employees in the subject case.
[Different view is possible - In first issue, it can be said to be for personal benefit of employees
and second issue, service supplied by employer are not exempt].
In fact, there is contrary decision in Prasar Bharti Broadcasting Corporation of India In re
(2020) 82 GST 323 - 117 taxmann.com 394 (AAR- HP), where it was held that ITC is not
available in case of service of hiring taxi for pick up and drop of duty staff is not eligible for
ITCs providing such transport is not obligatory under law.
Gardening expenses, hospital expenses, guest house expenses - Gardening expenses,
hospital expenses, guest house expenses are not eligible for ITC - General Manager
Ordnance Factory Bhandara, In re [2019] 106 taxmann.com 246 (AAR - Maharashtra).
Input services used for CSR Activity - Corporate Social Responsibility (CSR) is not only holistic
approach but integrating core business strategy. Sustainability of company is dependent on
CSR. Hence, input services used for CSR activities are eligible for Cenvat credit - Essel
Petropack v. CCGST (2018) 362 ELT 833 (CESTAT) [decision for period prior to GST but
principle applies to GST also].
Brokerage services relating to renting of building - Brokerage services relating to renting
of building is eligible input service for renting of commercial property. The service falls under
heading 9972 (really 99621 appears to be more appropriate) -Adwitya Spaces P Ltd. In re
(2018) 70 GST 477 = 98 taxmann.com 316 (AAR-Tamil Nadu).
ITC is available on furniture purchased if it is movable - ITC is available on furniture
purchased if it is movable - Rambagh Palace Hotels (P.) Ltd., In re [2019] 74 GST 177 = 106
taxmann.com 172 (AAR- Rajasthan).
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GST paid on lease rent for land not eligible for ITC? - In GGL Hotel and Resort Company Ltd.,
In re [2019] 101 taxmann.com 138 (AAR-West Bengal), applicant had taken on lease certain
land for construction of resort and he was liable to pay annual lease rent. The lease rent paid
during pre-operative period was to be capitalised in account books by applicant. It was held
that input tax credit is not available to applicant for lease rent paid during pre-operative
period. The reason given was that ultimately the land should be treated as part of the cost
of goods and services received for the purpose of constructing an immovable property
(other than plant and machinery) on the applicant's own account. Input tax credit is,
therefore, not admissible on such lease rental in terms of section 17(5)(d) of CGST Act [very
strained reasoning indeed. It is well settled that exclusion clause in any benevolent provision
has to be constructed].
The aforesaid decision of AAR has been confirmed in appeal in GGL Hotel & Resort Company
Ltd., In re [2019] 105 taxmann.com 248 (AAAR-West Bengal). It was held that this ITC is
blocked under section 17(5)(d) of CGST Act [really, that clause only restricts construction
services. It is well settled that taxation provisions are to be interpreted strictly on basis of
words used and not on basis of 'supposed intention'].
Services relating to residential accommodation in township not eligible - Appellant is not
entitled to input tax credit of tax paid on goods and services procured for management,
repair, renovation, alteration or maintenance services pertaining to residential
accommodation for its employees in townships - National Aluminium Company Ltd., In re
[2019] 102 taxmann.com 371 (AAAR - Odisha).
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Input Tax Credit - Other Issues

10.1 Input Tax Credit of capital goods
Entire ITC of GST paid on capital goods will be available in first year itself, as these are 'goods'.
Term 'capital goods' is defined in section 2(19) of CGST Act as follows -
"Capital goods" means goods, the value of which is capitalised in the books of account of the
person claiming the credit and which are used or intended to be used in the course or
furtherance of business - section 2(19) of CGST Act.
10.1-1 Meaning of 'capital goods' for purpose of ITC
"Capital goods" shall include "plant and machinery" as defined in the Explanation to section
17 of CGST Act - Explanation below Rule 45 of CGST and SGST Rules, 2017.
For purpose of Chapter V of CGST Act (Input Tax Credit) and Chapter VI of CGST Act
(Registration), expression 'plant and machinery' is defined as follows [Explanation to section
17 of CGST Act].
"Plant and machinery" means apparatus, equipment and machinery fixed to earth by
foundation or structural support that are used for making outward supply of goods or
services or both and includes such foundation and structural supports but excludes - (i) land,
building or any other civil structures (ii) telecommunication towers; and (iii) pipelines laid
outside the factory premises.
Goods/services used in installation of Renewable Power Generation Plant eligible -
Goods/services used in installation of Renewable Power Generation Plant are eligible for ITC,
if depreciation is not claimed on GST (even if electricity is exempt from GST) - Kumaran Oil
Mill, In re [2020] 120 taxmann.com 386 (AAR - TAMILNADU).
10.1-2 Input tax credit of tax not allowed if depreciation claimed on tax component
Where the registered taxable person has claimed depreciation on the tax component of the
cost of capital goods under the provisions of the Income-tax Act, 1961, the input tax credit
on the said tax component shall not be allowed - section 16(3) of CGST Act.
Thus, if net value of capital goods is Rs 100 lakhs and GST paid is Rs 18 lakhs, the taxable
person should claim depreciation in income tax only on Rs 100 lakhs.
10.1-3 Ineligibility of ITC on pipelines and telecommunication tower
Credit of input tax in respect of pipelines laid outside the factory and telecommunication
towers fixed to earth by foundation or structural support including foundation and structural
support are not eligible for input tax credit - Explanation to section 17 of CGST Act.
Though telecommunication tower, being immovable property, is not eligible for ITC, the
Input Tax Credit will be available in respect of other goods used to provide infrastructure
(which are movable) and services used for providing infrastructure. These would cover pre-
fabricated shelter made of insulating PUF material made of fibres, Electronic Panel, Base
Transceiver Station (BTS) and other radio transmission and reception equipment, a diesel
generator set, Six poles of 6 to 9 meters length each made of hollow steel galvanized pipes.
These are easily removable and hence are 'goods' eligible for ITC -Vindhya Telelinks Ltd., In
re [2018] 97 taxmann.com 564 (AAR- Uttarakhand).
10.1-4 Removal of capital goods after use
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In case of supply of capital goods on which input tax credit has been taken, the registered
person shall pay an amount equal to the input tax credit taken on the said capital goods or
plant and machinery reduced by the percentage points as may be specified or the tax on the
transaction value of such capital goods or plant and machinery determined under section 15
of CGST Act, whichever is higher - section 18(6) of CGST Act.
The amount of credit shall be calculated by reducing the input tax @ 5% for every quarter
or part thereof, from the date of issue of invoice for the capital goods - Rule 40(2) of CGST
and SGST Rules, 2017.
However, in case of bricks, moulds and dies, jigs and fixtures are supplied as scrap, the
taxable person may pay tax on the transaction value of such goods determined under section
15 of CGST Act - proviso to section 18(6) of CGST Act.
10.1-5 Illustration
Question - XYZ Ltd., purchased machine on 1-7-2017 for Rs. 10,00,000 on which IGST was
paid @ 18%. He availed the input tax credit and utilised the capital goods. On 2-10-2018 he
sold the machinery as second hand goods for Rs 7,50,000. State what steps he is required to
take to comply with statutory provisions.
Answer - XYZ had taken Input Tax Credit in July 2017 of Rs. 1,80,000 The capital goods have
been utilised by XYZ Ltd. for following quarters - Year 2017 - 2, Year 2018 - 4. Thus, XYZ can
keep input tax credit @ 5% per quarter i.e. 30%. Thus, it can retain input tax credit of Rs.
54,000 (30% of Rs. 1,80,000) and is required to pay amount equal to balance credit of 70%
i.e. Rs. 1,26,000.
The capital goods were sold for Rs. 7,50,000. IGST paid on the transaction value @ 18% is Rs.
1,35,000.
XYZ Ltd. is required to pay 'amount' which is higher of the above. Thus, they are required to
pay 'amount' in IGST of Rs. 1,35,000. If capital goods were sold within the State, SGST of Rs.
67,500 and CGST of Rs. 67,500 should be payable.
XYZ should prepare tax invoice for this purpose.
Question - XYZ Pvt. Ltd. purchased machinery worth Rs. 9,00,000 (excluding GST) on 20-7-
2017 on which it paid GST @ 18%. It availed the ITC. On 5-3-2018 it sold the machinery for
Rs. 7,00,000 (excluding GST) to JKL Pvt. Ltd. The GST rate on sale is 18%. What will be the
course of action for XYZ Pvt. Ltd. to follow under CGST Act, 20XX? (adapted from CA question
paper)
Answer - GST paid on machinery was 18% of Rs. 9,00,000 i.e. Rs. 1,62,000. The machinery
was used for three quarters. Hence, it is eligible of ITC of 15% (5% per quarter or part
thereof), i.e. Rs. 24,300. Balance ineligible ITC is Rs. 1.37,700. The machinery was sold for Rs.
7,00,000. GST @ 18% is Rs. 1,26,000.
XYZ P. Ltd. is liable to pay 'amount' which is higher among the two i.e. Rs. 1,37,700 (as higher
than Rs. 1,26,000).
10.2 Merger, amalgamation or sale of business
Where there is a change in the constitution of a registered person on account of sale,
merger, demerger, amalgamation, lease or transfer of the business with the specific
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provision for transfer of liabilities, the said registered person shall be allowed to transfer the
input tax credit which remains unutilized in his electronic credit ledger to such sold, merged,
demerged, amalgamated, leased or transferred business in the such manner as may be
prescribed - section 18(3) of CGST Act.
10.2-1 Procedure for transfer of credit on sale, merger, amalgamation, lease or transfer of
a business
A registered person shall, on sale, merger, demerger, amalgamation, lease or transfer or
change in ownership of business for any reason, furnish the details of sale, merger,
demerger, amalgamation, lease or transfer of business, in form GST ITC-02 electronically on
the Common Portal along with a request to transfer the unutilized input tax credit lying in
his electronic credit ledger to the transferee - Rule 41(1) of CGST and SGST Rules, 2017.
In the case of demerger, the input tax credit shall be apportioned in the ratio of the value of
assets of the new units as specified in the demerger scheme - proviso to rule 41(1) of CGST
Rules.
For the purpose of rule 41(1), it is hereby clarified that the "value of assets" means the value
of the entire assets of the business, whether or not input tax credit has been availed thereon
- Explanation to rule 41(1) of CGST Rules inserted w.e.f. 29-3-2019.
Since this is an 'Explanation', it should apply with retrospective effect.
The transferor shall also submit a copy of a certificate issued by a practicing chartered
account or cost accountant certifying that the sale, merger, demerger, amalgamation, lease
or transfer of business has been done with a specific provision for transfer of liabilities - Rule
41(2) of CGST and SGST Rules, 2017.
The transferee shall, on the Common Portal, accept the details so furnished by the transferor
and, upon such acceptance, the unutilized credit specified in form GST ITC-02 shall be
credited to his electronic credit ledger - Rule 41(3) of CGST and SGST Rules, 2017.
The inputs and capital goods so transferred shall be duly accounted for by the transferee in
his books of account - Rule 41(4) of CGST and SGST Rules, 2017.
10.2-2 Departmental clarification in respect of issues relating to business reorganisation
CBI&C, vide Circular No.133/03/2020-GST dated 23-3-2020 has clarified as follows -
In the case of demerger, value of assets for purpose of rule 41(1) of CGST Rules shall
be calculated at State-level (at the level of distinct persons, as these are registered
separately in each State) and not All India level (as per illustration given in circular)

The transferor is required to file Form GST ITC-02 only in those States where both
transferor and transferee are registered and not in all States.

The formula for apportionment of ITC, as prescribed under proviso to rule 41(1) of
the CGST Rules, shall be applicable for all forms of business re-organization that
results in full or partial transfer of business assets along with liabilities.

The ratio of value of assets, as prescribed under proviso to rule 41(1) of the CGST
Rules, shall be applied to the total amount of unutilized input tax credit (ITC) of the
transferor i.e. sum of CGST, SGST/UTGST and IGST credit. The said formula need not
 184

be applied separately in respect of each heads of ITC (CGST/SGST/IGST). Further, the

said formula shall also be applicable for apportionment of GST Compensation Cess
between the transferor and transferee.
The total amount of ITC to be transferred to the transferee (i.e. sum of CGST,
SGST/UTGST and IGST credit) in ITC-02 should not exceed the amount of ITC to be
transferred, as determined under rule 41(1) of the CGST Rules, as stated above.
However, the transferor shall be at liberty to determine the amount to be transferred
under each tax head (IGST, CGST, SGST/UTGST) within this total amount, subject to
the ITC balance available with the transferor under the concerned tax head (as
illustrated in circular).
the apportionment formula shall be applied on the ITC balance of the transferor as
available in electronic credit ledger on the date of filing of form GST ITC-02 by the
transferor.
The ratio of the value of assets should be taken as on the "appointed date of
demerger", specified as per section 232(6) of Companies Act, 2013.

10.2-3 Procedure in case of death of sole proprietor

In case of death of sole proprietor, application for cancellation of registration shall be made
by legal heir/successor in form GST REG-16. The new entity in which the applicant proposes
to amalgamate itself shall be registered under GST before submission of application for
cancellation of registration which is in name of deceased sole proprietor. Before filing
application for cancellation, tax return upto the date of surrender of registration should be
filed - Instruction No. 7(b) under form GST REG-16 inserted on 30-10-2018.
Clarification by CBI&C - CBI&C circular No. 96/15/2019-GST dated 28-3-2019 clarifies as
follows -
Transfer or change of ownership of business will include transfer or change in ownership of
business due to death of sole proprietor. The transferee/successor shall apply for
registration under GST Act. In form GST REG-01, he should state reason to obtain registration
as 'death of proprietor'.
The legal heir should apply for cancellation of registration of deceased person in form GST
REG-16.
If legal heirs continue the business, it will be considered as transfer of business. Credit shall
be allowed to be transferred as per section 18(3) of CGST Act, read with rule 41 of CGST
Rules. The registered person shall file form GST ITC-02 in respect of registration which is
required to be cancelled. Form GST ITC-02 should be filed before filing application for
cancellation of registration. On acceptance by transferee/successor, unutilized ITC as
specified in form GST ITC-02 shall be credited to electronic credit ledger of transferee.
The transferee is liable to pay tax, interest and penalties of the deceased person, as per
sections 85(1) and 93(1) of CGST Act.
10.2-4 Transfer of ITC on obtaining separate registration for multiple places of business
within a State or Union Territory
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A person who is having single registration within State or Union Territory may like to have
multiple registrations within the State. Procedure for the same has been specified in rule
41A of CGST Rules, inserted w.e.f. 1-2-2019. The procedure is discussed under 'Registration'.
Rule 41A of CGST Rules provides that the registered person can transfer proportionate Input
Tax Credit ('ITC') from existing to this new registration. The ratio for transferring ITC would
be calculated based on value of assets of both place of business which may be GST paid or
otherwise. For transferring ITC the transferor is required to file Form GST ITC -02A within 30
days from the date of obtaining separate registrations.
10.3 Input Tax Credit when taxable person becomes eligible for first time
In some cases, the taxable person becomes liable to pay GST at a later stage e.g. exemption
to his supply of goods or service is withdrawn or when he opts out of composition scheme
or when he applies for registration after he becomes liable to pay GST. In such cases,
provisions have been made to enable him to avail input tax credit.
10.3-1 Credit of input tax at the time of registration
A person who has applied for registration under the Act within thirty days from the date on
which he becomes liable to registration and has been granted such registration shall, subject
to such conditions and restrictions as may be prescribed, be entitled to take credit of input
tax in respect of inputs held in stock and inputs contained in semi finished or finished goods
held in stock on the day immediately preceding the date from which he becomes liable to
pay tax under the provisions of CGST Act - section 18(1)(a) of CGST Act.
This provision also applies if a taxable person takes voluntary registration under section
25(3) of CGST Act, even if his turnover is below exemption limit - section 18(1)(b) of CGST
Act.
The amount of credit under section 18(1) of CGST Act shall be calculated in such manner as
may be prescribed - section 18(5) of CGST Act.
Claiming credit when person applies for registration within 30 days - Input tax credit
claimed in accordance with the provisions of section 18(1) of CGST Act on the inputs lying in
stock or inputs contained in semi-finished or finished goods lying in stock, or the credit
claimed on capital goods in accordance with the provisions of clauses (c) and (d) of section
18(1) of CGST Act, shall be subject to the following conditions—
(a) The input tax credit on capital goods, in terms of clauses (c) and (d) of section 18(1),
shall be claimed after reducing the tax paid on such capital goods by 5% per quarter
of a year or part thereof from the date of invoice or such other documents on which
the capital goods were received by the taxable person.
(b) The registered person shall within thirty days from the date of his becoming eligible
to avail of input tax credit under section 18(1) shall make a declaration, electronically,
on the Common Portal in form GST ITC-01 to the effect that he is eligible to avail of
input tax credit as aforesaid. This period of 30 days can be extended by Commissioner
by a notification. The notification can be issued either by Central Tax Authorities or
State Tax Authorities or Union Territory Tax Authorities.
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The time limit for filing form ITC-01 has been extended to 30-11-2017 - Notification
No. 52/2017-CT dated 28-10-2017.
(c) The declaration under clause (b) shall clearly specify the details relating to the inputs
lying in stock or inputs contained in semi-finished or finished goods lying in stock, or
as the case may be, capital goods—
(i) on the day immediately preceding the date from which he becomes liable to pay tax
under the provisions of this Act, in the case of a claim under Section 18(1)(a).
(ii) on the day immediately preceding the date of grant of registration, in the case of a
claim under Section 18(1)(b).
(iii) on the day immediately preceding the date from which he becomes liable to pay tax
under section 9, in the case of a claim under Section 18(1)(c).
(iv) on the day immediately preceding the date from which supplies made by the
registered person becomes taxable, in the case of a claim under Section 18(1)(d).
(d) The details furnished in the declaration under clause (c) shall be duly certified by a
practicing chartered account or cost accountant if the aggregate value of claim on
account of central tax, State tax and integrated tax exceeds two lakh rupees.
(e) The input tax credit claimed in accordance with clauses (c) and (d) of section 18(1) of
CGST Act shall be verified with the corresponding details furnished by the
corresponding supplier in form GSTR-1 or in form GSTR- 4, on the Common Portal.

10.3-2 Input tax credit when person opts out of composition scheme
Where any registered taxable person ceases to pay tax under section 10 of CGST Act [which
provides for composition scheme], he shall be entitled to take credit of input tax in respect
of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and
on capital goods on the day immediately preceding the date from which he becomes liable
to pay tax under section 9 of CGST Act [on basis of transaction value]. Credit on capital goods
shall be reduced by such percentage as may be prescribed - section 18(1)(d) of CGST Act.
Time limit for filing GST ITC 01 by persons opting out of composition scheme in March 2018
extended to 3-10-2018 - Rule 40(1)(b) of the CGST Rules, 2017 provides for making
declaration in form GST ITC-01 when a person switches over from composition scheme to
normal scheme of payment of taxes.
The time limit for making the declaration in form GST ITC-01 as per rule 40(1)(b) of CGST
Rules, by registered persons who have filed the application in form GST-CMP-04 of the said
rules between the 2nd day of March, 2018 and the 31st day of March, 2018 has been
extended upto 3-10-2018 - - Notification No. 42/2018-CT dated 4-9-2018.
10.3-3 Input tax credit on stock when exemption on goods or services withdrawn
Where an exempt supply of goods or services or both by a registered taxable person
becomes a taxable supply, such person shall be entitled to take credit of input tax in respect
of inputs held in stock and inputs contained in semi-finished or finished goods held in stock
relatable to such exempt supply and on capital goods exclusively used for such exempt
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supply on the day immediately preceding the date from which such supply becomes taxable
- section 18(1)(d) of CGST Act.
The credit on capital goods shall be reduced by such percentage points as may be prescribed
in this behalf - proviso to section 18(1)(d) of CGST Act.
10.3-4 Procedure for Claiming credit when person applies for registration within 30 days
or when shifts from composition scheme or goods cease to be exempt
As per rule 40(1) of CGST Rules, Input tax credit claimed in accordance with the provisions
of section 18(1) of CGST Act on the inputs lying in stock or inputs contained in semi-finished
or finished goods lying in stock, or the credit claimed on capital goods in accordance with
the provisions of clauses (c) and (d) of section 18(1) of CGST Act, shall be subject to the
following conditions -
[Note - Section 18(1)(c) of CGST Act relates to ITC when taxable person under composition
scheme shifts to normal scheme. Section 18(1)(d) of CGST Act relates to ITC when exempt
supply of goods becomes a taxable supply. Credit of ITC on capital goods can be availed only
in these two situations and not when a taxable person applies for fresh registration].
(a) The input tax credit on capital goods, in terms of clauses (c) and (d) of section 18(1),
shall be claimed after reducing the tax paid on such capital goods by 5% per quarter
of a year or part thereof from the date of invoice or such other documents on which
the capital goods were received by the taxable person.
(b) The registered person shall within thirty days from the date of his becoming eligible
to avail of input tax credit under section 18(1) make a declaration, electronically, on
the Common Portal in form GST ITC-01 to the effect that he is eligible to avail of input
tax credit as aforesaid. This period of 30 days can be extended by Commissioner by a
notification. The notification can be issued either by Central Tax Authorities or State
Tax Authorities or Union Territory Tax Authorities.
The time limit for filing form ITC-01 has been extended to 30-11-2017 - Notification
No. 52/2017-CT dated 28-10-2017.
(c) The declaration under clause (b) shall clearly specify the details relating to the inputs
lying in stock or inputs contained in semi-finished or finished goods lying in stock, or
as the case may be, capital goods-
(i) on the day immediately preceding the date from which he becomes liable to pay tax
under the provisions of this Act, in the case of a claim under Section 18(1)(a).
(ii) on the day immediately preceding the date of grant of registration, in the case of a
claim under Section 18(1)(b).
(iii) on the day immediately preceding the date from which he becomes liable to pay tax
under section 9, in the case of a claim under Section 18(1)(c).
(iv) on the day immediately preceding the date from which supplies made by the
registered person becomes taxable, in the case of a claim under Section 18(1)(d).
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(d) The details furnished in the declaration under clause (c) shall be duly certified by a
practicing chartered accountant or cost accountant if the aggregate value of claim on
account of central tax, State tax and integrated tax exceeds two lakh rupees.
(e) The input tax credit claimed in accordance with clauses (c) and (d) of section 18(1) of
CGST Act shall be verified with the corresponding details furnished by the
corresponding supplier in form GSTR-1 or in form GSTR- 4, on the Common Portal.

10.4 Reversal of input tax credit if goods become exempt or taxable person switches to
composition scheme
If a taxable person switches over from normal scheme to composition scheme, or his product
which was earlier taxable becomes exempt, he is required to reverse input tax credit of GST
paid on stock, WIP and finished goods. He is also required to reverse ITC taken on capital
goods, after allowing deduction of 5% per quarter.
Provisions for this purpose are made in section 18(4) and Rule 44 of CGST and SGST Rules,
2017.
Where any registered taxable person who has availed of input tax credit switches over as a
taxable person for paying tax under section 10 of CGST Act [composition scheme] or, where
the goods and/or services supplied by him become wholly exempt, he shall pay an amount,
by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the
credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or
finished goods held in stock and on capital goods, reduced by such percentage points as may
be prescribed, on the day immediately preceding the date of such switch over or, as the case
may be, the date of such exemption - section 18(4) of CGST Act.
After payment of such amount, the balance of input tax credit, if any, lying in his electronic
credit ledger shall lapse -proviso to section 18(4) of CGST Act.
The amount payable under section 18(4) of CGST Act shall be calculated in such manner as
may be prescribed - section 18(5) of CGST Act.
10.4-1 Reversal of ITC if registration is cancelled
If GST registration of a taxable person is cancelled, reversal of Input Tax Credit on inputs in
stock is required. Reversal of ITC on capital goods is also required by reducing the credit @
5% per quarter - section 29(5) of CGST Act.
10.4-2 Reversal of input tax credit if goods or services become wholly exempt or GST
registration cancelled
The amount of input tax credit, relating to inputs lying in stock, inputs contained in semi-
finished and finished goods lying in stock, and capital goods lying in stock, for the purposes
of section 18(4) or section 29(5) of CGST Act, shall be determined as follows - Rule 44(1) of
CGST and SGST Rules, 2017 :
(a) For inputs lying in stock, and inputs contained in semi-finished and finished goods
lying in stock, the input tax credit shall be calculated proportionately on the basis of
corresponding invoices on which credit had been availed by the registered taxable
person on such input.
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(b) For capital goods lying in stock the input tax credit involved in the remaining residual
life in months shall be computed on pro-rata basis, taking the residual life as five
years.

Illustration
Capital goods have been in use for 4 years, 6 months and 15 days.
The residual remaining life in months = 5 months ignoring a part of the month
Input tax credit taken on such capital goods = C
Input tax credit attributable to remaining residual life = C multiplied by 5/60
The amount, as prescribed in rule 44(1) shall be determined separately for input tax credit
of IGST and CGST - rule 44(2) of CGST Rules.
Where the tax invoices related to the inputs lying in stock are not available, the registered
person shall estimate the amount under rule 41(1) based on the prevailing market price of
goods on the effective date of occurrence of any of the events specified in section 18(4) or
section 29(5) - rule 44(3) of CGST Rules.
The amount determined under rule 44(1) shall form part of the output tax liability of the
registered person and the details of the amount shall be furnished in form GST ITC-03, where
such amount relates to any event specified in section 18(4) and in form GSTR-10, where such
amount relates to cancellation of registration - rule 44(4) of CGST Rules.
The details shall be certified by a practicing CA/CMA - rule 44(5) of CGST Rules.
The amount of ITC for purpose of section 18(6) of CGST Act relating to capital goods will be
determined in same manner as specified in rule 44(1)(b) of CGST Rules. It will be determined
separately for ITC of CGST, SGST, UTGST and IGST - rule 44(6) of CGST Rules.
If such amount exceeds the tax determined on the transaction value of the capital goods,
the amount shall be added as output tax liability in form GSTR-1 - proviso to rule 44(6) of
CGST Rules.
10.4-3 Reversal of ITC on imported gold dore bar sold after 1-7-2017
In case of import of gold dore bar before 1-7-2017, CVD was payable. The credit of such CVD
is available under section 140 of CGST Act. While supplying such gold bars or contained in
gold or gold jewellery held in stock on 1-7-2017, the taxable person is eligible for only one-
sixth (i.e. 16/6667%) of the credit. Balance (i.e. 83.3333%) will have to be reverse i.e. debited
in electronic credit ledger at the time of supply. In case of supplies made prior to 17-8-2017,
such reversal shall be made within one week - rule 44A of CGST Rules inserted w.e.f. 17-8-
2017.
10.5 Recovery of ITC wrongly taken
Where credit has been taken wrongly, the same shall be demanded from the registered
person by issuing show cause notice sections 73 and 74 of CGST Act.
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Input Tax Credit when exempted as well as taxable supplies made

11.1 Proportionate ITC when party used for business or taxable supplies
Principle of Vat is that input tax credit is available only when tax is payable on his output. If
some of supplies are taxable and some are exempt, the taxable person can take only
proportionate input tax credit.
This principle applies to input goods, input services and capital goods. These are provided in
section 17 of CGST Act.
Where the goods or services or both are used by the registered taxable person partly for the
purpose of any business and partly for other purposes, the amount of input tax credit shall
be restricted to so much of the input tax as is attributable to the purposes of his business -
section 17(1) of CGST Act.
Where the goods and/or services are used by the registered person partly for effecting
taxable supplies including zero rated supplies under CGST or IGST Act and partly for effecting
exempt supplies, the amount of credit shall be restricted to so much of the input tax as is
attributable to the taxable supplies including zero-rated supplies - section 17(2) of CGST Act.
The Central or a State Government may, by notification issued in this behalf, prescribe the
manner in which the proportionate input tax credit is to be taken - section 17(6) of CGST Act.
This provision is similar to rule 6 of Cenvat Credit Rules.
"Taxable supply" means a supply of goods or services or both which is leviable to tax under
CGST Act - section 2(109) of CGST Act.
'Non-taxable supply' means a supply of goods or services or both which is not leviable to tax
under CGST Act or IGST Act - section 2(78) of CGST Act.
"Zero-rated supply" means a supply of any goods or services or both in terms of section 16
of IGST Act - section 2(23) of IGST Act.
Export of goods or services or both and supplies of goods or services or both to SEZ unit or
SEZ developer will be zero rated supply - section 16(1) of IGST Act.
Credit of input tax may be availed for making zero-rated supplies, even if such supply is
exempted supply - section 16(2) of IGST Act.
The registered person making zero rated supply can claim refund under either of two options
- (a) supply goods under bond or LUT without payment of IGST and claim refund of unutilized
input tax credit or (b) supply goods on payment of IGST and claim refund of IGST paid on
goods and services. The refund will be in accordance with section 54 of CGST Act - section
16(3) of IGST Act.
11.1-1 Calculation of value of 'exempt supply'
"Exempt supply" means supply of any goods or services or both which attracts nil rate of tax
or which may be wholly exempt from tax under section 11 of CGST Act or under section 6 of
IGST Act, and includes non-taxable supply - section 2(47) of CGST Act.
'Non-taxable supply' means a supply of goods or services or both which is not leviable to tax
under CGST Act or IGST Act - section 2(78) of CGST Act.
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Exempt supply cannot include activities included in Schedule III of CGST Act, except value
of land, buildings and securities - The 'exempt supply' and 'non-taxable supply' can only
cover goods or services which are 'supply'. These cannot include any activity which is not
'supply' at all. Thus, 'Exempt supply' cannot include activities included in Schedule III of CGST
Act, as the activities specified in Schedule III are neither supply of goods nor supply of
services. The exception is what is specified in section 17(3) of CGST Act, i.e. value of land,
completed buildings (except where supply is made before completion of building) and
securities.
Exempt supply to include value of land, building and securities - As per section 17(3) of
CGST Act, value of exempt supply shall include - (a) supply where GST is payable on reverse
charge basis (b) transactions in securities (c) sale of land (d) sale of building (except
construction of complex where supply is made before obtaining completion certificate).
For determining the value of an exempt supply as per section 17(3) of CGST Act-- (a) the
value of land and building shall be taken as the same as adopted for the purpose of paying
stamp duty, and (b) the value of security shall be taken as 1% of the sale value of such
security - Explanation under Rule 45 of CGST and SGST Rules, 2017.
Apportionment of ITC between taxable supply and exempt supply on basis of value except
in case of real estate services - Section 17(3) of CGST Act envisages that apportionment of
ITC between exempt supply and taxable supplies including zero rated supplies shall be on
basis of value.
However, as per scheme of GST on service of real estate of residential and commercial
apartments w.e.f. 1-4-2019, it is envisaged that such apportionment shall be on basis of area
of construction of complex. Hence, Removal of Difficulties Order No. 04/2019-CT dated 29-
3-2019 provides that such apportionment shall be on basis of area of construction of
complex.
Activities and transactions covered under Schedule III are not 'exempt supply' except
covered in paragraph 5 - For purpose of section 17(3) of CGST Act (proportionate reversal
of ITC when taxable person is making both taxable and exempt supply), the expression
"value of exempt supply" shall not include the value of activities or transactions specified in
Schedule III of CGST Act, except those specified in paragraph 5 of the said Schedule.
Schedule III of CGST Act specifies transactions or activities which shall be treated neither as
supply of goods nor supply of services.
Paragraph 5 of Schedule III of CGST Act pertains to sale of land or sale of building after
completion certificate is obtained.
Electricity is exempt supply - Electricity is 'exempt supply'.
Interest is not exempt supply for purposes of rules 42 and 43 i.e. no reversal of ITC required
- Interest on loans, deposits and borrowings are exempt, though it is supply of service.
However, it is not 'exempt supply' for purposes of rules 42 and 43 of CGST Rules. The exact
wording in rules is as follows -
For the purposes of rules 42 and 43 of CGST Rules, it is hereby clarified that the aggregate
value of exempt supplies shall exclude the value of services by way of accepting deposits,
extending loans or advances in so far as the consideration is represented by way of interest
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or discount, except in case of a banking company or a financial institution including a non-

banking financial company, engaged in supplying services by way of accepting deposits,
extending loans or advances - Explanation 1(b) to rule 43(2) of CGST Rules, inserted w.e.f.
23-1-2018 [Explanation re-numbered as Explanation 1 w.e.f 1-4-2019].
Since it is only clarification, it should apply with retrospective effect from 1-7-2017.
Exempt Supply shall not include supply of services to Nepal and Bhutan for purpose of
reversal of ITC upto 1-2-2019 - Value of 'Exempt Supply' for purposes of rules 42 and 43 of
CGST Rules (reversal of ITC) shall exclude the value of supply of services to Nepal and Bhutan
where place of supply in Nepal or Bhutan even when payment is received in Indian rupees
[These services are exempt vide Notification No. 42/2017-IT (Rate) dated 27-10-2017] -
Explanation (a) to rule 43(2) of CGST Rules, inserted w.e.f. 15-11-2017 and amended on 23-
1-2018. This Explanation (a) has been omitted w.e.f. 1-2-2019, as now, in case of export of
services, condition of receipt of payment in foreign exchange does not apply where RBI
allows receipt of payment in Indian Rupees, as per section 54(8)(c) of CGST Act inserted
w.e.f. 1-2-2019.
Since it is only clarification, it should apply with retrospective effect from 1-7-2017.
After 1-2-2019, supply to Nepal and Bhutan will qualify as 'export' even if payment is
received in Indian Rupees. It will be 'zero rated'. Hence, the question of treating it as 'Exempt
supply' does not arise.
Exempt supply shall not include outward freight from India to outside India for reversal of
ITC - For the purposes of rules 42 and 43 of CGST Rules, it is hereby clarified that the
aggregate value of exempt supplies shall exclude the value of supply of services by way of
transportation of goods by a vessel from the customs station of clearance in India to a place
outside India - Explanation 1(c) to rule 43(2) of CGST Rules, inserted w.e.f. 15-11-2017 and
amended on 23-1-2018 [Explanation re-numbered as explanation 1 w.e.f. 1-4-2019].
Since it is only clarification, it should apply with retrospective effect from 1-7-2017.
11.2 Special provisions in respect of Banks, FI and NBFC
A banking company or a financial institution including a non-banking financial company,
engaged in supplying services by way of accepting deposits, extending loans or advances
shall have the option to either comply with the provisions of section 17(2) of CGST Act, or
avail of, every month, an amount equal to fifty per cent of the eligible input tax credit on
inputs, capital goods and input services in that month - section 17(4) of CGST Act.
The option once exercised shall not be withdrawn during the remaining part of the financial
year - first proviso to section 17(4) of CGST Act.
The 50% restriction shall not apply to the tax paid on supplies made by one registered person
to another registered person having same PAN number - second proviso to section 17(4) of
CGST Act.
This provision applies when Bank/FI/NBFC in one State provides services (or supplies goods)
to its own branch in another State.
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In most of the cases, Bank, FI or NBFC may find it easy and profitable to avail 50% of input
tax credit instead of availing input tax credit on proportionate basis as per section 17(2) of
CGST Act.
Cooperative society accepting deposits and granting loans is Financial Institution - A co-
operative society, carrying on business of financing by accepting deposits and granting loans
or advances, qualified to be a "financial institution" as per RBI Act, 1934 and consequently
also under section 17(4) of CGST Act. Hence, the society is eligible for availing option
provided under section 17(4) which prescribes to avail an amount equal to 50% of eligible
credit of input tax on inputs, capital goods and input services in that month and rest shall
lapse - KnanayaMulti Purpose Co-operative Credit Society Ltd., In re [2020] 119 taxmann.com
65 (AAR - Kerala).
11.2-1 Procedure to claim of credit by a banking company or a financial institution
A banking company or a financial institution, including a non-banking financial company,
engaged in supply of services by way of accepting deposits or extending loans or advances
that chooses not to comply with the provisions of section 17(2), in accordance with the
option permitted under section 17(4) of CGST Act, shall follow the procedure specified
below—
(a) the said company or institution shall not avail the credit of (i) tax paid on inputs and
input services that are used for non-business purposes and (ii) the credit attributable
to supplies specified in section 17(5), in form GSTR-2 [i.e. ineligible Input Tax Credit]
(b) the said company or institution shall avail the credit of tax paid on inputs and input
services referred to in the second proviso to section 17(4) and not covered under
clause (a) [i.e. services supplied by one branch or division to another i.e. with same
Income Tax PAN]
(c) fifty per cent of the remaining input tax shall be the input tax credit admissible to the
company or the institution and shall be furnished in form GSTR-2.
(d) the amount referred to in clauses (b) and (c) shall, subject to the provisions of
sections 41, 42 and 43, be credited to the electronic credit ledger of the said company
or the institution - Rule 38 of CGST and SGST Rules, 2017. [sections 41 to 43 provide
for provisional credit, matching and reversal of ITC and output tax liability].

11.3 Determination of input tax credit when partly used for taxable supply and partly for
exempt supply
The detailed mode of calculation has been prescribed in rule 42 of CGST Rules. Initially, input
tax used exclusively for taxable or exempt supplies are segregated. Then, for common input
tax, eligible credit is calculated on ratio basis. Non-eligible ITC is reversed.
Final calculations are made at end of financial year of eligible ITC before the due date for
filing the return for the month of September following the end of the financial year, on same
basis.
The detailed mode is explained below.
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The input tax credit in respect of inputs or input services, which attract the provisions of
section 17(1) or 17(2) of CGST Act, being partly used for the purposes of business and partly
for other purposes, or partly used for effecting taxable supplies including zero rated supplies
and partly for effecting exempted supplies, shall be attributed to the purposes of business
or for effecting taxable supplies in the following manner, namely,—
(a) Total input tax involved on inputs and input services in a tax period, be denoted as
'T.'
(b) The amount of input tax, out of 'T', attributable to inputs and input services intended
to be used exclusively for purposes other than business, be denoted as 'T1'.
(c) The amount of input tax, out of 'T', attributable to inputs and input services intended
to be used exclusively for effecting exempt supplies, be denoted as 'T2'.
(d) The amount of input tax, out of 'T', in respect of inputs on which credit is not available
under section 17(5) [ineligible ITC], be denoted as 'T3'.
(e) The amount of input tax credit credited to the electronic credit ledger of registered
person, be denoted as 'C1' and calculated as - C1 = T- (T1+T2+T3).
(f) The amount of input tax credit attributable to inputs and input services used
exclusively in or in relation to taxable supplies including zero rated supplies, be
denoted as 'T4'.
Explanation: For the purpose of this clause, it is hereby clarified that in case of supply
of services covered by paragraph 5(b) of Schedule II of CGST Act, value of T 4 shall be
zero during the construction phase because inputs and input services will be
commonly used for construction of apartments booked on or before the date of
issuance of completion certificate or first occupation of the project, whichever is
earlier, and those which are not booked by the said date [Explanation inserted w.e.f.
1-4-2019].

Para 5(b) of CGST Act covers real estate projects of residential and commercial
apartments. When the input goods or services are received, it is impossible to
identify which part of those will be used exclusively for taxable supply. Hence, the
value has to be taken as Nil at that stage.
(g) 'T1', 'T2', 'T3' and 'T4' shall be determined and declared by the registered person at
the invoice level in form GSTR-2 and at summary level in form GSTR-3B [The words in
italics inserted w.e.f. 1-4-2019].
(h) Input tax credit left after attribution of input tax credit under clause (f) shall be called
common credit, be denoted as 'C2' and calculated as - C2 = C1- T4 [The word in
bracket was 'g' upto 1-4-2019. It was a drafting mistake. It has been corrected now].
(i) The amount of input tax credit attributable towards exempt supplies, be denoted as
'D1' and calculated as - D1= (E÷F) × C2.
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Here, 'E' is the aggregate value of exempt supplies, i.e., all supplies other than taxable
and zero rated supplies, during the tax period, and 'F' is the total turnover of the
registered person during the tax period.
In case of supply of services covered by paragraph 5(b) of Schedule II of the Act, the
value of 'E/F' for a tax period shall be calculated for each project separately, taking
value of E and F as under:-
E = aggregate carpet area of the apartments, construction of which is exempt from
tax plus aggregate carpet area of the apartments, construction of which is not
exempt from tax, but are identified by the promoter to be sold after issue of
completion certificate or first occupation, whichever is earlier.

F = aggregate carpet area of the apartments in the project.

Explanation 1: In the tax period in which the issuance of completion certificate or first
occupation of the project takes place, value of E shall also include aggregate carpet
area of the apartments, which have not been booked till the date of issuance of
completion certificate or first occupation of the project, whichever is earlier.

Explanation 2: Carpet area of apartments, tax on construction of which is paid or

payable at the rates specified for item (i), (ia), (ib), (ic) or (id), against serial number
3 of the Table in the notification No. 11/2017-Central Tax (Rate), published in the
Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) dated 28th June,
2017 vide GSR number 690(E) dated 28th June, 2017, as amended, shall be taken into
account for calculation of value of 'E' in view of Explanation (iv) in paragraph 4 of the
notification No. 11/2017-Central Tax (Rate), published in the Gazette of India,
Extraordinary, Part II, Section 3, Sub section (i) dated 28th June, 2017 vide GSR
number 690(E) dated 28th June, 2017, as amended - first proviso to Rule 42(i) of CGST
and SGST Rules, 2017 inserted w.e.f. 1-4-2019]

The first proviso applies to real estate projects of residential and commercial
apartments, where apportionment of common Input services is on basis of carpet
area and not on basis of value w.e.f. 1-4-2019.

If the registered person does not have any turnover during the said tax period or the
aforesaid information is not available, the value of 'E/F' shall calculated by taking
values of 'E' and 'F' of the last tax period for which details of such turnover are
available, previous to the month during which the said value of 'E/F' is to calculated
- second proviso to Rule 42(i) of CGST and SGST Rules, 2017 [This proviso was first
proviso. It has been re-numbered as second proviso w.e.f. 1-4-2019].
For the purposes of clause (i), the aggregate value of exempt supplies and total
turnover shall exclude the amount of any duty or tax levied under entry 84 and entry
92A of List I of the Seventh Schedule to the Constitution [i.e. excise duty and central
sales tax on petroleum products and tobacco products] and entry 51 and entry 54 of
List II of the said Schedule [i.e. State Vat/excise duty on alcoholic liquor and State Vat
 196

on petroleum products] [The words in italics inserted w.e.f. 1-2-2019]. - Explanation

to section 42(1)(i) of CGST Act.
(j) The amount of credit attributable to non-business purposes if common inputs and
input services are used partly for business and partly for non-business purposes, be
denoted as 'D2', and shall be equal to five per cent of C2.
(k) The remainder of the common credit shall be the eligible input tax credit attributed
to the purposes of business and for effecting taxable supplies including zero rated
supplies and shall be denoted as 'C3', where, C3 = C2 - (D1+D2).
(l) The amount 'C3', 'D1' and 'D2' shall be computed separately for input tax credit of
central tax, State tax, Union territory tax and integrated tax and declared in form
GSTR-3B or through form GST DRC-03 - clause (l) substituted w.e.f. 1-4-2019.
Till 1-4-2019, the clause was reading as follows - The amount 'C3' shall be computed
separately for input tax credit of CGST, SGST, UTGST and IGST.
(m) The amount equal to 'D1' and 'D2' shall be reversed by the registered person in form
GSTR-3B or through form GST DRC-03 [The words in italics were as follows upto 1-4-
2019 - 'added to the output tax liability of the registered person'].

ITC used partly for purposes other than business and partly for exempt supplies - If the
amount of input tax relating to inputs or input services which have been used partly for
purposes other than business and partly for effecting exempt supplies has been identified
and segregated at invoice level by the registered person, the same shall be included in 'T1'
and 'T2' respectively, and the remaining amount of credit on such input or input services
shall be included in 'T4' - proviso to Rule 42(1) of CGST and SGST Rules, 2017.
11.3-1 Final calculations at end of financial year of eligible ITC
Except in case of supply of services covered by clause (b) of paragraph 5 of the Schedule II of
the CGST Act, the input tax credit determined under rule 42(1) of CGST and SGST Rules (as
above) shall be calculated finally for the financial year before the due date for filing the
return for the month of September following the end of the financial year to which such
credit relates, in the following manner [Rule 42(2) of CGST and SGST Rules, 2017]. [amended
w.e.f. 1-4-2019]
The words in italics inserted w.e.f. 1-4-2019, as in case of real estate projects of residential
and commercial apartments, the mode of final calculations is different.
(a) where the aggregate of the amounts calculated finally in respect of 'D1' and 'D2'
exceeds the aggregate of the amounts determined under rule 42(1) in respect of 'D1'
and 'D2', such excess shall be reversed by the registered person in form GSTR-3B or
through form GST DRC-03 for a month not later than the month of September
following the end of the financial year to which such credit relates. The registered
person shall be liable to pay interest on the said excess amount at the rate specified
in section 50(1) of CGST Act for the period starting from first day of April of the
succeeding financial year till the date of payment - Rule 42(2)(a) of CGST and SGST
 197

Rules, 2017 [The words in italics inserted w.e.f. 1-4-2019. Till 1-4-2019, the words
were 'added to the output tax liability of the registered person'].
or
(b) where the aggregate of the amounts determined under rule 42(1) in respect of 'D1'
and 'D2' exceeds the aggregate of the amounts calculated finally in respect of 'D1'
and 'D2', such excess amount shall be claimed as credit by the registered person in
his return for a month not later than the month of September following the end of
the financial year to which such credit relates - Rule 42(2)(b) of CGST and SGST Rules,
2017.

11.3-2 Final calculations of eligible ITC in case of real estate projects where no transition
of ITC
Rules 42(3) to 42(6) of CGST Rules inserted w.e.f. 1-4-2019 make provisions for final
calculations of eligible ITC in case of real estate projects or residential and commercial
apartments.
In case of supply of services covered by paragraph 5(b) of the Schedule II of the Act, the input
tax determined under rule 42(1) shall be calculated finally, for each ongoing project or
projects which commences on or after 1st April, 2019, which did not undergo or did not
require transition of input tax credit consequent to change of rates of tax on 1st April, 2019
in accordance with notification No. 11/2017- Central Tax (Rate), dated the 28th June, 2017,
published vide GSR No. 690(E) dated the 28th June, 2017, as amended for the entire period
from the commencement of the project or 1st July, 2017, whichever is later, to the
completion or first occupation of the project, whichever is earlier, before the due date for
furnishing of the return for the month of September following the end of financial year in
which the completion certificate is issued or first occupation takes place of the project, in
the manner prescribed in the said sub-rule, with the modification that value of E/F shall be
calculated taking value of E and F as under:
E = aggregate carpet area of the apartments, construction of which is exempt from tax plus
aggregate carpet area of the apartments, construction of which is not exempt from tax, but
which have not been booked till the date of issuance of completion certificate or first
occupation of the project, whichever is earlier.
F = aggregate carpet area of the apartments in the project
and,-
(a) where the aggregate of the amounts calculated finally in respect of 'D1' and 'D2'
exceeds the aggregate of the amounts determined under rule 42(1) of CGST Rules in
respect of 'D1' and 'D2', such excess shall be reversed by the registered person in
form GSTR-3B or through form GST DRC-03 in the month not later than the month of
September following the end of the financial year in which the completion certificate
is issued or first occupation of the project takes place and the said person shall be
liable to pay interest on the said excess amount at the rate specified in section 50(1)
for the period starting from the first day of April of the succeeding financial year till
the date of payment; or
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(b) where the aggregate of the amounts determined under rule 42(1) in respect of 'D1'
and 'D2' exceeds the aggregate of the amounts calculated finally in respect of 'D1'
and 'D2', such excess amount shall be claimed as credit by the registered person in
his return for a month not later than the month of September following the end of
the financial year in which the completion certificate is issued or first occupation
takes place of the project - rule 42(3) of CGST Rules inserted w.e.f. 1-4-2019.

11.3-3 Calculation of commercial portion of ITC of real estate project other than RREP
In case of supply of services covered by paragraph 5(b) of Schedule II of the Act, the input
tax determined under rule 42(1) shall be calculated finally, for commercial portion in each
project, other than residential real estate project (RREP), which underwent transition of
input tax credit consequent to change of rates of tax on the 1st April, 2019 in accordance
with notification No. 11/2017- Central Tax (Rate), dated the 28th June, 2017, published vide
GSR No. 690(E) dated the 28th June, 2017, as amended for the entire period from the
commencement of the project or 1st July, 2017, whichever is later, to the completion or first
occupation of the project, whichever is earlier, before the due date for furnishing of the
return for the month of September following the end of financial year in which the
completion certificate is issued or first occupation takes place of the project, in the following
manner.
(a) The aggregate amount of common credit on commercial portion in the project
(C3aggregate_comm) shall be calculated as under -

C3aggregate_comm = [aggregate of amounts of C3 determined under sub-rule (1) for the

tax periods starting from 1st July, 2017 to 31st March, 2019, x (A C/AT)] + [aggregate
of amounts of C3 determined under sub-rule 42(1) for the tax periods starting from
1st April, 2019 to the date of completion or first occupation of the project, whichever
is earlier]
Where, -
AC = total carpet area of the commercial apartments in the project

AT = total carpet area of all apartments in the project

(b) The amount of final eligible common credit on commercial portion in the project
(C3final_comm) shall be calculated as under
C3final_comm =C3aggregate_comm × (E/F)
Where, -
E = total carpet area of commercial apartments which have not been booked till the
date of issuance of completion certificate or first occupation of the project, whichever
is earlier.
F = AC = total carpet area of the commercial apartments in the project
(c) where, C3aggregate_comm exceeds C3final_comm, such excess shall be reversed by the
registered person in FORM GSTR-3B or through FORM GST DRC-03 in the month not
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later than the month of September following the end of the financial year in which
the completion certificate is issued or first occupation takes place of the project and
the said person shall be liable to pay interest on the said excess amount at the rate
specified in section 50(1) for the period starting from the first day of April of the
succeeding financial year till the date of payment.
(d) where, C3final_comm exceeds C3aggregate_comm, such excess amount shall be claimed as
credit by the registered person in his return for a month not later than the month of
September following the end of the financial year in which the completion certificate
is issued or first occupation takes place of the project - rule 42(4) of CGST Rules
inserted w.e.f. 1-4-2019.

11.3-4 Final calculations of ITC in real estate projects not required in case of RREP
Input tax determined under rule 42(1) shall not be required to be calculated finally on
completion or first occupation of an RREP which underwent transition of input tax credit
consequent to change of rates of tax on 1st April, 2019 in accordance with notification No.
11/2017- Central Tax (Rate), dated the 28th June, 2017, published vide GSR No. 690(E) dated
the 28th June, 2017, as amended - rule 42(5) of CGST Rules inserted w.e.f. 1-4-2019.
[i.e. who opted for 1%/5% scheme] - reiterated in FAQ (Part II) No. 21 issued by CBI&C vide
circular F No. 354/32/2019-TRU dated 14-5-2019.
11.3-5 Assignment of input tax when used for several projects
Where any input or input service are used for more than one project, input tax credit with
respect to such input or input service shall be assigned to each project on a reasonable basis
and credit reversal pertaining to each project shall be carried out as per rule 42(3) - rule
42(6) of CGST Rules inserted w.e.f. 1-4-2019.
11.4 Determination of input tax credit in respect of capital goods used partly for taxable
supply and partly for exempt supply
If capital goods are partly used for taxable goods and partly for exempt goods, the ITC on
capital goods is available on proportionate basis [just like ITC on common input goods and
input service].
The calculations seem quite clumsy, but basic concept is simple.
First, identify capital goods which are to be used exclusively for exempted goods. Do not
take ITC of tax paid by supplier on those capital goods. Identify capital goods which are to
be used exclusively for taxable goods. Take entire ITC of tax paid by supplier on those capital
goods.
Balance credit is of common capital goods. Divide it by 60 months to arrive at monthly credit
in respect of common capital goods. Credit that entire amount to your ITC. Later, every
month (tax period), find ratio between exempted goods and total goods. Apply that ratio to
monthly credit of capital goods and reverse that credit by adding that amount to output tax
liability, with applicable interest.
The meaning of 'with applicable interest' is not very clear. In my view, the interest can apply
only when the amount is not added to output liability by 20th of next month at the time of
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filing of return. Otherwise, really, interest cannot be charged on ITC which has been
legitimately taken.
There is no provision to make final calculations at end of every financial year.
The calculations are to be made separately for SGST, CGST, IGST and UTGST.
If capital goods which were earlier used exclusively for exempted goods are later used for
taxable goods, its credit can be added by reducing the tax paid on capital goods @ 5% per
quarter. On other hand, if capital goods earlier used exclusively for taxable goods are later
used for exempted goods, its credit is to be reversed by reducing the tax paid on capital
goods @ 5% per quarter [quite clumsy calculations indeed].
11.4-1 Mode of calculations of ITC of tax paid on common capital goods
The statutory provisions are as follows.
Subject to the provisions section 16(3) [i.e. not claiming depreciation on tax portion of capital
goods], the input tax credit in respect of capital goods, which attract the provisions of section
17(1) and 17(2) [i.e. partly used for the purposes of business and partly for other purposes,
or partly used for effecting taxable supplies including zero rated supplies and partly for
effecting exempt supplies], shall be attributed to the purposes of business or for effecting
taxable supplies as follows - Rule 43(1) of CGST and SGST Rules, 2017 :
(a) the amount of input tax in respect of capital goods used or intended to be used
exclusively for non-business purposes or used or intended to be used exclusively for
effecting exempt supplies shall be indicated in form GSTR-2 and form GSTR-3B and
shall not be credited to his electronic credit ledger [words in italics inserted w.e.f. 1-
4-2019].
(b) the amount of input tax in respect of capital goods used or intended to be used
exclusively for effecting taxable supplies including zero-rated supplies shall be
indicated in form GSTR-2 and form GSTR-3B and shall be credited to the electronic
credit ledger [words in italics inserted w.e.f. 1-4-2019].
Explanation: For the purpose of clause (b), it is hereby clarified that in case of supply
of services covered by paragraph 5(b) of the Schedule II of the said Act, the amount
of input tax in respect of capital goods used or intended to be used exclusively for
effecting supplies other than exempted supplies but including zero rated supplies,
shall be zero during the construction phase because capital goods will be commonly
used for construction of apartments booked on or before the date of issuance of
completion certificate or first occupation of the project, whichever is earlier, and
those which are not booked by the said date - Explanation to rule 43(1)(b) of CGST
Rules, inserted w.e.f. 1-4-2019.
(c) the amount of input tax in respect of capital goods not covered under clauses (a) and
(b), denoted as 'A', being the amount of tax as reflected on the invoice, shall credit
directly to the electronic credit ledger and the validity of the useful life of such goods
shall extend upto five years from the date of the invoice for such goods:
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Provided that where any capital goods earlier covered under clause (a) is
subsequently covered under this clause, input tax in respect of such capital goods
denoted as 'A' shall be credited to the electronic credit ledger subject to the
condition that the ineligible credit attributable to the period during which such
capital goods were covered by clause (a), denoted as 'Tie', shall be calculated at the
rate of five percentage points for every quarter or part thereof and added to the
output tax liability of the tax period in which such credit is claimed:
Provided further that the amount 'Tie' shall be computed separately for input tax
credit of central tax, State tax, Union territory tax and integrated tax and declared in
form GSTR-3B.
Explanation.- An item of capital goods declared under clause (a) on its receipt shall
not attract the provisions of section 18(4) of CGST Act, if it is subsequently covered
under this clause. [obvious, as reduction is made under this clause].
[Clause 'c' as substituted w.e.f. 1-4-2020]
If the capital goods get covered under this clause, then provision of section 18(4) of
CGST Act about reversal of ITC will not apply - Explanation to Rule 43(1)(c) of CGST
and SGST Rules, 2017 [obvious, as reduction is made under this clause].
[Clause (c) was reading as follows upto 1-4-2020 - the amount of input tax in respect
of capital goods not covered under clauses (a) and (b), denoted as 'A', shall be
credited to the electronic credit ledger and the useful life of such goods shall be taken
as five years:
If any capital goods earlier covered under clause (a) is subsequently covered under
clause (c), the value of 'A' shall be arrived at by reducing the input tax at the rate of
5% for every quarter or part thereof. The amount 'A' shall be credited to the
electronic credit ledger].
(d) the aggregate of the amounts of 'A' credited to the electronic credit ledger under
clause (c) in respect of common capital goods whose useful life remains during the
tax period, to be denoted as 'Tc', shall be the common credit in respect of such
capital goods.
Provided that where any capital goods earlier covered under clause (b) are
subsequently covered under clause (c), the input tax credit claimed in respect of
such capital good(s) shall be added to arrive at the aggregate value 'T c ' [clause 'd'
as inserted w.e.f. 1-4-2020]

[clause '(d)' was reading as follows upto 1-4-2020 - the aggregate of the amounts of
'A' credited to the electronic credit ledger under clause (c), to be denoted as 'Tc', shall
be the common credit in respect of capital goods for a tax period.

If any capital goods earlier covered under clause (b) is subsequently covered under
clause (d) [i.e. initially meant only for taxable supplies but later used for exempt
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supplies also], the value of 'A' arrived at by reducing the input tax at the rate of 5%
for every quarter or part thereof shall be added to the aggregate value 'Tc'].
(e) the amount of input tax credit attributable to a tax period on common capital goods
during their residual life, be denoted as 'Tm' and calculated as Tm= Tc÷60
Explanation.- For the removal of doubt, it is clarified that useful life of any capital
goods shall be considered as five years from the date of invoice and the said formula
shall be applicable during the useful life of the said capital goods. - Explanation
inserted w.e.f. 1-4-2020.
(f) Omitted w.e.f. 1-4-2020.
[Clause (f) was reading as follows upto 1-4-2020 -The amount of input tax credit, at
the beginning of a tax period, on all common capital goods whose residual life
remains during the tax period, be denoted as 'Tr' and shall be the aggregate of 'Tm'
for all such capital goods]
(g) The amount of common credit attributable towards exempted supplies, be denoted
as 'Te', and calculated as Te= (E÷ F) x Tr
Here, 'E' is the aggregate value of exempt supplies, i.e. all supplies other than taxable
and zero rated supplies, during the tax period.
'F' is the total turnover in the State of the registered person during the tax period
[The words in italics inserted w.e.f. 1-4-2019].
In case of supply of services covered by paragraph 5(b) of the Schedule II of the Act
(i.e. real estate projects of residential and commercial apartments), the value of
'E/F' for a tax period shall be calculated for each project separately, taking value of E
and F as under:
E = aggregate carpet area of the apartments, construction of which is exempt from
tax plus aggregate carpet area of the apartments, construction of which is not
exempt from tax, but are identified by the promoter to be sold after issue of
completion certificate or first occupation, whichever is earlier;
F = aggregate carpet area of the apartments in the project;
Explanation 1: In the tax period in which the issuance of completion certificate or first
occupation of the project takes place, value of E shall also include aggregate carpet
area of the apartments, which have not been booked till the date of issuance of
completion certificate or first occupation of the project, whichever is earlier.
Explanation 2: Carpet area of apartments, tax on construction of which is paid or
payable at the rates specified for item (i), (ia), (ib), (ic) or (id), against serial number
3 of the Table in notification No. 11/2017-Central Tax (Rate) published in the Gazette
of India, Extraordinary, Part II, Section 3, Sub-section (i) dated 28th June, 2017 vide
GSR No. 690 (E) dated 28th June, 2017, as amended, shall be taken into account for
calculation of value of 'E' in view of Explanation (iv) in paragraph 4 of the notification
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No. 11/2017-Central Tax (Rate) published in the Gazette of India, Extraordinary, Part
II, Section 3, Sub-section (i) dated the 28th June, 2017 vide GSR No. 690 (E) dated
28th June, 2017, as amended - first proviso to rule 43(1)(g) of CGST Rules inserted
w.e.f. 1-4-2019.
If the registered person does not have any turnover during the said tax period or the
aforesaid information is not available, the value of 'E/F' calculated by taking values
of 'E' and 'F' of the last tax period for which details of such turnover are available,
previous to the month during which the said value of 'E/F' is to calculated - second
proviso to rule 43(1)(g) of CGST Rules [It was first proviso upto 1-4-2019].
For the purpose of clause (g), the aggregate value of exempt supplies and total
turnover shall exclude the amount of any duty or tax levied under entry 84 and entry
92A of List I of the Seventh Schedule to the Constitution [i.e. excise duty and central
sales tax on petroleum products and tobacco products] and entry 51 and 54 of List II
of the Seventh Schedule [i.e. State Vat/excise duty on alcoholic liquor and State Vat
on petroleum products] [The words in italics inserted w.e.f. 1-2-2019] - Explanation
to rule 43(1)(g) of CGST Rules.
(h) the amount Te along with applicable interest shall, during every tax period of the
residual life of the concerned capital goods, be added to the output tax liability of the
person making such claim of credit.
(i) The amount Te shall be computed separately for input tax credit of central tax, State
tax, Union territory tax and integrated tax and declared in form GSTR-3B [clause (i)
inserted w.e.f. 1-4-2019].
Final calculations at year end not required in case of ITC on capital goods, except in
case of real estate projects - There is provision to make final calculations at year end
in case of input goods and input services. However, there is no provision to make
final calculations at end of each financial year in case of ITC on capital goods, except
in case of real estate projects for which rule 43(2) to 43(5) of CGST Rules have been
inserted w.e.f. 1-4-2019.

Separate calculations for IGST, CGST, SGST and UTGST - The amount Te shall be computed
separately for central tax, State tax, Union territory tax and integrated tax - Rule 43(2) of
CGST and SGST Rules, 2017 as existing upto 1-4-2019. Now, this provision has been shifted
to clause (i) of rule 43(1) of CGST Rules.
Meaning of 'capital goods' for purpose of this rule - "Capital goods" shall include "plant and
machinery" as defined in the Explanation to section 17 of CGST Act - Explanation below Rule
45 of CGST and SGST Rules, 2017.
11.4-2 Final calculations of eligible credit in case of capital goods in Real Estate projects
There is no provision to make final calculations at end of each financial year in case of ITC on
capital goods, except in case of real estate projects of residential and commercial
apartments. These provisions are discussed below.
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In case of supply of services covered by paragraph 5(b) of Schedule II of the Act, the amount
of common credit attributable towards exempted supplies (Tefinal) shall be calculated finally
for the entire period from the commencement of the project or 1st July, 2017, whichever is
later, to the completion or first occupation of the project, whichever is earlier, for each
project separately, before the due date for furnishing of the return for the month of
September following the end of financial year in which the completion certificate is issued
or first occupation takes place of the project, as under:
Tefinal= [(E1 + E2 + E3)/F] × Tcfinal,
Where,-E1= aggregate carpet area of the apartments, construction of which is exempt from
tax
E2 = aggregate carpet area of the apartments, supply of which is partly exempt and partly
taxable, consequent to change of rates of tax on 1st April, 2019, which shall be calculated as
under, -
E2 = [Carpet area of such apartments] × [V1/(V1+V2)],-
Where,-V1 is the total value of supply of such apartments which was exempt from tax; and
V2 is the total value of supply of such apartments which was taxable.
E3 = aggregate carpet area of the apartments, construction of which is not exempt from tax,
but have not been booked till the date of issuance of completion certificate or first
occupation of the project, whichever is earlier.
F = aggregate carpet area of the apartments in the project.
Tcfinal = aggregate of Afinal in respect of all capital goods used in the project and Afinal for each
capital goods shall be calculated as under -
Afinal = A × (number of months for which capital goods is used for the project/60) and,-
(a) where value of Tefinal exceeds the aggregate of amounts of Te determined for each
tax period under rule 43(1), such excess shall be reversed by the registered person
in FORM GSTR-3B or through FORM GST DRC-03 in the month not later than the
month of September following the end of the financial year in which the completion
certificate is issued or first occupation takes place of the project and the said person
shall be liable to pay interest on the said excess amount at the rate specified in
section 50(1) for the period starting from the first day of April of the succeeding
financial year till the date of payment; or
(b) where aggregate of amounts of Te determined for each tax period under rule 43(1)
exceeds Tefinal, such excess amount shall be claimed as credit by the registered
person in his return for a month not later than the month of September following
the end of the financial year in which the completion certificate is issued or first
occupation takes place of the project.

Explanation.- For the purpose of calculation of Tcfinal, part of the month shall be treated as
one complete month - rule 43(2) of CGST Rules, inserted w.e.f. 1-4-2019.
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Calculations of credit separately for CGST, SGST, UTGST and IGST - The amount Tefinal and
Tcfinal shall be computed separately for input tax credit of central tax, State tax, Union
territory tax and integrated tax - rule 43(3) of CGST Rules, inserted w.e.f. 1-4-2019.
Assignment of credit if capital goods used for more than one project - Where any capital
goods are used for more than one project, input tax credit with respect to such capital goods
shall be assigned to each project on a reasonable basis and credit reversal pertaining to each
project shall be carried out as per rule 43(2) - rule 43(4) of CGST Rules, inserted w.e.f. 1-4-
2019.
Capital goods having useful life after completion of project - Where any capital goods used
for the project have their useful life remaining on the completion of the project, input tax
credit attributable to the remaining life shall be availed in the project in which the capital
goods is further used - rule 43(5) of CGST Rules, inserted w.e.f. 1-4-2019.
11.5 Reversal of Input Tax Credit means ITC not taken
Some exemption notifications are subject to condition of non-availment of Input Tax Credit.
In such cases, if proportionate ITC is reversed, it means that ITC has not been taken and the
condition of exemption notification gets satisfied.
Explanation 4(iv) of Notification Nos. 13/2017-CT (Rate) and 10/2017-IT (Rate) both dated
28-6-2017, effective from 1-7-2017 reads as follows -
Wherever a rate has been prescribed in this notification subject to the condition that credit
of input tax charged on goods or services used in supplying the service has not been taken,
it shall mean that,- (a) credit of input tax charged on goods or services used exclusively in
supplying such service has not been taken; and(b) credit of input tax charged on goods or
services used partly for supplying such service and partly for effecting other supplies eligible
for input tax credits, is reversed as if supply of such service is an exempt supply and attracts
provisions of section 17(2) of the Central Goods and Services Tax Act, 2017 and the rules
made thereunder.
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Input Service Distributor (ISD)

12.1 Purpose of Input Service Distributor
A supplier of goods and services may have head office/regional office at different place/s.
The services may be received at head office/regional office, but ultimately, these services
will be indirectly used for manufacture or providing output service.
Provision has been made to avail input credit of services received and paid for at head
office/regional office. Such head office/regional office can be registered under GST as 'Input
Service Distributor' and it can issue invoice on its branches/factories/depots.
If a taxable person intends to use the facility, he has to register under GST as Input Service
Distributor. A separate registration is required even if he is otherwise registered under GST.
"Input Service Distributor" means an office of the supplier of goods and/or services which
receives tax invoices issued under section 31 of CGST Act towards receipt of input services
and issues a prescribed document for the purposes of distributing the credit of CGST (SGST
in State Acts) and/or IGST paid on the said services to a supplier of taxable goods and/or
services or both having same PAN as that of the said office - section 2(61) of CGST Act.
12.1-1 Provisions of ISD mandatory if taxable person has branches/divisions in different
States
GST is destination based tax. Each State must get its due share of GST. Hence, provisions of
ISD and distribution of credit are mandatory if taxable person has branches/divisions in
different States having distinct GSTIN- FAQ No. 17 issued by CBI&C on banking sector on 27-
12-2018 - same view in Cummins India Ltd. In re (2019) 73 GST 517 = 103 taxmann.com 126
(AAR-Maharashtra). Where it was held that in such cases, valuation should be as per rule 30
of CGST Rules i.e. 110% of cost [really, in my view, it can be on basis of rule 31 of CGST Rules
also, for which principles as applicable to distribution by Input Service Distributor can apply].
Tax Invoice if taxable person not registered as ISD - In my view, if a taxable person is not
registered under ISD, it can distribute ITC to divisions or branches on basis of tax invoice, but
principle as applicable to ISD is required to be followed. The reason is that ISD registration
is not mandatory. Tax Invoice can be issued on other branches/divisions having distinct
GSTIN.
12.1-2 Multiple ISD registrations permissible
A person can have multiple ISD registrations at different offices - FAQ on GST Chapter 3 Q
No. 32 issued by CBI&C on 15-12-2018.
12.2 Manner of distribution of credit by Input Service Distributor
The Input Service Distributor may distribute the credit as per following conditions - section
20(2) of CGST Act :
(a) the credit can be distributed against a prescribed document issued to each of the
recipients of the credit so distributed, and such invoice or other document shall
contain such details as may be prescribed.
(b) the amount of the credit distributed shall not exceed the amount of credit available
for distribution.
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(c) the credit of tax paid on input services attributable to a recipient shall be distributed
only to that recipient.
(d) the credit of tax paid on input services attributable to more than one recipient of
credit shall be distributed amongst such recipients to whom the input service is
attributable and such distribution shall be pro rata on the basis of the turnover in a
State or turnover in a Union territory of such recipient, during the relevant period,
to the aggregate of the turnover of all such recipients to whom such input service is
attributable and which are operational in the current year, during the said relevant
period.
(e) the credit of tax paid on input services attributable to all recipients of credit shall be
distributed amongst such recipients and such distribution shall be pro rata on the
basis of the turnover in a State or turnover in a Union territory of such recipient,
during the relevant period, to the aggregate of the turnover of all recipients and
which are operational in the current year, during the said relevant period.

Transitory provision for distribution of credit by Input service distributor of service invoices
received after GST - Input service distributor can distribute credit in respect of services
received prior to GST, even if invoices of such services were received after introduction of
GST - section 140(7) of CGST Act.
12.2-1 Meaning of 'relevant period'
The relevant period shall be as follows - [Explanation (a) to section 20 of CGST Act] :
(a) if the recipients of the credit have turnover in their States or Union territories in the
financial year preceding the year during which credit is to be distributed, the said
financial year; or
(b) if some or all recipients of the credit do not have any turnover in their States or Union
territories in the financial year preceding the year during which the credit is to be
distributed, the last quarter for which details of such turnover of all the recipients
are available, previous to the month during which credit is to be distributed.

12.2-2 Meaning of 'recipient of credit'

The expression "recipient of credit" means the supplier of goods or services or both having
the same Permanent Account Number as that of the Input Service Distributor - Explanation
(b) to section 20 of CGST Act.
12.2-3 Meaning of 'turnover'
"Turnover in State" or "Turnover in Union territory" 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) and exempt supplies made within a State or Union territory by a
taxable person, exports of goods or services or both and inter-State supplies of goods or
services or both made from the State or Union territory by the said taxable person but
excludes central tax, State tax, Union territory tax, integrated tax and cess - section 2(112)
of CGST Act.
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Thus, 'turnover' exempted supplies, inter-state supplies and exports. However, it excludes
SGST, CGST, IGST and GST Compensation Cess.
Turnover not to include excise duty, CST and State Vat - The term 'turnover', in relation to
any registered person engaged in the supply of taxable goods as well as goods not taxable
under this Act, means the value of turnover, reduced by the amount of any duty or tax levied
under entry 84 or 92A of List I of the Seventh Schedule to the Constitution and entries 51
and 54 of List II of the said Schedule - Explanation (c) to section 20 of CGST Act [words in
italics inserted vide CGST (Amendment) Act, 2018] inserted w.e.f. 1-2-2019.
Thus, 'turnover' should be excluding excise duty, Central Sales Tax and State Vat.
12.2-4 Manner of recovery of credit distributed in excess
Where the credit distributed by the Input Service Distributor is in excess of the credit
available for distribution by him, the excess credit so distributed shall be recovered from
such distributor along with interest, and the provisions of sections 66 and 67 shall apply
mutatis mutandis for effecting such recovery - section 21 of CGST Act.
The recipient unit should deposit excess credit received from Input Service Distributor along
with interest, if any, by using form GST DRC-03. If the recipient does not pay, proceedings
should be initiated by raising demand under form GST DRC-07. Further Input Service
Distributor will be liable to general penalty under section 122(1)(x) of CGST Act - CBI&C
circular No. 71/45/2018-GST dated 26-10-2018.
12.3 Tax Invoice by Input Service Distributor
An ISD invoice or an ISD credit note issued by an Input Service Distributor shall contain the
following details:- (a) name, address and GSTIN of the Input Service Distributor (b) a
consecutive serial number (not exceeding 16 characters), in one or multiple series,
containing alphabets or numerals or special characters hyphen or dash and slash symbolised
as, "-", "/", respectively, and any combination thereof, unique for a financial year (c) date of
its issue (d) name, address and GSTIN of the recipient to whom the credit is distributed (e)
amount of the credit distributed; and (f) signature or digital signature of the Input Service
Distributor or his authorized representative - Rule 54(1) of CGST and SGST Rules, 2017.
Invoice of ISD of banking, FI or NBFC - Where the Input Service Distributor is an office of a
banking company or a financial institution or NBFC, a tax invoice shall include any document
in lieu thereof, by whatever name called, whether or not serially numbered but containing
the information as prescribed above - proviso to Rule 54(1) of CGST and SGST Rules, 2017.
12.3-1 Tax invoice by taxable person in name of input service distributor with same PAN
and same State Code
A taxable person may receive some common input services. In that case, he can transfer that
credit to Input Service Distributor (of same taxable person) having same PAN and same State
Code. The ISD can further distribute credit to their various units.
This provision applies only when taxable person and his Input Service Distributor are in same
State.
Contents of Invoice are stated in rule 54(1A)(a) of CGST Rules, inserted w.e.f. 23-1-2018 [see
under tax invoice].
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Same value and same credit as contained in original invoice of suppliers should be
transferred to ISD - The taxable value in the invoice issued under rule 54(1A)(a) shall be the
same as the value of the common services - rule 54(1A)(b) of CGST Rules inserted w.e.f. 23-
1-2018.
12.4 Monthly return by ISD
ISD (Input Service Distributor) has to file monthly return by thirteenth of following month -
section 39(4) of CGST Act.
Monthly return is not required, if there is no transaction during a month - section 39(8) of
CGST Act.
His inward supplies will be self populated in his form GSTR-6A. He can accept, reject, delete
or add to these details and then file return in form GSTR-6, before 20th of following month
- Rule 65 of CGST and SGST Rules, 2017.
Commissioner can extend date of filing return by issuing notification - section 39(6) of CGST
Act.
Extension of time limit to file GSTR-6 return during 20-3-2020 to 30-8-2020 due to COVID-
19 (Corona Virus) - Where, any time limit for filing return by ISD falls during the period from
the 20-3-2020 to 30-8-2020, the due date automatically gets extended to 31-8-2020 -
Notification No. 35/2020-CT dated 3-4-2020.
12.5 Procedure for distribution of input tax credit by Input Service Distributor
An Input Service Distributor shall distribute input tax credit in the manner and subject to the
conditions specified below - Rule 39(1) of CGST and SGST Rules, 2017 :
(a) the input tax credit available for distribution in a month shall be distributed in the
same month and the details thereof shall be furnished in form GSTR-6 in accordance
with the provisions of Rules relating to return [Chapter VII - rule 65 of CGST and SGST
Rules, 2017]
(b) the Input Service Distributor shall, in accordance with the provisions of clause (d),
separately distribute the amount in-eligible as input tax credit under the provisions
of section 17(5) or otherwise and the amount eligible as input tax credit.
(c) the input tax credit on account of central tax, State tax, Union territory tax and
integrated tax shall be distributed separately in accordance with the provisions of
clause (d).
(d) the input tax credit that is required to be distributed in accordance with the
provisions of section 20(2)(d) and 20(2)(e) to one of the recipients 'R1', whether
registered or not, from amongst the total of all the recipients to whom input tax
credit is attributable, including the recipient(s) who are engaged in making exempt
supply, or are otherwise not registered for any reason, shall be the amount, "C1", to
be calculated by applying the following formula:-
C1 = (t1÷T) × C
where,
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"C" is the amount of credit to be distributed,

"t1 " is the turnover, as referred to in section 20, of person R1 during the relevant
period, and "T" is the aggregate of the turnover of all recipients during the relevant
period.
(e) the input tax credit on account of IGST shall be distributed as input tax credit of IGST
to every recipient.
(f) the input tax credit on account of central tax and State tax shall (i) in respect of a
recipient located in the same State in which the Input Service Distributor is located,
be distributed as input tax credit of CGST and SGST respectively (ii) in respect of a
recipient located in a State other than that of the Input Service Distributor, be
distributed as IGST and the amount to be so distributed shall be equal to the
aggregate of the amount of input tax credit of central tax and State tax that qualifies
for distribution to such recipient in accordance with clause (d).
(g) The Input Service Distributor shall issue an ISD invoice, as prescribed in rule 54(1) of
CGST and SGST Rules, 2017, clearly indicating in such invoice that it is issued only for
distribution of input tax credit.
(h) The Input Service Distributor shall issue an ISD credit note, as prescribed in rule 54(1)
of CGST Rules, for reduction of credit in case the input tax credit already distributed
gets reduced for any reason.
(i) Any additional amount of input tax credit on account of issuance of a debit note to
an Input Service Distributor by the supplier shall be distributed in the manner and
subject to the conditions specified in clauses (a) to (f) and the amount attributable
to any recipient shall be calculated in the manner provided in clause (d) above and
such credit shall be distributed in the month in which the debit note has been
included in the return in form GSTR-6.
(j) Any input tax credit required to be reduced on account of issuance of a credit note
to the Input Service Distributor by the supplier shall be apportioned to each recipient
in the same ratio in which input tax credit contained in the original invoice was
distributed in terms of clause (d) above. The amount so apportioned shall be,- (i)
reduced from the amount to be distributed in the month in which the credit note is
included in the return in form GSTR-6, and (ii) added to the output tax liability of the
recipient, where the amount so apportioned is in the negative, as the amount of
credit to be distributed is less than the amount to be adjusted.

Adjustment if less or more credit was distributed - If the amount of input tax credit
distributed by an Input Service Distributor is reduced later on for any other reason for any
of the recipients, including that it was distributed to a wrong recipient by the Input Service
Distributor, the process prescribed in rule 39(1)(j) shall, mutatis mutandis apply for
reduction of credit - Rule 39(2) of CGST and SGST Rules, 2017.
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Distribution of credit on basis of credit note - Subject to rule 39(2), the Input Service
Distributor shall, on the basis of the ISD credit note specified in rule 39(1)(h), issue an ISD
Invoice to the recipient entitled to such credit and include the ISD credit note and the ISD
Invoice in the return in form GSTR-6 for the month in which such credit note and invoice was
issued - Rule 39(3) of CGST and SGST Rules, 2017.
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Person liable to pay tax

13.1 Person liable to pay tax
Every taxable person is liable to pay CGST and SGST, except where tax is payable under
reverse charge - section 9(1) of CGST Act.
There are exemptions to small suppliers. Some persons are required to pay tax even if they
are not suppliers.
Issues are summarised above. These are discussed at appropriate places.
13.1-1 Taxable person
Taxable person means a person who is registered or liable to be registered under section 22
or 24 of CGST Act - section 2(107) of CGST Act.
13.2 Meaning of 'Person'
Section 2(84) of CGST Act defines 'person' as follows.
"Person" includes—
(a) an individual
(b) a Hindu undivided family
(c) a company
(d) a firm
(e) a Limited Liability Partnership
(f) an association of persons or a body of individuals, whether incorporated or not, in
India or outside India
(g) any corporation established by or under any Central Act, State Act or Provincial Act
or a Government company as defined in section 2(45) of the Companies Act, 2013
(h) any body corporate incorporated by or under the laws of a country outside India
(i) a co-operative society registered under any law relating to cooperative societies
(j) a local authority
(k) Central Government or State government
(l) society as defined under the Societies Registration Act, 1860 (21 of 1860)
(m) trust and
(n) every artificial juridical person, not falling within any of above.

The definition is 'inclusive' and can cover any other 'person' also.
Person as per General Clauses Act - Section 3(42) of General Clauses Act states that 'person'
shall include any company or association or body of individuals, whether incorporated or
not.
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PAN number indicates type of person - The fourth digit of Income Tax PAN number indicates
type of 'person', as follows - C - Company, P - Individual, H - HUF, F - Firm, A - AOP, T - Trust,
B - BOI, L - Local Authority, G - Government, J - Artificial Juridical Person.
Of course, this classification is not determinative e.g. alphabet A is used for societies also
but still society is not AOP.
13.2-1 Unincorporated club or association is 'person'
An association of persons or a body of individuals, whether incorporated or not, in India or
outside India is a 'person' - section 2(84)(f) of CGST Act.
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 have been specifically covered in
definition of 'business' in section 2(17)(e) of CGST Act.
This is to avoid argument of 'mutuality' and reduce litigation.
However, validity of GST on clubs is highly doubtful. In State of West Bengal v. Calcutta Club
Ltd. [2019] 110 taxmann.com 47 (SC 3 member bench), it has been held that Clubs cannot
be treated as distinct from their members and there is no sale transaction between a club
and its members. Hence, there can be no sales tax or service tax on supplies by club to its
members.
Hence, validity of following provisions is doubtful in respect of clubs.
Supply of goods by any unincorporated association or body of persons to a member thereof
for cash, deferred payment or other valuable consideration will be 'supply of goods' - para 7
of Schedule II of CGST Act.
Interestingly, there is no parallel provision in respect of services provided by club or
association to its members. However, it should come under 'supply' which is a wide
definition. This activity has been specifically included in definition of 'business' and hence
should be subject to GST.
Thus, goods or services supplied by an unincorporated club, association or body of persons
to its members will be subject to GST.
A club letting out rooms and cottages to its members and guests on rent is liable to pay
luxury tax - Trivandrum Club v. Sales Tax Officer (2012) 54 VST 442 (Ker HC DB).
However, there is mutuality between members and club. There are conflicting judgments
on this issue. Hence, the issue has been referred to large bench in State of West Bengal v.
Calcutta Club Ltd. (2016) 56 GST 216 = 70 taxmann.com 212 = 96 VST 20 (SC).
In ITO v. Venkatesh Premises Cooperative Society Ltd. (2018) 254 Taxman 313 = 91
taxmann.com 137 (SC), the cooperative society collected non-occupancy charges from
members to be utilised for mutual benefit towards maintenance of premises. It was held
that these are governed by doctrine of mutuality and thus, were not exigible to income tax.
In Cosmopolitan Club v. State of Tamil Nadu (2017) 5 SCC 635 [decided on 25-9-2008], the
matter was remitted to Tribunal to adjudicate upon exact relation between the parties in
the matter of supply by the club of food and drinks to its members.
In Fateh Maidan Club v. CTO (2008) 12 VST 598 = (2017) 5 SCC 638 (SC 3 member bench
judgment dated 10-9-1998), club was supplying food and drink to its members. The
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argument of appellant club was that club is only agent of its members. Hence, there was no
sale of food and drinks when these were supplied to members. In this case, Supreme Court
remanded the matter to adjudicating authority to enquire into relationship between club
and its members and determine the issue.
In Young Men's Indian Association v. JCTO (1970) 1 SCC 462 = 26 STC 241 = AIR 1970 SC 1212
(SC 6 member bench), it was held that if the club, even though acting as a distinct legal entity,
is only acting as agent for its members in matter of supply of various preparations of food to
them, no sale would be involved as the element of transfer would be completely absent -
quoted with approval in Fateh Maidan Club v. CTO (2008) 12 VST 598 = (2017) 5 SCC 638 (SC
3 member bench judgment dated 10-9-1998).
In Calcutta Club Ltd. v. CTO (2007) 10 VST 385 (WBTT), it was held that relationship between
members club and permanent members is governed by doctrine of mutuality. Supply is not
'sale' even within extended definition of 'sale' after amendment to Constitution. Supplier
and the recipients (permanent members) are the same persons. There is no exchange of
consideration.
13.3 Partnership firm
It may be surprising but true that a Partnership Firm is not a legal entity. It has limited
identity for purpose of tax laws.
A partnership firm is not a 'body corporate'. It is treated as having separate entity only for
limited purposes e.g. for taxation and filing of suits.
"Partnership" is the relation between persons who have agreed to share the profits of
business carried on by all or any to them acting for all. - - Persons who have entered into
partnership with one another are called individually "partners" and collectively "a firm", and
the name under which their business is carried on is called the "firm name" [section 4 of
Partnership Act].
13.4 Proprietary concern or firm
An individual may carry on business under some name. This is a 'proprietary concern' or
'proprietary firm'.
In case of sole proprietary concern, there is unity of interest between proprietary concern
and the proprietor. In fact, proprietor and the concern is same.
In Ashok Transport Agency v. Awadhesh Kumar 1998 AIR SCW 4042 = 1998(5) SCC 567, it
was observed - 'A partnership firm differs from a proprietary concern owned by an
individual. A partnership is governed by the provisions of Indian Partnership Act. Though
partnership firm is not a juristic person, it can sue and be sued in name of firm. A proprietary
concern is only business name in which the proprietor of the business carries on the
business. A suit by or against a proprietary concern is by or against the proprietor of
business' - quoted with approval in Raghu Laksminarayan v. Fine Tubes (2007) 215 ELT 19
(SC).
Proprietor is a person, but he does business for trading convenience in the name of
proprietary concern, which is not a legal or juristic entity. Thus, proprietor and proprietary
concern are one and the same person. - SK Real Estates v. Ahmed Meeran (2002) 111 Comp
 215

Cas 400 (Mad) - Same view in Lawn Hosiery Mills v. Durga Fashions (2002) 111 Comp Cas
568 (Mad HC) * Jai Timber Company v. CCE (2009) 234 ELT 457 (CESTAT).
13.5 Hindu Undivided Family (HUF)
Definition of 'person' includes HUF.
HUF is not 'body corporate'.
HUF is a unit consisting of common ancestor and his male lineal descendent of any
generation and also wife or wives or unmarried daughters of the said common ancestor.
However, whenever marriage takes place amongst Hindus, Jains or Sikhs, a family is
automatically constituted as comprising of husband and the wife. Such a family remains as
HUF until divided.
Both son and daughter are 'Coparceners' of HUF. Daughter can continue as member and
coparcener of HUF even after marriage.
After 9-9-2005 (date of amendment of Hindu Succession Act), daughter has equal right as
son as coparcener of HUF - Vineeta Sharma v. Rakesh Sharma (2020) 9 SCC 1 = 118
taxmann.com 322 (SC 3 member bench).
There is a legal presumption that every Hindu family is joint in food, worship and estate. In
absence of any proof of division, the presumption continues to operate in the family -
Adiveppa and Others v. Bhimappa (2017) 9 SCC 586 = 250 Taxman 476 = 85 taxmann.com
170 (SC).
HUF comes into existence automatically on the marriage of the Hindu male. HUF is a creature
of law. It cannot be created by acts of any party except that by adoption or marriage, a
stranger may become part thereof. Thus, there is no question of 'forming' an HUF.
Possession of property or a nucleus of property is not necessary for formation of HUF. - Smt.
Sathyaprema Gowda v. CED (1997) 92 Taxman 617 (SC).
HUF is considered to be a separate entity under Income-tax Act. - K V Kuppa Raju v. GOI
(2002) 123 Taxman 926 (Kar HC DB).
Since HUF is a separate legal entity for purpose of income tax, property of individual member
of HUF cannot be attached for recovery of dues of HUF - Kapurchand Shrimal v. TRO AIR
1969 SC 682- followed in State of Gujarat v. Jwelly Tea Co (2016) 54 GST 148 = 66
taxmann.com 42 (Guj HC DB).
However, HUF is not a 'body corporate'.
Karta and coparceners - In HUF, the senior most person is called 'Karta' and other male
members are 'coparceners'. A karta can draw salary from HUF for services rendered by him
in running the business of HUF.
13.6 Association of Persons or Body of Individuals
Definition of 'Person' includes 'Association of Persons' (AOP) or 'Body of Individuals',
whether incorporated or not, in India or outside India.
It seems the main distinction between 'body of individuals' and 'Association of Persons' is
that the term 'person' is wide and would include company, LLP or body corporate also, while
'body of individuals' would cover only individual persons. Otherwise, principally, there seems
no difference between the two.
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As per Oxford Dictionary, 'associate' means to join in common purpose of to join in an action.
Thus, some people coming together is not 'AOP'. It should be for common purpose (of
providing a taxable service jointly).
In B. N. Elias In re (1935) 3 ITR 408 (Cal) it was held that the word "associate" means,
according to the Oxford Dictionary, "to join in common purpose, or to join in an action."
Therefore, an AOP must be one in which two or more persons join in a common purpose or
common action, and as the words occur in a section which imposes a tax on income, the
association must be one the object of which is to produce income, profits or gains. This was
the view expressed in CIT v. Lakshmidas Devidas (1937) 5 ITR 584 and also in Dwarakanath
Harischandra Pitale In re (1937) 5 ITR 716 (Bom). In re, B. N. Elias (supra), it was held : "It
may well be that the intention of the legislature was to hit combinations of individuals who
were engaged together in some joint enterprise but did not in law constitute partnerships..
- - When we find that there is a combination of persons formed for the promotion of a joint
enterprise, then no difficulty arises whatever in the way of saying that these persons did
constitute an association". All these three decisions were quoted with approval in CIT v.
Indira Balkrisha (1960) 39 ITR 546 (SC) - also in N V Shanmugham & Co. v. CIT (1971) 81 ITR
310 (SC 3 member bench).
In CIT v. Indira Balkrisha (1960) 39 ITR 546 (SC), it was held that the definition of AOP hits
combination of individuals who were engaged together in some joint enterprise but did not
constitute partnership in law - same view in Meera & Co. v. CIT (1997) 4 SCC 677 = 91 Taxman
219 = 224 ITR 635 (SC). * Bangalore Club v. CWT (2020) 9 SCC 599 [SC 3 member bench].
In Mohamed Noorullah v. CIT (1961) 42 ITR 115 (SC), business of deceased carried on by
receivers. There was unity of control of business and its continuity. Business was carried on
by consent of all parties as one unit. It was held that the Co-heirs did form an AOP. Income
of business of a deceased carried on as a single business by receivers with the consent of all
the parties with unitary control was assessable as income of an AOP.
An AOP must be one in which two or more persons join in a common purpose or common
action, and as the words occur in a section which imposes a tax on income, the association
must be one the object of which is to produce income, profits or gains - CIT v. Indira Balkrisha
(1960) 39 ITR 546 (SC). In this case, three co-widows had inherited property of deceased
husband. They succeeded estate of husband as co-heirs, and had rights of survivorship and
equal beneficial enjoyment. They are entitled as between themselves to an equal share of
the income. It was held that in absence of evidence that the persons (three widows in this
case) have combined in a joint enterprise to produce income, they cannot be considered as
AOP.
An element of joint venture for profit is necessary to constitute an AOP - CAIT v. Raja Ratan
Gopal (1966) 59 ITR 728 (SC).
In CIT v. Govindbhai Mamaiya (2015) 229 Taxman 138 = 52 taxmann.com 270 (SC), it has
been held that if income from land was obtained through inheritance, these persons have
to be assessed as 'individuals'. It is not AOP as it was not formed by volition of parties to
generate income.
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Association of persons means an association in which two or more persons join in a common
purpose or common action, and the association must be one, the object of which is to
produce an income, profit or gains. However, ultimate division of profits is not relevant
factor. - N V Shanmugham & Co. v. CIT (1971) 81 ITR 310 (SC 3 member bench). In this case,
the business of erstwhile partnership was carried on by receivers on behalf of erstwhile
partners with their consent under a unified control and management. The receivers did not
(and indeed could not) represent the individual interests of various owners of business. The
control and the management of the business was in the hands of the receivers. That control
and management was a unified one. It was held that this is business of AOP.
Two persons joining together, purchasing immovable properties by contributing capital
equally, such properties jointly held and managed by or on behalf of them resulting in profits
and gains which were divided by them equally, they constituted "association of individuals",
notwithstanding that one of them was a minor - CIT v. Laxmidas Devidas (1937) 5 ITR 584
(Bom HC DB).
"AOP", means the members of the body must have joined together for the purpose of
producing income - CIT v. Harivadan Tribhovandas (1977) 106 ITR 494 (Guj HC DB).
In CIT v. Buldana District Main Cloth Importers Group (1961) 42 ITR 172 (SC), the business of
import and distribution of cloth was carried on a joint basis. The purchases were joint, so
were the sales. The profits were ascertained on a joint basis and then distributed according
to the capital contributed by each member of the group. It was held that this is AOP.
In Geoconsult ZT GMBH In re (2008) 172 Taxman 396 = 304 ITR 283 (AAR), it has been held
that an unincorporated Joint Venture is 'Association of Persons' for purpose of income tax,
if it satisfies following essentials of AOP- (i) two or more persons (ii) Voluntary combinations
and (iii) A common purpose or common action with object to produce profits or gains -
similar view in ABC In re (2012) 207 Taxman 315 = 20 taxmann.com 152 (AAR).
If there is common purpose or common action, it is case of two adventures coming together
for promotion of a joint enterprise, it is AOP - B N Elias In re (1935) 3 ITR 408 (Cal HC) - quoted
with approval in Linde AG, Linde Engineering Division In re (2012) 19 taxmann.com 238 = 207
Taxman 299 (AAR).
In Linde AG, Linde Engineering Division In re (2012) 19 taxmann.com 238 = 207 Taxman 299
(AAR), the appellant had formed a consortium in the nature of Unincorporated Joint Venture
(UJV). It was found that the parties were liable jointly and severally. Splitting up of contract
was not possible. Transaction should be 'looked at' and not 'looked through'. Internal
division of responsibility by consortium and its recognition by customer cannot dislodge the
legal position of formation of AOP. It was held that the consortium is AOP.
However, this decision has been reversed in Linde AG v. Dy DIT (2014) 44 taxmann.com 224
= 224 Taxman 43 = 365 ITR 1 (Del HC DB). It was held that mere fact that they had accepted
contractual obligation towards third party would not in itself lead to conclusion that the
members have formed as AOP. [The example given was that of director giving personal
guarantee for loan given to company. This cannot be AOP]. It was held that in AOP, there
must be common action and some common management. Mere cooperation is not
sufficient to form AOP.
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In Van Ord ACZ BV In re - (2001) 115 Taxman 317 (AAR), it was held that in order to constitute
an AOP, there has to be common purpose or action. The object must be to produce income
jointly. Mere receiving income jointly is not sufficient, if each party has agreed to bear its
own loss or retain its profit separately. The intention should be to carry on any business in
common and not to execute part of a job by each party independently. There should be
some element of control or connection between work done by one party with work done by
another party.
CBDT vide circular No. 07/2016 dated July 2016 has clarified that to determine whether the
consortium is AOP has broadly accepted the aforesaid principles.
Co-owners are not AOP or BOI, if they have not voluntarily come together for business- Co-
owners are not AOP or BOI, if they have not come together for purpose of business. Lease
rent from property purchased jointly with specific shares is separately assessable in the
hands of the individual co-owners and not in the hands of an association of persons - CIT v.
Shivsagar Estate (2002) 124 Taxman 606 = 177 CTR 107 =257 ITR 59 (SC).
In Nizam-ud-Din Amir-und-din of Lahore In re (1943) 11 ITR 443 (Lahore HC DB), Co-heirs of
deceased had Inherited specific shares of property under Mohammedan Law. Income was
derived by way of rent. Munshi (clerk) was employed to manage the property and collect
rent. Net income was distributed in accordance with respective shares. It was held that there
is no question of assessees forming a business concern. It is not a joint venture. Assessees
did not form an association of individuals/They should be separately assessed.
In CIT, Burma v. M. A. Baporia and Others (1939) 7 ITR 225, it was held that the expression
"association of individuals" as used in that section must be construed according to the rule
of ejusdem generis with all the other groups of persons mentioned therein, namely HUF,
company and firm. By merely inheriting shares in a family property, the co-shares cannot
become members of an association of individuals - quoted with approval in Nizam-ud-Din
Amir-und-din of Lahore In re (1943) 11 ITR 443 (Lahore HC DB).
In G Murugesan and Bros v. CIT (1973) 4 SCC 211 = 88 ITR 432 (SC), it was held that in order
to form AOP, the members must join together for the purpose of producing an income. An
AOP can be formed only when two or more individuals voluntarily combine together for
certain purpose. Hence, volition on the parts of members of association is an essential
ingredient.
In CIT v. Indira Balkrisha (1960) 39 ITR 546 (SC), three co-widows had inherited property of
deceased husband. They succeeded estate of husband as co-heirs, and had rights of
survivorship and equal beneficial enjoyment. They are entitled as between themselves to an
equal share of the income. It was held that in absence of evidence that the persons (three
widows in this case) have combined in a joint enterprise to produce income, they cannot be
considered as AOP.
Trustees and beneficiaries merely receiving an income is not AOP, as they have not come
together for earning of income - CIT v. SAE Head Office Monthly Paid Employees Welfare
Trust (2004) 141 Taxman 364 (Del HC).
In CIT v. S R Sugar Mills (1985) 22 Taxman 277 = 44 CTR 129 : (1985) 156 ITR 273 (ALL HC DB),
the position was that dispute arose between co-owners of mills. The dispute resulted in
 219

induction of an official receiver to carry on the business. There was finding of fact by Tribunal
that there was no material or evidence on record prove co-owners of mills joined together
in a common purpose or common action. It was held that assessee mills through receiver
could not be taxed in the status of AOP/BOI.
13.6-1 When a UJV can be AOP for purpose of GST
Unincorporated form of joint venture (UJV) or revenue sharing type arrangements can be
formed for various purposes - e.g. builder and landowner, hospital and company providing
administrative services, film distributor and cinema exhibitor etc.
Such UJV can be termed as "AOP' (Association of Persons) if the members of such AOP
provide service jointly, the contract cannot be split and responsibility of all members is joint
and several.
Following are broad tests to determine whether an EPC contract is AOP—
Joining of two or more parties for a common purpose
Jointness in efforts and endeavour put in by two or more parties
Common management and common action

Joint liability of JV partners for execution of the project

Sharing of profits and losses jointly by the parties

Hence, an UJV will not be AOP if following precautions are taken.

Object should be mutual cooperation and not conducting business together - The object of
UJV or consortium should be 'mutual cooperation for execution of a (divisible) contract' and
not conducting business together.
Scope of each party's work - Scope of each party's work should be clearly specified in
consortium or Joint Venture Agreement. Contract should be divisible contract.
Remuneration of each partner to joint venture - Mode of remuneration of each partner in
joint venture should be specified in the agreement. The remuneration can be on cost plus
basis or profit basis or a combination of two. Sharing of income with some minimum
remuneration (e.g. the partner will get 1% of income with minimum Rs. 1,00,000 per month)
can be provided.
No joint control of operations - Each joint venture partner will do his part of the work.
However, a coordinating committee consisting of representatives of all joint venture
partners may be formed.
Receipt of income directly by each party or through escrow account wherever possible -
Best arrangement would be if each partner of UJV gets his income directly from service
receiver. If this is not possible, distribution of income can be through escrow account. Escrow
account is advisable since a separate legal entity is not being formed. Alternatively, one of
the parties should receive payments from service receiver and then distribute it. This should
be specified in the consortium agreement.
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Liability of each partner to JV - Since each partner is doing his part of the work, the other
partner will not be responsible for acts of other joint venture partner. This should be clarified
in the Agreement. Each party should give performance guarantee for his part of work only.
Conclusion - In my view, an Unincorporated Joint Venture (UJV) or revenue sharing
arrangement cannot be held as 'AOP' (Association of Persons) if aforesaid precautions are
taken.
13.6-2 Income tax aspects of AOP
Various companies joining hands in case of big EPC projects is common. If such EPC project
is considered as AOP, such AOP will be regarded as resident in India if the control and
management of its affairs are partly situated in India, as per section 6(2) of Income Tax Act.
Hence, tax treaty benefits may not be available to income of AOP.
Set off of losses against income of members will not be available to members.
Certain payments like interest, salary, commission by AOP to its members are not allowable
as per section 40(ba) of Income-tax Act. Foreign company may not get tax benefits in their
home country.
13.6-3 Body of Individuals (BOI)
Main distinction between BOI and AOP is that AOP can be of artificial persons (like company,
society, firm), while BOI should be of natural persons (individuals) only.
In CGT v. Valsala Amma (1971) 82 ITR 828 (SC), mother bequeathed a property to her two
daughters. They gifted the property to their brother. Each had a distinct share in the
undivided property. It was held that the two daughters did not constitute AOP or BOI -
quoted in Smt. Pannabai v. CIT (1985) 23 Taxman 517 = 153 ITR 608 (AP HC FB - 3 member
bench).
In CIT v. Harivadan Tribhovandas (1977) 106 ITR 494 (Guj HC DB), BOI means a
conglomeration of individuals who happened to have come together but who carry on some
activity with a view to earn income or profit or gains - quoted with approval in CIT v. V S
Desale (1982) 10 Taxman 115 = 137 ITR 117 (Bom HC DB).
In Deccan Wire General Stores v. CIT (1977) 106 ITR 111 (AP HC), it was observed, 'We are of
the view that the expression 'BOI' should receive a wide interpretation, perhaps not wide
enough to include a combination of individuals who merely receive income jointly without
anything further as in the case of co-heirs inheriting shares or securities but certainly wide
enough to include a combination of individuals who have a unity of interest but who are not
actuated by a common design, and, one or more of whose members produce or help to
produce income for the benefit of all - quoted with approval in CIT v. Harivadan
Tribhovandas (1977) 106 ITR 494 (Guj HC DB).
In CIT v. Deghamwala (1980) 3 Taxman 470 = 121 ITR 684 (Mad HC DB), it was observed,
'The meaning of the word "body" would require an association for some common purpose
or for a common cause or there must be unity under some common tie or occupation. A
mere collection of individuals without a common tie or a common aim cannot be taken to
be a BOI. The two entities (BOI and AOP) cannot be identical in conception, but it is not
possible to state precisely what combination would constitute an AOP and what a BOI. There
may be some overlapping and the incorporation of this category into the definition can be
 221

attributed to an anxiety not to leave out any category from assessment. The rule of
construction of noscitur a sociis would have to be applied in respect of the two categories,
viz., AOP and BOI. Further, the words "whether incorporated or not" would show that the
category is such as can be incorporated or is susceptible of incorporation, if the members so
chose. The BOI whether incorporated or not must be capable of holding properties as an
entity and of distributing them at the time when it dissolves. Thus, a common purpose or a
common tie, actual or potential capacity to hold properties or disposable income would be
the minimum requirement of such a BOI. The purpose or the aim should, in the context of
the IT Act, be to produce income or hold income-producing assets. In this view, though a BOI
is not identical with an AOP, they have some similarities. An AOP may consist of non-
individuals too. But a BOI has to consist only of individuals or human beings'.- - In this case,
it was held that in the absence of material to show that the two co-owners acted in concert
in selling the property with a view to earn capital gains, mere execution of a joint sale deed
would not lead to constitute a BOI
Thus, co-heirs of inherited property can not be held as BOI. However, if such co-heirs carry
on some business, they will fall within the definition of 'BOI'.
13.7 Revenue Sharing Type Unincorporated Joint Venture when would be AOP
As per Black's Law Dictionary (7th edition page 843), Joint Venture is a business undertaking
by two or more persons engaged in a single defined project. The necessary elements are -
(1) an express or implied agreement (2) a common purpose that the group intends to carry
out (3) shared profits and losses and (4) each member's equal voice in controlling the project
- quoted with approval in Faqir Chand Gulati v. Uppal Agencies (2008) 15 STT 296 (SC).
The expression 'joint venture' is more frequently used in United States. It connotes a legal
entity in the nature of a partnership engaged in the joint undertaking of a particular
transaction for mutual benefit or an association of persons or companies jointly undertaking
some commercial enterprise wherein all contribute assets and share risks. It requires a
community of interest in performance of the subject matter, which may be altered by
agreement, to share both in profits and losses. [Black's Law Dictionary, 6th Edn, p 839].
According to Words and Phrases, permanent edn, a joint venture is an association of two or
more persons to carry out a single enterprise for profit. (p 117 Vol. 23). A joint venture can
take the form of a corporation where two or more persons may join together. A joint venture
corporation has been defined as a corporation which has joined with other individuals or
corporations within the corporate framework in some specific undertaking. - New Horizons
Ltd. v. UOI 89 Comp Cas 849 = (1995) 1 SCC 478 = 1995 AIR SCW 275 - quoted with approval
in Gammon India v. CC (2011) 269 ELT 289 (SC).
If there is no sharing of risk/profits/losses and entire expenditure/risk/benefits are
borne/enjoyed by only one party, it is not a joint venture. Sharing of profit and losses and a
community of interest among parties are integral ingredients of joint venture. Each joint
venture stands in relation of principal as well as agent to each other co-venturer, within the
general scope of enterprise. - Delhi Public School Society v. CST (2014) 43 GST 421 = 41
taxmann.com 377 (CESTAT).
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Unincorporated joint venture is a new entity and it cannot be said that it cannot provide
service to the JV partner - Mediaone Global Entertainment Ltd. v. CCE (2013) 40 STT 475 =
36 taxmann.com 57 (Mad HC).
Joint control is essential - If there is no joint control and no share in profit/loss of venture,
it is not a joint venture - Faqir Chand Gulati v. Uppal Agencies (2008) 15 STT 296 (SC). In this
case, the land owner had agreement with builder termed as 'collaboration agreement' or
'joint venture agreement'. However, land owner had absolutely no say in matter of
development, construction or sale of flats. It was held that this is not 'joint venture'. If there
is no joint control, it is not a joint venture. [Hence, land owner is 'consumer' within the
meaning of 'Consumer Protection Act'].
13.7-1 Types of Joint Ventures
Accounting Standard AS-27 envisages three types of joint ventures - (a) Jointly controlled
operations (b) Jointly controlled assets (c) Jointly controlled entities.
In all these, contractual arrangement and joint control are essential.
Incorporated Joint Venture - In case of 'jointly controlled entity', a separate legal entity is
constituted (either as company or a partnership firm). This can be termed in Incorporated
Joint Venture (IJV). In such case, any service provided by any member of the 'jointly
controlled entity' to the IJV (or vice versa), should be liable to service tax, since the member
of joint venture and the 'jointly controlled entity' are two separate legal entities. Similarly, if
one member of IJV provides some service to other member of IJV, it should be liable to
service tax.
In IVCRL Infrastructures and Projects Ltd. v. CC 2004 (166) ELT 447 (CESTAT), it was held that
a joint venture is a form of partnership between two entities with joint and several
responsibilities. It is a legal entity in nature of partnership - followed in Techni Bharathi Ltd.
v. CC 2006 (198) ELT 33 (CESTAT). (However, this is not 'partnership' as per Partnership Act,
since there is no 'mutual agency').
Unincorporated Joint Venture - In case of 'jointly controlled operations', there is no
formation of a separate legal entity. Responsibilities and authorities of each joint venturer
are demarcated. In case of jointly controlled operations, each joint venture partner does his
part of work and gets his share of remuneration as agreed (either as share of profit, income
or revenue). This can be termed in Unincorporated Joint Venture (UJV).
In such case, issue is whether any goods or services supplied by any member of the 'jointly
controlled operations' to the UJV (or vice versa), are liable to GST. Similarly, whether it can
be said that one member of UJV is supplying goods or services to other member of UJV when
each member is only doing his part of work.
13.7-2 CBI&C circular and its background
Para 2.4.3 of CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012
states as follows -
The services provided, both by the so constituted JV or profit sharing association of persons
(AOP), as well as by each of the individual persons constituting the JV/AOP will be liable to
be taxed separately, subject of course to the availability of the credit of the tax paid by
independent persons to the JV/AOP and as otherwise admissible under Cenvat Rules.
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This circular should apply in GST also.

CBE&C vide circular No. 148/17/2011-ST dated 13-12-2011 has clarified as follows -
In some cases, the parties conduct business together on revenue sharing basis. Here there
is mutuality of interest and they share common risk/profit together. The arrangement is not
on principal to principal basis.
Such arrangement is in nature of joint venture. Such joint venture is also recognised as a
legal and juristic entity in nature of a partnership. It is a new entity distinct from its
constituents. Such 'new entity' acquires character of a 'person' and the transaction between
the 'new entity' and the constituents of the new entity (i.e. persons who have come together
on revenue sharing basis) will be a taxable service.
In case of Joint venture type arrangement i.e. revenue sharing arrangement, Service
provided by each person i.e. 'new entity', and constituent of such 'new entity' is liable to
service tax under appropriate head (like renting of immovable property or Business Support
Service or copyright service as applicable)
Where relations between the parties are on principal to principal basis, the service tax would
be leviable on either of the parties based on nature of transaction.
This view has been reiterated in CBE&C circular No. 179/5/2014-ST dated 24-9-2014.
These circulars should apply in GST also.
My comments - In case of 'UJV', there is no third legal entity. Thus, the 'new entity' as
envisaged by CBE&C has no name, no legal existence, no PAN number and no document
evidencing its formation, creation or registration. Such non-existent UJV can be 'person' only
if it has ingredients of 'Association of Person'.
13.7-3 Tribunal decision that activity done by each member of Joint Venture is not 'service'
to other member
In Mundra Port and Special Economic Zone Ltd. v. CCE (2011) 33 STT 364 = 15 taxmann.com
33 (CESTAT), assessee had constructed rail line between port and railhead under private-
public sector collaboration on revenue sharing basis. It was held that this is not 'Business
Support Service'. - - In the same case, the assessee, who was licensee of Government of
Gujarat for development of port had appointed sub-licensee to maintain container terminal,
for which the sub-licensee was paying royalty and profit sharing. It was held that this is also
not business support service.
Though the decision is in respect of 'Business Support Service', the principle should apply to
all revenue sharing arrangements.
In Nyco SA v. CST (2009) 20 STT 113 (CESTAT), a joint venture company was formed to share
expertise and know-how of both the parties. Fruits of joint venture were shared by both the
parties. It was held that sharing of knowledge cannot be termed as providing consulting
engineering service as expertise acquired is used for own benefit along with others.
In CCE v. Sundaram Finance (2007) 9 STT 100 (CESTAT), it was observed that work done by a
joint venture partner is in the nature of 'in-house services' rendered by him as partner of the
JV company.
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In Gujarat State Fertilisers v. CCE (2017) 5 SCC 198 = 59 GST 240 = 76 taxmann.com 357 (SC),
it has been held that receipt of share in a joint venture agreement cannot be termed as
provision of service.
13.7-4 Cash calls and capital contributions between JV partners
In many cases, one joint venture partner makes payments to other JV partner (termed as
'cash calls'). If such payment is towards capital contribution, it would be 'mere transaction
in money' and not subject to service tax. However, if such payment is advance towards some
service (like granting of right, reservation of production capacity or providing an option on
future supplies), service tax will be applicable. Similarly, if one of Joint Venture partner is
managing cash calls for which it is receiving consideration from other JV partners, service tax
will apply - CBI&C circular No. 179/5/2014-ST dated 24-9-2014.
CBI&C has clarified vide circular No. 35/9/2018-GST dated 5-3-2018 that the aforesaid
clarification equally applies in GST. The circular gives following illustrations.
Illustration A: There are 4 members in the JV including the operating member and each one
contributes Rs 100 as part of their share. A total amount of Rs 400 is collected. The operating
member purchases machinery for Rs 400 for the JV to be used in oil production. In this case,
GST will not apply as money paid by A is merely in the nature of capital contribution. It is
transaction money.
Illustration B: There are 4 members in the JV including the operating member and each one
contributes Rs 100 as part of their share. A total amount of Rs 400 is collected. The operating
member thereafter uses its own machine and performs exploration and production activities
on behalf of the JV. In this case, the operating member is providing service to JV and
recovering its cost from other members of Joint Venture. The operating member is supplying
service and subject to GST.
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Place of supply of goods or services or both other than exports or imports

14.1 Importance of place of supply
CGST and SGST is payable in case of intra-state trade or commerce i.e. intra-state supply of
goods and services.
IGST is payable in case of inter-state trade or commerce i.e. inter-state supply of goods and
services.
Provisions to determine whether the transaction is intra-state or inter-state are contained
in IGST Model Law. Export and import of goods and services are also covered under IGST
provisions.
Principle behind the provisions - The basic principle behind provisions relating to place of
supply is that GST is destination based consumption tax. Thus, tax is finally payable where
goods and services are consumed. This issue is relatively easy in case of goods, but not so
easy in case of services. Hence, in many cases, location of person receiving the service is
relevant. If he is registered under GST, that is taken as criteria. Even if he is not registered,
address on record of recipient is taken as criteria to determine place of supply in some cases.
However, this is not so in case of services relating to immovable property and some
performance based services.
14.1-1 Parliament to formulate principles for determining place of supply of goods
Parliament may, by law, formulate principles for determining (a) place of supply of goods or
services (b) when supply of goods or services or both are in the course of inter-State trade
or commerce - Article 269A(2) of Constitution of India inserted w.e.f. 16-9-2016.
The provisions relating to Place of Supply are made under these powers. That is the reason
why these provisions are contained in IGST Act and not CGST Act.
14.1-2 Meaning of Supply of goods or services or both in the course of inter-State trade or
commerce
Section 7 of IGST Act make provisions in respect of Supply of goods or services or both in the
course of inter-State trade or commerce (i.e. from one State to another).
Inter-state supply of goods - As per section 7(1) of IGST Act, supply of goods in the course
of inter-State trade or commerce (i.e. from one State to another) means any supply where
the location of the supplier and the place of supply are in two different States or two
different Union Territories or a State and Union Territory. However, this is subject to the
provisions of section 10 Act [i.e. provisions of section 10 override provisions of section 7].
Import of goods shall be deemed to be inter-state suppl y - Supply of goods imported into
the territory of India. Till they cross the customs frontiers of India shall be treated to be a
supply of goods in the course of inter-State trade or commerce - section 7(2) of IGST Act.
Thus, IGST will be payable, at the time of import of goods from customs.
IGST will be payable on value determined under section 3 of Customs Tariff Act on value
determined under said Act at the point where duties of customs are levied on the said goods
under section 12 of Customs Act, 1962 - proviso to section 5(1) of IGST Act.
Inter-state supply of services - Supply of services in the course of inter -State trade or
commerce means any supply where the location of the supplier and the place of supply are
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in different States or two different Union Territories or a State and Union Territory. However,
this is subject to the provisions of section 12 of IGST Act - section 7(3) of IGST Act.
Import of services shall be treated to be inter-state suppl y - Supply of services imported
into the territory of India shall be deemed to be a supply of services in the course of inter-
State trade or commerce - section 7(4) of IGST Act.
Thus, IGST will be payable, mostly under reverse charge.
Supply of goods or services when place of supply is out of India will be inter-State supply -
Supply of goods or services or both, when the supplier is located in India and the place of
supply is outside India, shall be treated to be a supply of goods or services or both in the
course of inter-State trade or commerce - section 7(5)(a) of IGST Act.
Such supply will be 'export of goods or services' only if all prescribed conditions are satisfied.
Otherwise, it will be inter-state supply and IGST will be payable [e.g. service supplied to place
out of India but payment is not received in foreign exchange].
Really, this is against basic principle of GST which is destination based consumption tax. The
tax should not apply when goods or service is consumed out of India.
Can GST be levied when place of supply is out of India? - As per section 7(5)(a) of IGST Act,
supply of goods or services or both, when the supplier is located in India and the place of
supply is outside India, the supply will be treated as supply in the course of inter-State trade
or commerce.
As per section 5(1) of IGST Act, IGST is levied on all inter-state supplies of goods or services
or both. Hence, IGST is payable if supplier of goods or services is in India and place of supply
is out of India, if all requirements or export of goods or services are not satisfied.
Really, GST is destination based consumption tax. There should not be any tax when goods
or services are consumed out of India.
As per section 1(1) of IGST Act, the Act applies to whole of India. Hence, it can be argued
that if place of supply is out of India, GST cannot be levied, even if the supply does not qualify
as 'export of goods' or 'export of services' [Other argument is that there is nexus with India].
Supply to and by SEZ developer or SEZ unit shall be treated to be inter-state supply - Supply
of goods and/or services to or by a SEZ developer or an SEZ unit, shall be deemed to be a
supply of goods or services or both in the course of inter-State trade or commerce - section
7(5)(b) of IGST Act.
Supply which is not intra-state supply is inter-state supply - Any supply of goods or services
or both in the taxable territory, not being an intra-State supply and not covered elsewhere
in this section, shall be deemed to be a supply of goods or services or both in the course of
inter-State trade or commerce - section 7(5)(c) of IGST Act, 2017.
Thus, any supply which is not intra-state supply is 'inter-state' supply and will be subject to
IGST.
Supply from warehouse for storage of duty free ship stores to Naval ships, ocean going
merchant ships is subject to IGST - Supply from warehouse for storage of duty free ship
stores to Naval ships, ocean going merchant ships is subject to IGST, as goods supplies are
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within customs area as defined in section 2(11) of Customs Act. Hence, it is inter-State supply
- Fairmacs Ship Stores P Ltd., In re (2018) 67 GST 733 = 94 taxmann.com 125 (AAR-AP).
14.1-3 Meaning of Supply of goods or services or both in the course of intra-State trade or
commerce
Section 8 of IGST Act make provisions in respect of supply of goods or services or both in the
course of intra-State trade or commerce, i.e. trade or commerce within the State.
Intra-state supply of goods - As per section 8(1) of IGST Act, supply of goods where the
location of the supplier and the place of supply of goods are in same State or same Union
Territory shall be treated as intra-state supply. However, this is subject to the provisions of
section 10 of IGST Act.
Further, the intra-State supply of goods shall not include - (i) supply of goods to or by a SEZ
developer or to or by an SEZ unit (ii) supply of goods brought into India in the course of
import till they cross the customs frontiers of India (iii) supplies made to a tourist under
section 15 of IGST Act.
Intra-state supply of services - Supply of services where the location of the supplier and the
place of supply are in the same State or same Union Territory shall be treated as intra-state
supply. However, this is subject to the provisions of section 12 of IGST Act. Further, the intra-
state supply of services shall not include supply of services to or by a SEZ developer or to or
by an SEZ unit. - section 8(2) of IGST Act.
If place of supply of service and location of supplier is in same State, CGST and SGST is
payable - S No. 64 of Tweet FAQ released by CBE&C on 26-6-2017.
Supply to another establishment of taxable person within the State/Union Territory with
different GSTIN registration - Explanation 1 to section 8(1) of IGST Act reads as follows - For
the purposes of this Act (i.e. IGST Act)-(i) - - or (ii) - - or (iii) an establishment in a State and
any other establishment (*) registered within that State or Union Territory - - shall be treated
as establishments of distinct persons.
* - The words were 'being a business vertical'. These have been omitted vide IGST
(Amendment) Act, 2018 w.e.f. 1-2-2019.
The effect of this amendment is that if a taxable person has another establishment within
the State or Union Territory with separate registration number, such establishment will be
different taxable persons for GST and CGST and SGST/UTGST will be payable if goods or
services or both are supplied from one registered establishment to another registered
establishment within same State/Union Territory having separate registration.
14.1-4 Meaning of IGST
"Integrated Tax" means the integrated goods and services tax (IGST) levied under IGST Act-
section 2(12) of IGST Act.
14.1-5 Meaning of India
"India" means the territory of India as referred to in article 1 of the Constitution, its territorial
waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic
zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf,
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Exclusive Economic Zone and other Maritime Zones Act, 1976, and the air space above its
territory and territorial waters - section 2(56) of CGST Act.
Definition of 'India' is wide. It covers all landmass of India plus 200 nautical miles inside the
sea, sea bed and air space above land and territorial waters.
Territorial waters - Section 3 of the 'Territorial Waters, Continental Shelf, Exclusive
Economic Zone and other Maritime Zone Act, 1976' specifies that 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 (1 nautical mile = 1.1515 miles = 1.853 Kms). Sovereignty of India
extends to the territorial waters and to the seabed and subsoil underlying and the air space
over the waters.
In British India Steam Navigation Co Ltd. v. Shanmughavilas Cashew Industries (1990) 3 SCC
481, it was held that a statute extends to territory, unless the contrary is stated, throughout
the country and will extend to the territorial waters and such places as intention to that
effect is shown. -. - Indian Parliament has no authority to legislate for foreign vessels or
foreigners in them on the high seas. - quoted with approval in World Tanker Carrier Corpn v.
SNP Shipping Services P Ltd. 1998(3) SCALE 165 (SC 3 member bench).
Exclusive Economic Zone - 'Exclusive economic zone' extends to 200 nautical miles from the
base-line. In this zone, the coastal State has exclusive rights to exploit it for economic
purposes like constructing artificial islands (for oil exploration, power generation etc.),
fishing, mineral resources and scientific research. However, other countries have right of
navigation and over-flight rights. Other countries can lay submarine cables and pipelines
with consent of Indian Government. Such consent may be declined for protecting interest
of India. Section 7 of Territorial Waters -. -. -. - Act, 1976 has made similar provisions and
thus, these provisions have been adopted in India too.
Beyond 200 nautical miles, the area is 'High Seas', where all countries have equal rights.
These high seas are reserved for peaceful purposes. Any Country can use it for navigation,
over-flight, laying submarine cables and pipes, fishing, construction of artificial islands
permitted under international law and for scientific research.
Continental Shelf - 'Continental shelf' is an area of relatively shallow seabed between the
shore of a continent and the deeper ocean. [Concise Oxford Dictionary, 1990 edition].
14.1-6 Area upto 12 nautical miles belongs to State for GST purposes
Area upto 12 nautical miles belong to State/Union Territory at least as far as GST is
concerned.
Notwithstanding anything contained in IGST Act, (a) where the location of the supplier is in
the territorial waters, the location of such supplier; or (b) where the place of supply is in the
territorial waters, the place of supply, shall, for the purposes of this Act, be deemed to be in
the coastal State or Union territory where the nearest point of the appropriate baseline is
located - section 9 of IGST Act.
This view has been held by High Courts also.
Sovereignty of State extends to 12 nautical miles. Hence, any sale which is within 12 nautical
miles is taxable by the State concerned (i.e. it is local sale i.e. Sale within the State) - Great
Eastern Shipping v. State of Karnataka (2000) 117 STC 437 (Kar HC) - view confirmed in Great
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Eastern Shipping v. State of Karnataka (2004) 136 STC 519 (Kar HC DB) - same view in
A.M.S.S.V.M Company v. State of Madras AIR 1954 Mad HC DB 291.
In Great Eastern Shipping Co. Ltd. v. State of Kerala (2020) 32 GSTL 3 (SC), this question has
been kept open and decision of Karnataka HC has been diluted [whatever it means].
Person supplying goods or services from territorial waters should register in coastal state
or Union Territory - Every person who makes a supply from the territorial waters of India
shall obtain registration in the coastal State or Union territory where the nearest point of
the appropriate base line is located - Explanation to section 25(1) of CGST Act.
14.2 Place of supply of goods other than imports and exports
As per section 10(1) of IGST Act, place of supply of goods, other than supply of goods
imported into or exported out of India, will be determined on following basis.
Place of supply is where movement of goods terminates - Where the supply involves
movement of goods, whether by the supplier or the recipient or by any other person, the
place of supply of goods shall be the location of the goods at the time at which the
movement of goods terminates for delivery to the recipient- section 10(1)(a) of IGST Act.
Often a customer from outside the State comes for purchases. He purchases the goods and
takes delivery. If the customer is unregistered, it is B2C transaction and CGST and
SGST/UTGST is payable.
However, if the customer declares his GSTIN and takes delivery and arranges transport
himself, which tax is payable?
In such cases, IGST is payable. This is clarified by CBI&C by following example.
A person from Gujarat comes to Mumbai and purchases goods. He declared his GSTIN,
arranges transport himself and takes goods to Gujarat. The place of supply would be Gujarat
in this case - FAQ on GST Chapter 22 Q No. 6 issued by CBI&C on 15-12-2018.
This is also confirmed in Penna Cement Industries Ltd., In re [2020] 116 taxmann.com 876
(AAR- Telangana). In this case, the applicant was making sale ex-factory. However, the buyer
was taking goods outside the State. It was held that IGST is payable on such sale, as the
movement of goods terminates for delivery to the recipient outside the State. [Though the
judgment does not specifically say so, the buyer must have given his GSTN Number which is
outside the State. This clearly indicates his intention to take goods outside the State].
Goods delivered on direction of third person - Where the goods are delivered by the supplier
to a recipient or any other person on the direction of a third person, whether acting as an
agent or otherwise, before or during movement of goods, either by way of transfer of
documents of title to the goods or otherwise, it shall be deemed that the said third person
has received the goods and the place of supply of such goods shall be the principal place of
business of such person- section 10(1)(b) of IGST Act.
This would cover sale in transit by transfer of documents of title.
This clause would also cover situation when goods are sent to job worker on the instructions
of 'principal'.
'Transfer of title in goods' is supply of goods, even if goods (moulds in this case) were out
of India- InAutomative Components Technology India (P.) Ltd., In re[2020] 115 taxmann.com
 230

99 (AAR - TAMIL NADU), the foreign supplier of applicant manufactured moulds and used
them outside India for manufacture of components for the applicant. The foreign supplier
raised invoice for mould on applicant in India. The goods did not come to India. Later,
applicant raised invoice on Indian buyer for the moulds (which never entered India). Title in
moulds was transferred from foreign supplier to applicant in India, who, in turn, transferred
the title to Indian buyer. Thus, with regard to the moulds, there were two transactions
involved in respect of moulds (which did not enter India at all) - T1: Transfer of title in moulds
from the foreign supplier to the Applicant. T2: Transfer of title in moulds from the Applicant
to the Indian buyer. It was held that there is transfer in title of moulds by applicant for a
consideration and supply is in course of business and, therefore, same constitutes supply of
goods and GST is liable to be paid on such supply.
Interestingly, this is not import of goods, though supplier of goods is out of India. There is no
movement of goods (mould). However, it is still 'transfer of title in goods' and GST is payable.
The decision of AAR is in respect of second transaction i.e. T2. In case of first transaction
(T1), since this is not import of goods, issue is whether applicant in India would be liable
under reverse charge. Really, there is no provision of payment of tax by applicant under
reverse charge. Applicant may pay IGST under reverse charge and take its credit, but this is
also litigation prone.
Place of supply is delivery to recipient when no movement of goods - Where the supply
does not involve movement of goods, whether by the supplier or the recipient, the place of
supply shall be the location of such goods at the time of the delivery to the recipient - section
10(1)(c) of IGST Act.
For example, if goods were sent for approval and later approved, there is no movement of
goods but place of supply will be where customer has those goods.
If goods, tools or dies were initially sent on lease or hire and then subsequently sold, the
place of supply is location of buyer though there is no movement of goods.
Place of supply in case of installation or assembly - Where the goods are assembled or
installed at site, the place of supply shall be the place of such installation or assembly -
section 10(1)(d) of IGST Act.- FAQ on GST Chapter 22 Q No. 7 issued by CBI&C on 15-12-2018.
Place of supply when goods are supplied on board a conveyance - Where the goods are
supplied on board a conveyance, including a vessel, an aircraft, a train or a motor vehicle,
the place of supply shall be the location at which such goods are taken on board - section
10(1)(e) of IGST Act.
Residual provision - Where the place of supply of goods cannot be determined in aforesaid
terms, the same shall be determined in such manner as may be prescribed - section 10(2) of
IGST Act.
14.3 Bill to ship to transaction
Section 10(1)(b) of IGST Act covers supply before or during movement of goods by transfer
of documents or otherwise. In case of such sale, it shall be presumed that the final recipient's
place is place of supply of goods. Thus, if supplier and final recipient are in different States,
the supply will be inter-state even if goods are delivered in the same State on direction of
final customer (third party).
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The third person can take ITC of GST charged by supplier and in turn charge GST to final
recipient - The third person (under whose instructions goods are supplied to recipient) can
take ITC of GST charged by supplier and in turn charge GST to final recipient in bill to ship to
transaction under section 10(1)(b) of IGST Act - Umax Packaging (A unit of Uma Polymers
Ltd.), In re [2018] 100 taxmann.com 398 (AAR- RAJASTHAN) * Sanjog Steels (P.) Ltd., In re
[2018] 100 taxmann.com 405 (AAR- RAJASTHAN).
Goods supplied within State to a person registered outside State will be inter-state supply
- In High Tech Refrigeration & Air Conditioning Industries, In re [2020] 117 taxmann.com 819
(AAR - GOA), the applicant registered in Goa supplied goods in Goa on behalf of a third party
registered outside Goa. It was held that the supply has to be taxed as inter-State supply of
goods, as place of supply is outside State as per section 10(1)(b) of CGST Act.
BILL TO SHIP TO TRANSACTION [SECTION 10(1) OF IGST ACT]
A instructs B to supply goods to C
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14.4 Place of supply of services if location of supplier and recipient of service is in India
Issue relating to place of supply of services is tricky as there is no physical movement like in
case of goods.
For this purpose, definition of location of supplier and location of recipient of service are
important.
Place of supply in case of export or import of services - IGST Act has made separate
provisions in respect of place of supply in case of import and export of services i.e. where
the location of the supplier of service or the location of the recipient of service is outside
India.
These are discussed in another chapter as there are differences in provisions.
14.4-1 Location of recipient of service and supplier of services
Section 2(14) of IGST Act defines 'location of recipient of services' as follows
"Location of recipient of services" means:
(a) where a supply is received at a place of business for which registration has been
obtained, the location of such place of business.
(b) where a supply is received at a place other than the place of business for which
registration has been obtained (i.e. fixed establishment elsewhere), the location of
such fixed establishment.
(c) where a supply is received at more than one establishment, whether the place of
business or fixed establishment, the location of the establishment most directly
concerned with the receipt of the supply; and
(d) in absence of such places, the location of the usual place of residence of the recipient.

Section 2(15) of IGST Act defines 'location of supplier of service' as follows -

"Location of supplier of service" means:
(a) where a supply is made from a place of business for which registration has been
obtained, the location of such place of business.
(b) where a supply is made from a place other than the place of business for which
registration has been obtained (i.e. fixed establishment elsewhere), the location of
such fixed establishment.
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(c) where a supply is made from more than one establishment, whether the place of
business or fixed establishment, the location of the establishment most directly
concerned with the provision of the supply and
(d) in absence of such places, the location of the usual place of residence of the supplier.

14.4-2 Place of business

Section 2(85) of CGST Act reads as follows
"Place of business" includes
(a) a place from where the business is ordinarily carried on, and includes a warehouse,
a godown or any other place where a taxable person stores his goods, provides or
receives goods or services or both; or
(b) a place where a taxable person maintains his books of account; or
(c) a place where a taxable person is engaged in business through an agent, by whatever
name called.

14.4-3 Fixed Establishment

"Fixed establishment" means a place (other than the registered place of business), which is
characterised by a sufficient degree of permanence and suitable structure in terms of human
and technical resources to supply services, or to receive and use services for its own needs -
section 2(7) of IGST Act and section 2(50) of CGST Act.
This definition is relevant to determine where the taxable person should obtain GST
Registration in a particular State.
14.4-4 Temporary place of supply of service cannot be location of supplier of service or
recipient of service
The aforesaid definitions clarify that the location has to be either registered place or a fixed
establishment. A temporary place cannot be 'location of supplier or recipient of service'.
For example, if a taxable person registered in Mumbai gives property in rent at Chennai,
location of supplier of service will be Mumbai. Location of service receiver will be Chennai if
he has registration or fixed establishment in Chennai. Otherwise, his location will be where
he is registered.
Case Law - In CCE v. DFDS A/S (2012) 36 STT 401 = 24 taxmann.com 6 (ECJ), assessee in
Denmark established a subsidiary in UK. The UK subsidiary marketed tour packages of behalf
of assessee. The subsidiary in UK had sufficient human and technical resources. It was held
that assessee has 'fixed establishment' in UK and that would be place of provision of service.
In Gunder Berkholz, Hamburg v. Finanzamt (Tax Office) Hamburg-Mitte-Alstadt (2012) 36
STT 421 = 22 taxmann.com 180 (ECJ), assessee had establishment in Germany. It installed
and operated gaming machines on board ships to entertain passengers. The work was done
intermittently. There was no permanent staff employed on ship. It was held that assessee
has fixed establishment in Germany. Ship is not a fixed establishment.
14.4-5 Customer's customer is not your customer
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Often services are supplied by supplier of services to third party on behalf of your customer.
In that case, it is to be remembered that as far as the supplier of service is concerned, the
third party is not his customer. The supplier of service is not providing any service to third
party. He is providing service to his customer and that customer is providing service to third
party.
In Vodafone Essar Cellular Ltd. v. CCE (2013) 39 STT 777 = 33 taxmann.com 358 (CESTAT), it
has been observed that your customer's customer is not your customer. For example, when
a florist delivers a bouquet on your request to your friend for which you make payment, as
far as florist is concerned, you are the customer and not your friend - followed in CST v. Bayer
Material Science (2014) 48 GST 568 = 51 taxmann.com 222 (CESTAT SMB). * Ascendas
Services (India) P Ltd. In re (2020) 82 GST 378 = 119 taxmann.com 24 (AAAR-Karnataka).
In ABS India Ltd. v. CST (2008) 17 STT 223 (CESTAT), assessee had subsidiary company in
Singapore. Assessee-company booked orders in India for sale of goods manufactured by
subsidiary in Singapore. Assessee received commission from its Singapore subsidiary. It was
held that service was delivered to subsidiary. It cannot be said that service is delivered in
India.
In Universal Services India Pvt Ltd. In re (2016) 91 VST 483 (AAR), the assessee was providing
payment processing service to WWD US on principal to principal basis. These services were
for domain registration, web hosting, transfer services etc. WWD US was providing the
services to Indian customers and payment was made by Indian customers directly to WWD
US. It was held that applicant is not providing any service to Indian customers. It was also
held that as per rule 3 of POPS, the place of provision of service is outside India and hence
service tax is not payable - same view in Godaddy India Web Services Pvt. Ltd. In re (2016)
92 VST 1 (AAR).
Illustration given by department - A from MP supplies service to B in Maharashtra. A
outsources the work to C in Maharashtra. In that case, A will charge IGST to B in
Maharashtra. C will charge IGST to A in MP - S No. 61 of Tweet FAQ released by CBE&C on
26-6-2017.
14.4-6 Normally, Person making payment is recipient of service and person receiving
payment is supplier of service
It is seen that the major confusion in determining place of provision of service arises because
service provider and service receiver is not identified. Broadly, person making payment is
service receiver, while person receiving payment is service provider. For example, A asks B
to provide service to C. Here, as far as B is concerned, his service receiver is not C but A
[customer's customer is not your customer].
If B, commission agent in India, collects orders from Indian buyer (in India) (A) and sends
them to his UK Principal (C) for execution, B is providing service to C (UK Principal) and not
to Indian buyer, even if he is doing all his work in India and contacting Indian potential buyers
If we remember this, many of confusions in POPS get sorted out.
14.5 Place of supply of service except export or import of services -residuary provision
As per Section 12(1) of GST Act, place of supply of services will be determined on following
basis, where location of supplier of services and recipient of services is in India.
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14.6 The place of supply of services in cases directly relating to immovable property or
lodging in boat or vessel - Other than export or import of services
In following cases, the place of supply of services shall be the location at which the
immovable property or boat or vessel is located or intended to be located - section 12(3) of
IGST Act.
(a) Directly in relation to an immovable property, including services provided by
architects, interior decorators, surveyors, engineers and other related experts or
estate agents, any service provided by way of grant of rights to use immovable
property or for carrying out or co-ordination of construction work, or
(b) by way of lodging accommodation by a hotel, inn, guest house, homestay, club or
campsite, by whatever name called and including a house boat or any other vessel,
or
(c) by way of accommodation in any immovable property for organizing any marriage or
reception or matters related therewith, official, social, cultural, religious or business
function including services provided in relation to such function at such property, or
(d) any services ancillary to the services referred to in clauses (a), (b) and (c).

Where the immovable property or boat or vessel is located in more than one State or Union
Territory, the supply of service shall be treated as made in each of the States or Union
Territories in proportion to the value for services separately collected or determined, in
terms of the contract or agreement entered into in this regard or, in the absence of such
contract or agreement, on such other basis as may be prescribed - Explanation to section
12(3) of IGST Act.
Place of supply shall be location of service recipient if immovable property outside India -
If the location of the immovable property or boat or vessel is located or intended to be
located outside India, the place of supply shall be the location of the recipient - proviso to
section 12(3) of IGST Act.
Thus, even if immovable property is located outside India, if the location of service recipient
is in India, IGST will be payable.
Location of boat or vessel is relevant only in case of lodging accommodation.
In Maninder Singh In re (2020) 120 taxmann.com 341 (AAR-WB), contract for installation of
pipeline in Bangladesh was awarded to applicant by Indian party. It was held that place of
supply of service is India as per proviso to section 12(3) of IGST Act, even if immovable
property is out of India. It is not export of works contract service.
Supply of service of short term accommodation, conferencing, event management services
etc. to SEZ unit and SEZ developer - As per section 7(5)(b) of IGST Act, supply of goods or
services or both to SEZ unit or SEZ Developer is inter-State supply. This is a specific provision
and hence will prevail over general provision as contained in section 12(3)(c) of IGST Act,
which states that in case of supply of short term accommodation or event management
services, place of supply is where immovable property is located. Hence, in case of supply of
such services, IGST will be payable and not CGST and SGST/UTGST.
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Further, if such supply is for operations, these will be zero rated supplies. These can be made
under LUT/bond without payment of GST or on payment of IGST. If such supply is for
authorised operations, IGST will be refunded if paid or input tax credit refund can be
obtained if supplied under LUT/Bond. Endorsement of specified officer of SEZ will be
required that these services are for authorised operations - CBI&C circular No. 48/22/2018-
GST dated 14-6-2018.
Contrary decision of AAR in respect of accommodation Services supplied to SEZ unit - In
case of accommodation services supplied to employees and guests of SEZ units outside the
SEZ are taxable to CGST and SGST (of State where the hotel is located) - Gogte Infrastructure
Development Corporation Ltd. In re (2018) 68 GST 20 = 93 taxmann.com 201 (AAR - Kar)
14.6-1 Illustrations of services directly relatable to immovable property
In Heger Rudi GmbH v. Finanzamt Graz-Stadt (2012) 36 STT 393 = 22 taxmann.com 183 (ECJ),
assessee of Germany acquired fishing rights in relation to a river in Austria. These rights were
sold to various persons located in different countries. It was held that the fishing right was
in relation to immovable property (i.e. river). Hence, place of provision of service is Austria.
In RCI Europe v. Commissioner for Her Majesty's Revenue and Customs (2012) 36 STT 409 =
24 taxmann.com 7 (ECJ), it was held that in respect of holiday package relating to holiday
resort, the place of provision is where resort is located, as it relates to immovable property.
CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012 states as follows
-
Para 5.5.1 What is "immovable property"? - "Immovable Property" has not been defined in
Service Tax law. However, in terms of section 4 of the General Clauses Act, 1897, the
definition of immovable provided in section 3(26) of the General Clauses Act will apply,
which states as under:

"Immovable Property" shall include land, benefits to arise out of land, and things
attached to the earth, or permanently fastened to anything attached to the earth."
It may be noted that the definition is inclusive and thus properties such as buildings and
fixed structures on land would be covered by the definition of immovable property. The
property must be attached to some part of earth even if underwater.
Para 5.5.2 What are the criteria to determine if a service is 'directly in relation to' immovable
property located in taxable territory?- Generally, the following criteria will be used to
determine if a service is in respect of immovable property located in the taxable territory :
(i) The service consists of lease, or a right of use, occupation, enjoyment or exploitation
of an immovable property
(ii) service is physically performed or agreed to be performed on a specific immovable
property (e.g. maintenance) or property to come into existence (e.g. construction);
(iii) the direct object of the service is the immovable property in the sense that the
service enhances the value of the property, affects the nature of the property, relates
to preparing the property for development or redevelopment or the environment
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within the limits of the property (e.g. engineering, architectural services, surveying
and sub-dividing, management services, security services etc.);
(iv) the purpose of the service is : (a) the transfer or conveyance of the property or the
proposed transfer or conveyance of the property (e.g., real estate services in relation
to the actual or proposed acquisition, lease or rental of property, legal services
rendered to the owner or beneficiary or potential owner or beneficiary of property
as a result of a will or testament); (b) the determination of the title to the property.

There must be more than a mere indirect or incidental connection between a service
provided in relation to an immovable property, and the underlying immovable property. For
example, a legal firm's general opinion with respect to the capital gains tax liability arising
from the sale of a commercial property in India is basically advice on taxation legislation in
general even though it relates to the subject of an immovable property. This will not be
treated as a service in respect of the immovable property.
Para 5.5.3 Examples of land-related services
(i) Services supplied in the course of construction, reconstruction, alteration,
demolition, repair or maintenance (including painting and decorating) of any building
or civil engineering work.
(ii) Renting of immovable property.
(iii) Services of real estate agents, auctioneers, architects, engineers and similar experts
or professional people, relating to land, buildings or civil engineering works. This
includes the management, survey or valuation of property by a solicitor, surveyor or
loss adjuster.
(iv) Services connected with oil/gas/mineral exploration or exploitation relating to
specific sites of land or the seabed.
(v) The surveying (such as seismic, geological or geomagnetic) of land or seabed.
(vi) Legal services such as dealing with applications for planning permission.
(vii) Packages of property management services which may include rent collection,
arranging repairs and the maintenance of financial accounts.
(viii) The supply of hotel accommodation or warehouse space.

Para 5.5.4 What if a service is not directly related to immovable property? - The place of
provision of services rule applies only to services which relate directly to specific sites of land
or property. It does not apply if a supply of services has only an indirect connection with the
immovable property, or if the service is only an incidental component of a more
comprehensive supply of services.
For example, the services of an architect contracted to design the landscaping of a particular
resort hotel in Goa would be land-related. However, if an interior decorator is engaged by a
retail chain to design a common décor for all its stores in India, this service would not be
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land-related. The default rule i.e. Rule 3 of Place of Provision of Service Rules will apply in
this case.
Para 5.5.5 Examples of services which are not land-related
(i) Repair and maintenance of machinery which is not permanently installed. This is a
service related to goods.
(ii) Advice or information relating to land prices or property markets because they do
not relate to specific sites.
(iii) Land or Real Estate Feasibility studies, say in respect of the investment potential of a
developing suburb, since this service does not relate to a specific property or site.
(iv) Services of a Tax Return Preparer in simply calculating a tax return from figures
provided by a business in respect of rental income from commercial property.
(v) Services of an agent who arranges finance for the purchase of property.

14.6-2 Apportionment of tax when immovable property located in more than one State or
Union Territory
Where immovable property, lodging, hotel, accommodation for marriage or function is
located in more than one State or Union Territory, there can be contract for value for each
location separately. However, if there is consolidated contract, the bifurcation of tax
attributable to each State or Union Territory shall be on proportionate basis like number of
nights stayed in each property, proportion of area of immovable property, time spent in
house boat in each State etc. The detailed mode of calculation has been specified in rule 4
of IGST Rules, inserted w.e.f. 31-12-2018.
14.7 Performance bases services i.e. Restaurant, beauty treatment, health services other
than export and import of services
The place of supply of restaurant and catering services, personal grooming, fitness, beauty
treatment, health service including cosmetic and plastic surgery shall be the location where
the services are actually performed - section 12(4) of IGST Act.
Note that this provision applies only to services specified in section 12(4) of IGST Act and not
other performance based services. In case of import and export of services, this provision
applies to all the performance based services.
14.8 Training and performance appraisal service - Other than export and import of services
The place of supply of services in relation to training and performance appraisal to (a) a
registered person, shall be the location of such person (b) a person other than a registered
person, the location where the services are actually performed - section 12(5) of IGST Act.
14.9 Admission to events - Other than export and import of services
The place of supply of services provided by way of admission to a cultural, artistic, sporting,
scientific, educational, or entertainment event or amusement park or any other place and
services ancillary thereto, shall be the place where the event is actually held or where the
park or such other place is located - section 12(6) of IGST Act.
14.10 Other event based services - Other than export and import of services
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Services provided by way of—(a) organization of a cultural, artistic, sporting, scientific,

educational or entertainment event including supply of service in relation to a conference,
fair, exhibition, celebration or similar events, or (b) services ancillary to organization of any
of the above events or services, or assigning of sponsorship to such events, shall be as
follows—
(i) If the service is provide to a registered person, place of supply shall be the location
of such person
(ii) if the service is provided to a person other than a registered person. Place of supply
shall be place where event is actually held. If the event is held outside India, place of
supply shall be the location of service recipient. - section 12(7) of IGST Act.

If such service is provided in more than one States, the amount will be apportioned on a
reasonable basis.
Event Management service to registered person out of State - In Grasshopper Production,
In re [2018] 98 taxmann.com 335 (AAR-GOA), applicant was a service provider of event
management to clients in film shooting industry and providing location for shootings as per
requirement of clients. It had provided services to a registered person in Maharashtra. It was
held that event management support services provided by applicant in Goa to a registered
person in Maharashtra is governed under section 12(7)(i) and same should be treated as
inter-State supply of services and IGST at rate of 18 per cent is applicable.
14.10-1 Apportionment of tax when event based service is provided to unregistered
person in more than one State or Union Territory
If event based service like cultural, sporting or entertainment event, conference, exhibition
etc. is provided in more than one State or Union Territory to an un-registered person, there
can be contract for value for each location separately. However, if there is consolidated
contract, the bifurcation of tax attributable to each State or Union Territory shall be on
proportionate basis on basis of generally accepted accounting principle (GAAP). The mode
of calculation has been specified in rule 5 of IGST Rules, inserted w.e.f. 31-12-2018.
Note that this provision applies only when service is provided to unregistered person. In case
of service provided to registered person, place of supply will be on basis of location of the
registered person (i.e. his GSTIN).
14.11 Transportation of goods - Other than export and import of services
The place of supply of services by way of transportation of goods, including by mail or courier
to (a) a registered person, shall be the location of such person (b) a person other than a
registered person, shall be the location at which such goods are handed over for their
transportation - section 12(8) of IGST Act.
However, where the transportation of goods is to a place outside India, the place of supply
shall be the place of destination of such goods - proviso to section 12(8) of IGST Act inserted
vide IGST (Amendment) Act, 2018 w.e.f. 1-2-2019.
This amendment aligns section 12(8) of IGST Act with section 13(9) of IGST Act. Section 13(9)
of IGST Act provides that in case of transportation of goods for exports, destination will be
place of supply of services.
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Thus, if goods are destined for a place out of India, its place of supply will be out of India,
even if location of recipient of service is in India.
However, if recipient of service (i.e. who is booking the goods) is in India, it will not qualify
as 'export of service'. It will be treated as 'inter-State supply' as per section 7(5)(a) read with
section 5(1) of IGST Act. Hence, IGST will be payable, even if the recipient of service is in
same State/Union Territory.
Thus, only effect of this amendment w.e.f. 1-2-2019 is that IGST will be payable in such cases
and not CGST and SGST/UTGST.
Really, the intention of amendment was to exempt this transaction, to provide level playing
field to Indian exporters who are quoting on CIF basis However, this intention is not getting
fulfilled.
14.12 Passenger transportation service - Other than export and import of services
The place of supply of passenger transportation to (a) a registered person, shall be the
location of such person (b) a person other than a registered person shall be the place where
the passenger embarks on the conveyance for a continuous journey. If for future use, then
as per residual provision in section 12(2) - section 12(9) of IGST Act.
"Conveyance" includes a vessel, aircraft and a vehicle - section 2(34) of CGST Act.
"Continuous journey" means a journey for which a single or more than one ticket or invoice
is issued at the same time, either by a single supplier of service or through an agent acting
on behalf of more than one supplier of service, and which involves no stop over between
any of the legs of the journey for which one or more separate tickets or invoices are issued.
Explanation.—For the purposes of this clause, 'stopover' means a place where a passenger
can disembark either to transfer to another conveyance or break his journey for a certain
period in order to resume it at a later point of time - section 2(3) of IGST Act.
Where the right to passage is given for future use and the point of embarkation is not known
at the time of issue of right to passage, the place of supply of such service shall be
determined on the basis of section 12(2) of IGST Act - proviso to section 12(9)(b) of IGST Act.
Return journey will be treated as a separate journey, even if right of passage for onward and
return journey is issued at the same time - Explanation to section 12(9) of IGST Act.
14.13 Service on board a conveyance originating - Other than export and import of services
The place of supply of services on board a conveyance including vessel, aircraft, train or
motor vehicle, shall be the location of the first scheduled point of departure of that
conveyance for the journey - section 12(10) of IGST Act.
"Conveyance" includes a vessel, aircraft and a vehicle - section 2(34) of CGST Act.
14.14 Telecommunication service, data transfer, broadcasting, DTH - Other than export
and import of services
The place of supply of telecommunication services including data transfer, broadcasting,
cable and direct to home television services to any person shall be as follows [section 12(11)
of IGST Act, 2017].
(a) in case of services by way of fixed telecommunication line, leased circuits, internet
leased circuit, cable or dish antenna, be the location where the telecommunication
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line, leased circuit or cable connection or dish antenna is installed for receipt of
services.
(b) in case of mobile connection for telecommunication and internet services provided
on post-paid basis, be the location of billing address of the recipient of services on
record of the supplier of services.
(c) in cases where mobile connection for telecommunication, internet service and direct
to home television services are provided on pre payment basis through a voucher or
any other means - (i) through selling agent or a re-seller or a distributor of Subscriber
Identity Module (SIM) card or re-charge voucher, shall be address of the selling agent
or re-seller or distributor as per the record of the supplier at the time of supply; or (ii)
by any person to the final subscriber shall be the location where such pre-payment is
received or such vouchers are sold.
(d) in other cases [i.e. not covered in (a), (b) and (c) above], shall be the address of the
recipient as per records of the supplier of the service. Where address of the recipient
as per records of the supplier of service is not available, the place of supply shall be
location of the supplier of service.

If such pre-paid service is availed or the recharge is made through internet banking or other
electronic mode of payment, the location of the recipient of services on record of the
supplier of services shall be the place of supply of such service - second proviso to section
12(11) of IGST Act.
Where address of the recipient as per records of the supplier of service is not available, the
place of supply shall be location of the supplier of service - first proviso to section 12(11) of
IGST Act.
Explanation: Where the leased circuit is installed in more than one State or Union Territory
and a consolidated amount is charged for supply of services relating to such circuit, the place
of supply of such services shall be taken as being in each of the States or Union Territories
in proportion to the value of services so provided in each respective State or Union
Territories in proportion to the value for services separately collected or determined in
terms of the contract or agreement entered into in this regard or, in absence of such contract
or agreement, on such other basis as may be prescribed - Explanation to section 12(11) of
IGST Act, 2017.
Meaning of telecommunication service - "Telecommunication service" means service of
any description (including electronic mail, voice mail, data services, audio text services, video
text services, radio paging and cellular mobile telephone services) which is made available
to users by means of any transmission or reception of signs, signals, writing, images and
sounds or intelligence of any nature, by wire, radio, visual or other electro-magnetic means
- section 2(100) of IGST Act.
Clarification regarding tax on international in-bound roaming services - 'Roaming' in
wireless telecommunication refers to extension of connectivity service in a location that is
different from the location/network area of home network. It occurs when a subscriber of
one wireless provider physically moves to network area of another service provider.
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'International roaming' refers to the ability of a subscriber to move to a foreign service

provider's network and use its network for making and/or receiving a telephone call. The
call is routed through the visited network. A temporary internal number is assigned.
CBE&C, vide circular No. 90/1/2007-ST dated 3-1-2007, had clarified that this service is
'telephone connection', even if actual telephone instrument or SIM card is not provided. This
service is taxable. It is not 'export of service'. Tax is payable by domestic telecom operator
on amount received through home network of the subscriber on account of service provided
to such international roaming subscriber.
However, in Vodafone Essar Cellular Ltd. v. CCE (2013) 39 STT 777 = 33 taxmann.com 358
(CESTAT), this view has not been accepted. In this case, assessee provided telecom service
in India to international inbound roamers registered with foreign telecom network
operators, who were in India at the time of providing service. Assessee argued that he is
providing service to foreign telecom service provider and not to their customers
(subscribers) who use the telecom service in India. Hence, it is export of service. The claim
of assessee was held valid. It was observed that your customer's customer is not your
customer. It was held that UK Vat Act and Australian GST law had similar provisions.
14.14-1 Apportionment of tax when leased circuit located in more than one State or Union
Territory
Where leased circuit is situated in more than one State or Union Territory, there can be
contract for value for each location separately. However, if there is consolidated contract,
the bifurcation of tax attributable to each State or Union territory shall be on proportionate
basis on number of points in circuit. The detailed mode of calculation has been specified in
rule 6 of IGST Rules, inserted w.e.f. 31-12-2018.
14.15 Banking and other financial services - Other than export and import of services
The place of supply of banking and other financial services including stock broking services
to any person shall be the location of the recipient of services on the records of the supplier
of services - section 12(12) of IGST Act.
However, if the location of the recipient of services is not on the records of the supplier of
services, the place of supply shall be location of the supplier of services.
14.16 Insurance service - Other than export and import of services
The place of supply of insurance services shall be as follows - (a) to a registered person, be
the location of such person (b) to a person other than a registered person, be the location
of the recipient of services on the records of the supplier of services - section 12(13) of IGST
Act.
14.17 Advertisement services to Government
The place of supply of advertisement services to the Central Government, a State
Government, a statutory body or a local authority meant for the States or Union territories
identified in the contract or agreement shall be taken as being in each of such States or
Union territories and the value of such supplies specific to each State or Union territory shall
be in proportion to the amount attributable to services provided by way of dissemination in
the respective States or Union territories as may be determined in terms of the contract or
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agreement entered into in this regard or, in the absence of such contract or agreement, on
such other basis as may be prescribed - section 12(14) of IGST Act.
This provision is made because Central Government issues orders for advertisements from
Delhi, while advertisements are published all over India.
Similarly, State Government may release advertisements outside the State also.
Mode of apportionment of IGST - The mode of apportionment of IGST with respect to
advertisement services under section 12(14) of the IGST Act has been made in rule 3 of IGST
Rules, inserted on 15-11-2017. The rule makes detailed provisions for apportionment of tax
between Union and States for (a) advertisements in newspapers and publications (b) printed
material like pamphlets, leaflets, diaries, calendars, T-shirts (c) hoarding other than on trains
(d) advertisements on trains (e) Advertisements on back of utility bills, railway tickets (f)
advertisements over radio (g) advertisements over TV (h) advertisements in cinema halls (i)
advertisements over internet (j) advertisements through SMS.
As clarified in section 12(4) of IGST Act, this mode of apportionment applies only when
contract or agreement does no specify breakup of advertisements in each State.
14.18 Place of supply in case Residuary services - Other than export and import of services
In case of services other than those specified above, the place of supply of services - (a) made
to a registered person shall be location of service recipient - section 12(2)(a) of IGST Act (b)
made to any person other than a registered person shall be (i) the location of the recipient
where the address on record exists, and (ii) the location of the supplier of services in other
cases - section 12(2)(b) of IGST Act.
The principle behind these provisions is that GST is destination based tax and where
destination of service is known, that should be the place of supply of service.
"Address on record" means the address of the recipient as available in the records of the
supplier - section 2(3) of CGST Act.
Port Services supplied by port authorities to its clients - Port Authorities provide various
services to its clients like arriving of wagons, haulage of wagons, loading/unloading of
wagons, movement of cargo etc. These are all 'cargo handing' services. If location of supplier
and recipient is in India, the service would fall under section 12(2) of IGST Act and place of
supply will be location of service recipient if he is registered or address of recipient (if
unregistered). If his address is not known, the place of supply will be location of supplier of
services (i.e. port authority). If location of supplier or recipient is out of India, the service
would fall under section 13(2) of IGST Act and place of supply will be location of recipient of
service - CBI&C circular No. 103/22/2019-GST dated 28-6-2019 [In my view, the first part of
answer is correct. In case of second part, section 13(3) of IGST Act should apply as it is
performance based service and place of supply should be place where service is actually
performed].
14.18-1 Service taxable where provider and receiver are located in India, even if service
provided outside India
If both supplier of service and recipient of service are in India, GST may be payable even if
service is provided outside India, if the service falls under residual category.
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Para 5.8-2 of CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012

had given following illustrations -
Tour operator providing service to Indian tourist outside India - Tour operator in India
providing service to Indian tourist outside India will be liable to pay GST.
14.19 Broad analysis of definition of place of supply of service within India
The rules relating to place of supply of services are quite involved and complicated. Broadly,
as rule of thumb, in many cases, if the recipient of service is registered, his place will be
supply of services. In some cases, even if he is not registered, his address on record can be
used to determine place of supply of service.
These provisions are made as GST is a destination based tax. Thus, GST should be normally
payable where services are consumed. However, where recipient of service is not registered
or even his address is not on record, place of supply can be place of supplier of service.
Of course, this is general statement and provisions vary in respect of each category of
services.
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Place of supply in case of export or import of goods or services or both

15.1 Place of supply when supplier or recipient is outside India
IGST Act has made separate provisions in respect of place of supply in case of import and
export of goods and services i.e. where the location of the supplier of goods or services or
the location of the recipient of goods or services is outside India.
IGST may be payable even if place of supply out of India if the supply is not 'export' as per
definition - It may be noted that if the supply does not fall within the definition of export of
services even if place of supply is out of India, it will be inter-state supply and IGST will be
payable [e.g. in case of services supplied at place out of India, if payment is not received in
foreign exchange, it will be inter-state supply as per section 7(5)(a) of CGST Act and IGST will
be payable].
Thus, 'export of goods or services' is residuary supply in the sense that if all the conditions
are not satisfied, the provisions as applicable in respect of local supply will apply.
Luckily, service supplied by establishment of person in India to own establishment out of
India is exempt, if place of supply is out of India (even if it is not 'export' as defined) - Sr No.
10E of Notification No. 9/2017-IT (Rate) both dated 28-6-2017 as inserted w.e.f. 27-7-2018.
If place of supply is location of supplier in India, CGST and SGST payable even if recipient is
out of India - As per section 8(2) of CGST Act, if place of supply is location of supplier in
India, CGST and SGST payable (This would be so even if customer is out of India) [e.g. supply
of intermediary service by Indian taxable person to person out of India].
15.1-1 Taxable territory
"Taxable territory" means the territory to which the provisions of IGST Act apply - section
2(22) of IGST Act.
As per section 1(2) of IGST Act, the IGST Act extends to whole of India, except J&K.
15.2 Place of supply in case of imports and exports of goods
"Export of goods" with its grammatical variations and cognate expressions, means taking
goods out of India to a place outside India - section 2(5) of IGST Act.
"Import of goods" with its grammatical variations and cognate expressions, means bringing
goods into India from a place outside India - section 2(10) of IGST Act.
The place of supply of goods imported into India shall be the location of the importer -
section 11(a) of IGST Act.
The place of supply of goods exported from India shall be the location outside India- section
11(b) of IGST Act.
Supply of goods imported into the territory of India, till they cross the customs frontiers of
India, shall be treated to be a supply of goods in the course of inter-State trade or commerce
- section 7(2) of IGST Act.
"Customs frontiers of India" means the limits of a customs area as defined in section 2 of the
Customs Act, 1962 - section 2(4) of IGST Act.
Thus, in case of import of goods, only IGST can apply. SGST and CGST will never apply.
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15.2-1 Export or supply to SEZ unit or developer of goods or services is inter-state trade or
commerce
Supply of goods or services or both - (a) when the supplier is located in India and the place
of supply is outside India (b) to or by a Special Economic Zone developer or a Special
Economic Zone unit; or (c) in the taxable territory, not being an intra-State supply and not
covered elsewhere in this section - - shall be treated to be a supply of goods or services or
both in the course of inter-State trade or commerce - section 7(5) of IGST Act.
Thus, in case of export of goods or services, SGST cannot apply.
15.2-2 Supply at duty free shops at International Airports
There is dispute whether GST is payable on supply at duty free shops in international
airports. The issue is discussed in chapter of 'Exports and imports'.
15.2-3 Transaction is not export if goods do not move physically out of India
In Dolphine Die Cast (P.) Ltd., In re [2020] 116 taxmann.com 746 (AAR - Kar.), the applicant
engaged in manufacture and export of Aluminium and Zinc Die Castings, manufactured 'die'
to foreign customer for manufacture of die castings. Applicant raised invoice on foreign
customer for the die but kept the die with himself. It was that this does not amount to export
under section 2(5) of the IGST Act. It is an intra state transaction under section 8(1) of IGST
Act [Thus, CGST and SGST/UTGST will be payable].
15.3 Export and import of services
Place of supply of service is relevant to determine issue of export and import of services.
Export of services - Section 2(6) of IGST Act states as follows—
"Export of services" means the supply of any service when—
(a) the supplier of service is located in India
(b) the recipient of service is located outside India
(c) the place of supply of service is outside India
(d) the payment for such service has been received by the supplier of service in
convertible foreign exchange, and
(e) the supplier of service and recipient of service are not merely establishments of a
distinct person in accordance with Explanation 1 of section 8 of IGST Act [what is
meant is that branch and HO of same taxable person shall not be treated as two
distinct persons for this provision. Thus, there cannot be export of service to own
branch office outside India].

Import of services - Section 2(11) of IGST Act reads as follows—

"Import of service" means the supply of any service, where—
(a) the supplier of service is located outside India,
(b) the recipient of service is located in India, and
(c) the place of supply of service is in India.
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15.3-1 Meaning of establishment of distinct persons

Explanation 1 to section 8(1) of IGST Act reads as follows—
For the purposes of this Act (i.e. IGST Act)- (i) an establishment in India and any other
establishment outside India, or (ii) an establishment in a State and any other establishment
outside that State or (iii) an establishment in a State and any other establishment (*)
registered within that State or Union Territory - - shall be treated as establishments of
distinct persons.
* - The words were 'being a business vertical'. These have been omitted vide IGST
(Amendment) Act, 2018 w.e.f. 1-2-1019.
The effect of this amendment is that if a taxable person has another establishment within
the State or Union Territory with separate registration number, such establishment will be
different taxable person for GST and CGST and SGST/UTGST will be payable if goods or
services or both are supplied from one registered establishment to another registered
establishment within same State/Union Territory having separate GSTIN registration.
This was required earlier also.
As per Explanation 2 to section 8(2) of IGST Act, a person carrying on a business through a
branch or agency on a representational office in any territory shall be treated as having
establishment in that territory.
Group companies are not 'establishments of same persons' - Group companies are not
'establishments of same persons' - Nes Global Specialist Engineering Services (P.) Ltd. In re
[2019] 103 taxmann.com 122 (AAR-Maharashtra) [In this case, KMP and Board of Directors
were different and there was no common shareholding. In my view, even if it was son, they
will not be 'establishments of same persons' unless. In the given situation, corporate veil is
required to be lifted].
Liaison office in India and foreign company are establishments of same persons for
definition of 'export' IGST Act - FAQ on GST Chapter 21 Q No. 32 issued by CBI&C on 15-12-
2018 states as follows - 'Explanation 1 in section 8(2) of the IGST Act states that where a
person has establishment in India and any other establishment outside India, then such
establishments shall be treated as establishment of distinct persons. Where the Indian arm
is set up as a Liaison office or branch, they would be treated as establishments of same entity
and hence, the supply inter-se shall not qualify as export of serviced. - - However, if Indian
arm is set up as a wholly owned subsidiary incorporated under the Indian laws, the foreign
company and the Indian subsidiary would not be governed by the provisions of distinct
person or related person as both are separate legal entities'.
What is meant by though branch in India and its HO out of India are same 'legal person', for
purposes of IGST Act, they are treated as 'distinct persons'. There cannot be export of
services from branch to HO. However, there can be export of services from Indian subsidiary
to parent foreign company [Really, wording of clarification should have been simpler and
explicit].
15.3-2 Receipt or payment in foreign exchange not relevant to decide place of supply
 248

The Place of Supply of Services provisions do not make any mention about receipt or
payment in foreign exchange or in Rupees. In fact, the provisions do not make any mention
of payment at all.
Thus, payment or receipt in foreign exchange or rupees is not at all relevant to determine
Place of Supply of Services. That is relevant to determine whether the service is 'export of
service' or 'export of goods'. Often, provisions of place of supply of service and Export of
Service provisions are mixed up, which causes confusion.
15.3-3 GST can be levied when place of supply is out of India
As per section 7(5)(a) of IGST Act, supply of goods or services or both, when the supplier is
located in India and the place of supply is outside India, the supply will be treated as supply
in the course of inter-State trade or commerce.
As per section 5(1) of IGST Act, IGST is levied on all inter-state supplies of goods or services
or both. Hence, IGST is payable if supplier of goods or services is in India and place of supply
is out of India.
In such case, IGST can apply, unless such supply is 'export of service' or 'export of goods' as
defined i.e. payment should be received in foreign exchange.
However, as per section 1(1) of IGST Act, the Act applies to whole of India. Hence, it can be
argued that if place of supply is out of India, GST cannot be levied, even if the supply does
not qualify as 'export of goods' or 'export of services'. Further, GST is a consumption based
tax and if goods or services are consumed outside India, GST should not apply.
However, as per strict interpretation, GST should be payable, unless payment is received in
foreign exchange.
In Indian Association of Tour Operators v. UOI (2017) 5 GSTL 4 (Del HC DB), provision of tax
on service provided to foreign tourists in India (who had made payment in foreign
exchanges) was held as invalid. This decision was in different context and does not apply in
this case, though some help can be taken from this judgment.
15.3-4 Principles in Place of Supply of Service provisions based on European Directives
Principles in Place of Supply of Service rules are broadly based on European Union (EU)
Directives.
In Aktiebolaget NN v. Skatteverket (2012) 36 STT 264 = 22 taxmann.com 175 (ECJ), it was
observed that the purpose of the EU directives is to avoid conflicts of jurisdiction which may
result in double taxation or non-taxation.
Thus, principle is to avoid doubt taxation or non-taxation. This has to be remembered while
applying the provisions.
15.3-5 Global Agreement and Global Framework Agreement
In case of Global Agreement, or Global Framework Agreement for provision and receipt of
services, various permutations and combinations are possible. CBE&C has clarified as follows
in respect of service tax where orders are placed at HQ or payment for services are made by
HQ outside India. This clarification equally applies in case of IGST also.
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Third person or HQ may place orders or make payment on behalf of recipient service - Para
5.3.4 of CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012 states
as follows -
Occasionally, a person may be the person liable to make payment for the service provided
on his behalf to another person. For instance, the provision of a service may be negotiated
at the headquarters of an entity by way of centralized sourcing of services whereas the
actual provision is made at various locations in different taxing jurisdictions (in the case of
what is commonly referred to as a multi-locational entity or MLE). Here, the central office
may act only as a facilitator to negotiate the contract on behalf of various geographical
establishments. Each of the geographical establishments receives the service and is
obligated to make the payment either through headquarters or sometimes directly.
When the payment is made directly, there is no confusion. In other situations, where the
payment is settled either by cash or through debit and credit note between the business and
fixed establishments, it is clear that the payment is being made by a geographical location.
Wherever a fixed establishment bears the cost of acquiring, or using or consuming a service
through any internal arrangement (normally referred to as a "recharge", "reallocation", or a
"settlement"), these are generally made in accordance with corporate tax or other statutory
requirements. These accounting arrangements also invariably aid the MLE's management in
budgeting and financial performance measurement.
Various accounting and business management systems are generally employed to manage,
monitor and document the entire purchasing cycle of goods and services (such as the ERP-
Enterprise Resource Planning System). These systems support and document the company
processes, including the financial and accounting process, and purchasing process. Normally,
these systems will provide the required information and audit trail to identify the
establishment that uses or consumes a service.
It should be noted that in terms of proviso to section 66B, the establishments in a taxable
and non-taxable territory are to be treated as distinct persons. Moreover, the definition of
"location of the receiver" clearly states that "where the services are "used" at more than
one establishment, whether business or fixed, the establishment most directly concerned
with the use of the service" will be the location. Thus, the taxing jurisdiction of service, which
is provided under a 'global framework agreement' between two multinational companies
with the business establishment located outside the taxable territory, but which is used or
consumed by a fixed establishment located in the taxable territory, will be the taxable
territory.
15.4 Place of supply in case of export or import of service
The provisions of section 13 of IGST Act shall apply to determine the place of supply of
services where the location of the supplier of service or the location of the recipient of
service is outside India - section 13(1) of IGST Act.
15.4-1 Services supplied partly in India and partly outside India
Where any service referred to in section 13(3), 13(4) or 13(5) of IGST Act is supplied at more
than one location, including a location in the taxable territory (i.e. India), its place of supply
shall be the location in the taxable territory (i.e. India) - section 13(6) of IGST Act.
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15.4-2 Services supplied in more than one States in India

Where the services referred to in section 13(3), 13(4) or 13(5) of IGST Act are supplied in
more than one State or Union Territory, the place of supply of such services shall be taken
as being in each of the respective States or Union territories and the value for services
separately collected or determined in terms of the contract or agreement entered into in
this regard or, in absence of such contract or agreement, on such other basis as may be
prescribed - section 13(7) of IGST Act.
Thus, if contract provides for state wise or Union Territory wise breakup, the issue does not
arise. However, if there is consolidated contract, apportionment of tax in respect of each
State or Union Territory is required.
Section 13(3) of IGST Act makes provision for place of supply in case of performance based
services. In such case, if there is consolidated contract, apportionment will be on basis of
rule 7 of IGST Rules, inserted w.e.f. 31-12-2018.
Section 13(4) of IGST Act makes provision for place of supply in case of services directly
relating to immovable property. In such case, if there is consolidated contract,
apportionment will be on basis of rule 8 of IGST Rules, inserted w.e.f. 31-12-2018.
Section 13(5) of IGST Act makes provision for place of supply in case of event based services.
In such case, if there is consolidated contract, apportionment will be on basis of rule 9 of
IGST Rules, inserted w.e.f. 31-12-2018.
15.5 Place of supply of service in case of performance on goods made available by service
recipient
In case of services supplied in respect of goods which are required to be made physically
available by the recipient of service to the supplier of service, or to a person acting on behalf
of the supplier of service in order to provide the service : the place of supply shall be the
location where the services are actually performed - section 13(3)(a) of IGST Act.
Services provided electronically from remote location - When such services are provided
from a remote location by way of electronic means, the place of supply shall be the location
where goods are situated at the time of supply of service - first proviso to section 13(3)(a) of
IGST Act.
Place of supply if goods supplied by recipient are processed or repaired and re-exported -
In the case of services supplied in respect of goods which are temporarily imported into India
for repairs or for any other treatment or process and are exported after such repairs or
treatment or process without being put to any use in India, other than that which is required
for such repairs or treatment or process - second proviso to section 13(3)(a) of IGST Act
inserted vide IGST (Amendment) Act, 2018, w.e.f. 1-2-2019.
The words in italics have been inserted vide IGST (Amendment) Act, 2018 w.e.f. 1-2-2019.
Effect of this amendment is that goods can be imported into India for processing or repairs
and can be exported without payment of tax. The reason is that place of supply will not be
on basis of performance of service, but on basis of residual provision under section 13(2) of
IGST Act i.e. location of recipient of service.
Prior to 1-2-2019, the second proviso was reading as follows - In the case of a service
supplied in respect of goods that are temporarily imported into India for repairs and are
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exported after repairs without being put to any other use in India (i.e. other than that which
is required for such repairs), the place of supply of service will be location of recipient of
service as per residuary provision contained in section 13(2) of IGST Act - second proviso to
section 13(3)(a) of IGST Act as existing upto 1-2-2019.
Hence, only repairs and re-export was permissible. Now, processing and re-export without
tax will also be permissible.
Job work on behalf of foreign Principal was taxable upto 1-2-2019 as place of supply was
India - In Synthite Industries, In re [2018] 99 taxmann.com 99 (AAR - Andhra Pradesh), the
applicant was providing job work service of removing 'caffeine' from Tea powder imported
from foreign company (Principal) and exporting de-caffeinated tea to principal. It was held
that it is job work under SAC code 9988. Place of supply is India and hence SGST and CGST is
payable [9% + 9% - total 18%]. [After GST Amendment Act 2018 notified w.e.f. 1-2-2019, this
service will be exempt in view of amendment to second proviso to section 13(3)(a) of GST
Act].
Cutting and polishing of unpolished diamonds temporarily imported into India - If activity
of cutting and polishing is carried out on unpolished diamonds temporarily imported into
India and not put to use in India (i.e. returned to foreign party after job work), the place of
supply would be location of service recipient of service as per section 13(2) of CGST Act
[Thus, no GST and it will be export of service] - - CBI&C circular No. 103/22/2019-GST dated
28-6-2019.
Software services relating to Electronics Semi-Conductor and Design Manufacturing
(ESDM) industry - Many companies in India are engaged in process of developing software
and designing integrated circuits for customers located out of India. These are part of
Electronics Semi-Conductor and Design Manufacturing (ESDM) industry. The Indian
company digitally integrates various IP blocks (Intellectual Property Blocks). Sample
prototype hardware is prepared by customer and sent to Indian developer and design
companies to test and validate the software. This is composite supply of software
development and design for integrated circuits electronically. Testing of software on sample
prototype hardware is incidental to supply. This testing is only ancillary activity. Hence, This
is no 'performance on goods supplied by recipient'. Hence, section 13(3)(a) of IGST Act is not
applicable. The place of supply is location of recipient of service at a place out of India as per
section 13(2) of IGST Act and exempt from GST - CBI&C circular No. 118/37/2019-GST dated
11-10-2019.
15.5-1 Services covered under performance related services
Maintenance and repair service provided within territorial waters to marine vessels owned
by foreign companies is not export of service even if payment is received in foreign
exchange. This would so even if the service provider is located within SEZ - V V Kay Marine
P Ltd. v. CCE (2014) 43 GST 348 = 41 taxmann.com 343 (CESTAT).
Testing services on goods made physically available by foreign company to Indian company
fall under section 13(3)(a) of CGST Act. Place of supply is India and IGST @ 18% is payable -
Behr-Hella Thermocontrol India P Ltd. In re (2018) 99 taxmann.com 238 (AAR - Maharashtra)
 252

* Krish Biotech Research P Ltd. In re (2020) 78 GST 55 = 110 taxmann.com 365 (AAR -
Karnataka).
In case of job work services to foreign customer on goods supplied by the foreign customer,
place of supply is India, as it is performance based service - Synthite Industries In re (2018)
99 taxmann.com 99 (AAR - AP).
Maintenance or repair service provided in India in respect of products of a foreign company
is not export of service as service is provided in India and delivered in India - prima facie view
in FANUC India v. CCE (2011) 30 STT 168 = 8 taxmann.com 270 (CESTAT).
Departmental clarification - CBE&C's 'Taxation of Services : An Education Guide' published
on 20-6-2012 clarifies as follows—

Para 5.4-1 What are the services that are provided "in respect of goods that are made
physically available, by the receiver to the service provider, in order to provide the
service"? :- Services that are related to goods, and which require such goods to be made
available to the service provider so that the service can be rendered, are covered here.
Examples of such services are repair, reconditioning, or any other work on goods (not
amounting to manufacture), storage and warehousing, courier service, cargo handling
service (loading, unloading, packing or unpacking of cargo), technical
testing/inspection/certification/analysis of goods, dry cleaning etc. It will not cover
services where the supply of goods by the receiver is not material to the rendering of the
service e.g. where a consultancy report commissioned by a person is given on a pen drive
belonging to the customer. Similarly, provision of a market research service to a
manufacturing firm for a consumer product (say, a new detergent) will not fall in this
category, even if the market research firm is given say, 1000 nos. of 1 kilogram packets
of the product by the manufacturer, to carry for door-to-door surveys.
Para 5.4-2 What is the implication of the proviso?
The proviso to states as follows :-
"Provided further that where such services are provided from a remote location by way
of electronic means, the place of provision shall be the location where goods are situated
at the time of provision of service."
In the field of Information Technology, it is not uncommon to provide services in relation to
tangible goods located distantly from a remote location. Thus the actual place of
performance of the service could be quite different from the actual location of the tangible
goods. This proviso requires that the place of provision shall be the actual location of the
goods and not the place of performance, which in normal situations is one and the same.
15.5-2 Place of Supply of R&D services (clinical research services) related to
pharmaceutical sector is out of India if recipient is out of India, w.e.f. 1-10-2019 and hence
exempt
Often foreign pharmaceutical companies sent samples of drugs/investigational products to
India for clinical research on those samples. Since it is performance based service, the place
of supply is India as per section 13(3)(a) of IGST Act and hence CGST and SGST/UTGST was
 253

payable even if recipient of service was out of India and payment was received in foreign
exchange. Thus, they were liable to pay GST. This was really unfair, as indeed the results of
test report on samples are indeed used out of India.
Hence, now it is provided that in case of supply of research and development services related
to pharmaceutical sector as specified in Column (2) and (3) from Sl. No. 1 to 10 in the Table
B of Notification No. 04/2019- IT dated 30-9-2019, by a person located in taxable territory
to a person located in the non-taxable territory, the place of supply is place of effective use
and enjoyment of a service i.e. location of recipient of service (who is out of India), if
conditions as specified in Notification No. 04/2019- IT dated 30-9-2019 are satisfied i.e. all
requirements of 'export of service' as specified in section 2(1)(6) of IGST Act, except one
relating to place of supply are satisfied.
Hence, the service of R&D services (clinical research service) will be exempt w.e.f. 1-10-2019,
though it is performance on goods related service.
This notification is w.e.f. 1-10-2019. This notification has been issued under section 13(13)
of IGST Act to prevent double taxation and uniform applicability of rules.
Earlier provision in respect of Clinical research services provided to entity out of India - In
Cliantha Research Ltd., In re [2019] 74 GST 694 = 106 taxmann.com 406 (AAR - Maharashtra),
the applicant, (which is Clinical research organization), provides Clinical Research services
provided by applicant to entities located outside India. It provides clinical research and
support services by performing technical testing and analysis on drugs/investigational
products provided by sponsors located outside India. It submits final report to foreign
sponsors. It was held that this service falls under section 13(3)(a) of IGST Act, 2017 and place
of supply of service is location where service is actually performed i.e. India. This is not
export of service under section 2(6) of IGST Act, 2017. It was also held that such services are
liable to CGST and SGST as location of 'supplier of service' and 'place of supply' is in same
State.
Now, this will be export of service w.e.f. 1-10-2019 and GST will not be payable.
Storage, packing and distribution of investigational drugs provided to customers out of
India - In Bilcare Ltd., In re [2019] 106 taxmann.com 408 (AAR - Maharashtra), applicant was
providing various types of services in India to its foreign clients (pharmaceutical companies)
of storage and distribution which include receipt, storage, distribution, of investigational
drugs in India and packaging services like blistering, bottling, filling of tablets ointments. It
was held that though location of recipient is outside India, since services supplied are in
respect of goods which are physically made available by recipient of services for services to
be performed, section 13(3)(a) of CGST Act is squarely applicable and place of supply is
location where service is actually performed i.e. India. Since place of supply and location of
service provider is in same state, CGST and SGST are payable on this transaction.
This decision should be valid even after 1-10-2019, as Notification No. 04/2019-IT dated 30-
9-2019 does not provide for exemption in respect of such activities of storage, packing and
distribution of clinical drugs.
15.5-3 Photography service - Place of supply is India?
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In Segoma Imaging Technologies India (P.) Ltd., In re [2018] 100 taxmann.com 221 (AAR -
Maharashtra), applicant was providing photography service to a company of USA in Indian
territory(Mumbai) as a representational office of Segoma Israel. It was held that as per
provisions of section 13(3)(a) of IGST Act, place of supply is Mumbai, a place where services
are actually performed. Hence, services shall be treated as intra-State supply and would be
liable to tax under provisions of CGST and SGST Act. It is not a zero rated 'export' supply.
[Really, all performance based services are not covered under section 13(3)(a) of IGST Act.
Only performance on goods supplied by recipient of service is covered. A typical pro-revenue
decision indeed].
15.5-4 Place of supply in case of maintenance and overhauling of aircraft in location of
service recipient
In case of supply of maintenance, repair or overhaul service in respect of aircrafts, aircraft
engines and other aircraft components or parts supplied to a person for use in course or
furtherance of business is 'location of service recipient' - Notification No. 4/2019-IT dated
30-9-2019 as amended w.e.f. 1-4-2020.
Thus, if aircraft of Indian airlines company is repaired outside India, the Indian company will
be liable to pay GST under RCM.
GST rate - The GST rate is 5% w.e.f. 1-4-2020. SAH code is 9987 - Sr No. 25(ia) of Notification
No. 11/2017-CT (Rate) dated 28-7-2017 inserted w.e.f. 1-4-2020.
15.6 Services where physical presence of person is required
In case of services supplied to an individual, represented either as the recipient of service or
a person acting on behalf of the recipient, which require the physical presence of the
recipient or the person acting on his behalf, with the supplier for the supply of the service,
the place of supply shall be the location where the services are actually performed- section
13(3)(b) of IGST Act.
15.6-1 Services covered in respect of physical presence of person
CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012 clarifies as
follows -

Para 5.4.3 What are the services that are provided "to an individual,..., which require the
physical presence of the receiver,..., with the provider for provision of the service"?- -
Certain services like cosmetic or plastic surgery, beauty treatment services, personal
security service, health and fitness services, photography service (to individuals), internet
cafe service, classroom teaching, are examples of services that require the presence of
the individual receiver for their provision. As would be evident from these examples, the
nature of services covered here is such as are rendered in person and in the receiver's
physical presence. Though these are generally rendered at the service provider's
premises (at a cosmetic or plastic surgery clinic, or beauty parlour, or health and fitness
centre, or internet cafe), they could also be provided at the customer's premises, or
occasionally while the receiver is on the move (say, a personal security service; or a
beauty treatment on board an aircraft).
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Para 5.4.4 What is the significance of "..in the physical presence of an individual, whether
represented either as the service receiver or a person acting on behalf of the receiver" in
this rule?- This implies that while a service in this category is capable of being rendered
only in the presence of an individual, it will not matter if, in terms of the contractual
arrangement between the provider and the receiver (formal or informal, written or oral),
the service is actually rendered by the provider to a person other than the receiver, who
is acting on behalf of the receiver.
Illustration
A modelling agency contracts with a beauty parlour for beauty treatment of say, 20 models.
Here again is a situation where the modelling agency is the receiver of the service, but the
service is rendered to the models, who are receiving the beauty treatment service on behalf
of the modelling agency. Hence, notwithstanding that the modelling agency does not qualify
as the individual receiver in whose presence the service is rendered, the nature of the service
is such as can be rendered only to an individual, thereby qualifying to be covered under this
rule.
15.7 Services directly in relation to immovable property
The place of supply of services supplied directly in relation to an immovable property,
including services supplied in this regard by experts and estate agents, supply of
accommodation by a hotel, inn, guest house, club or campsite, by whatever name called,
grant of rights to use immovable property, services for carrying out or co-ordination of
construction work, including architects or interior decorators, shall be the place where the
immovable property is located or intended to be located - section 13(4) of IGST Act.
However, if recipient of service is located in India, place of supply will be India.
In Maninder Singh In re (2020) 120 taxmann.com 341 (AAR-WB), contract for installation of
pipeline in Bangladesh was awarded to applicant by Indian party. It was held that place of
supply of service is India as per proviso to section 12(3) of IGST Act, even if immovable
property is out of India. It is not export of works contract service.
CBE&C clarification regarding 'directly in relation to immovable property - CBE&C
clarification regarding 'directly in relation to immovable property has been discussed in
earlier chapter on place of supply of service of goods and services within India. That
clarification will apply here also.
15.8 Services relating to admission or organization of events
The place of supply of services supplied by way of admission to, or organization of, a cultural,
artistic, sporting, scientific, educational, or entertainment event, or a celebration,
conference, fair, exhibition, or similar events, and of services ancillary to such admission,
shall be the place where the event is actually held - section 13(5) of Model IGST Act.
In case of boat show, the place of provision of service is where the show takes place -
Minister for the Economy, Finance and Industry, France v. Gillan Beach Ltd., UK (2012) 36 STT
670 (ECJ).
In RAL (Channel Islands) Ltd. v. CCE (2012) 36 STT 383 = 23 taxmann.com 429 (ECJ), slot
gaming machines were installed in UK, while services in relation to the gaming machines
 256

were provided by subsidiary of the company outside UK. The service was provided on the
machines located in UK itself. It was held that since it is an entertainment activity, the place
of provision of service is where services were physically carried out i.e. UK.
In case of technical accosting services and sound services provided for an entertainment
event is where the event is taking place - Jurgen Dudda v. Finanzgerricht Bergisch Gladbach
(2012) 37 STT 162 = 26 taxmann.com 115 (ECJ).
15.8-1 Services covered under admission or organization of events
CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012 clarify as follows

Para 5.6.2 What are the services that will be covered in this category?- Services in relation
to admission as well as organization of events such as conventions, conferences,
exhibitions, fairs, seminars, workshops, weddings, sports and cultural events are covered
under this Rule.

Illustration 1
A management school located in USA intends to organize a road show in Mumbai and
New Delhi for prospective students. Any service provided by an event manager, or the
right to entry (participation fee for prospective students, say) will be taxable in India.
Illustration 2
An Indian fashion design firm hosts a show at Toronto, Canada. The firm receives the
services of a Canadian event organizer. The place of provision of this service is the
location of the event, which is outside the taxable territory. Any service provided in
relation to this event, including the right to entry, will be non-taxable.
Para 5.6.3 What is a service ancillary organization or admission to an event? - Provision
of sound engineering for an artistic event is a prerequisite for staging of that event and
should be regarded as a service ancillary to its organization. A service of hiring a specific
equipment to enjoy the event at the venue (against a charge that is not included in the
price of entry ticket) is an example of a service that is ancillary to admission.
Para 5.6.4 What are event-related services that would be treated as not ancillary to
admission to an event?- A service of courier agency used for distribution of entry tickets
for an event is a service that is not ancillary to admission to the event.
15.9 Services supplied by Bank, NBFC or Financial Institution to account holders
In case of services supplied by a banking company, or a financial institution, or a non-banking
financial company, to account holders, the place of supply shall be the location of the
supplier of service - section 13(8)(a) of IGST Act.
Really, this provision is applies only to Indian bank or Financial Institution, as a foreign bank
can never be banking company or Financial Institution as defined
"Account" means an account bearing interest to the depositor, and includes a non-resident
external account and a non-resident ordinary account - Explanation (a) to section 13(8) of
IGST Act.
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"Banking company" has the meaning assigned to it in clause (a) of section 45A of the Reserve
Bank of India Act, 1934 - Explanation (b) to section 13(8) of IGST Act.
[Thus, a foreign Bank providing service from outside India cannot be 'banking company'.
Hence, general provision of place of supply of service will apply i.e. location of recipient of
service will be place of supply of service].
Bank/FI/stock broker should charge CGST and SGST/UTGST when acting as intermediary -
Bank/FI should charge CGST and SGST/UTGST when acting as intermediary as location of
supplier and place of supply are in same State - FAQ No. 25 issued by CBI&C on banking
sector on 27-12-2018.
Stock broker is intermediary and in case of foreign clients, place of supply is India. Hence,
CGST and SGST/UTGST will be payable - FAQ No. 85 issued by CBI&C on banking sector on
27-12-2018.
Meaning of FI and NBFC - "Financial institution" has the meaning assigned to it in clause (c)
of section 45-I of the Reserve Bank of India Act, 1934 - - Explanation (c) to section 13(8) of
IGST Act.
"Non-banking financial company" means—
(i) a financial institution which is a company
(ii) a non-banking institution which is a company and which has as its principal business
the receiving of deposits, under any scheme or arrangement or in any other manner,
or lending in any manner; or
(iii) such other non-banking institution or class of such institutions, as the Reserve Bank
of India may, with the previous approval of the Central Government and by
notification in the Official Gazette specify - Explanation (d) to section 13(8) of IGST
Act.

CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012 states as

follows—

Para 5.9.3 What are the services that are provided by a banking company to an account
holder (holder of an account bearing interest to the depositor)? - Following are examples
of services that are provided by a banking company or financial institution to an "account
holder", in the ordinary course of business:—
(i) services linked to or requiring opening and operation of bank accounts such as
lending, deposits, safe deposit locker etc.;
(ii) transfer of money including telegraphic transfer, mail transfer, electronic transfer
etc.

Para 5.9.4 What are the services that are not provided by a banking company or financial
institution to an account holder, in the ordinary course of business, and will consequently
be covered under another Rule? - Following are examples of services that are generally
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NOT provided by a banking company or financial institution to an account holder (holder

of a deposit account bearing interest), in the ordinary course of business:-
(i) financial leasing services including equipment leasing and hire-purchase;
(ii) merchant banking services;
(iii) Securities and foreign exchange (forex) broking, and purchase or sale of foreign
currency, including money changing;

(iv) asset management including portfolio management, all forms of fund management,
pension fund management, custodial, depository and trust services;

(v) advisory and other auxiliary financial services including investment and portfolio
research and advice, advice on mergers and acquisitions and advice on corporate
restructuring and strategy;

(vi) banker to an issue service.

In the case of any service which does not qualify as a service provided to an account holder,
the place of provision will be determined under the default rule i.e. the Main Rule 3 of POPS
Rules [now section 10(2) of Model IGST Law]. Thus, it will be the location of the service
receiver where it is known (ascertainable in the ordinary course of business), and the
location of the service provider otherwise.
This is reiterated in FAQ No. 51 issued by CBI&C on banking sector on 27-12-2018.
15.10 Services by intermediary like commission agent
In case of intermediary services, the place of supply shall be the location of the supplier of
service - section 13(8)(b) of IGST Act.
"Intermediary" means a broker, an agent or any other person, by whatever name called,
who arranges or facilitates the supply of goods or services or both, or securities, between
two or more persons, but does not include a person who supplies such goods or services on
his own account - section 2(13) of IGST Act.
The definition of 'intermediary' held valid - In Material Recycling Association of India v. UOI
[2020] 118 taxmann.com 75 (Gujarat HC DB), the provision that in case of intermediary, the
place of supply is location of supplier of service has been held as valid.
Clarifications by CBI&C - CBI&C's 'Taxation of Services : An Education Guide' published on
20-6-2012 states as follows -

Para 5.9.6 What are "Intermediary Services"? - Generally, an "intermediary" is a person

who arranges or facilitates a supply of goods, or a provision of service, or both, between
two persons, without material alteration or further processing. Thus, an intermediary is
involved with two supplies at any one time:
(i) the supply between the principal and the third party; and
(ii) the supply of his own service (agency service) to his principal, for which a fee or
commission is usually charged.
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Also excluded from this sub-rule is a person who arranges or facilitates a provision of a
service (referred to in the rules as "the main service"), but provides the main service on his
own account [The sentence seems to be incorrect].
In order to determine whether a person is acting as an intermediary or not, the following
factors need to be considered:—
Nature and value : An intermediary cannot alter the nature or value of the service, the supply
of which he facilitates on behalf of his principal, although the principal may authorize the
intermediary to negotiate a different price. Also, the principal must know the exact value at
which the service is supplied (or obtained) on his behalf, and any discounts that the
intermediary obtains must be passed back to the principal.
Separation of value : The value of an intermediary's service is invariably identifiable from the
main supply of service that he is arranging. It can be based on an agreed percentage of the
sale or purchase price. Generally, the amount charged by an agent from his principal is
referred to as "commission".
Identity and title: The service provided by the intermediary on behalf of the principal are
clearly identifiable.
In accordance with the above guiding principles, services provided by the following persons
will qualify as 'intermediary services':- (i) Travel Agent (any mode of travel) (ii) Tour Operator
(iii) Stockbroker (iv) Commission agent (v) Recovery Agent.
Even in other cases, wherever a provider of any service acts as an agent for another person,
as identified by the guiding principles outlined above, this rule will apply.
Meaning of 'or any other person, by whatever name called' - The definition of
'intermediary' includes the words or any other person, by whatever name called'. Though
the words 'any other person', these have to be given restricted meaning. This term would
cover service providers who provide services similar to that of a broker or an agent. This is
on the principle of 'noscitur a sociis' i.e. 'a word is known by its associate words'.
Commission Agent in India of foreign party should charge CGST and SGST/UTGST when
acting as intermediary - Commission Agent in India should charge CGST and SGST/UTGST
when acting as intermediary of foreign Principal, as location of supplier and place of supply
are in same State - FAQ No. 25 issued by CBI&C on banking sector on 27-12-2018.
This view has been supported in Dharmshil Agencies, In re (2021) 124 taxmann.com 2 (AAR-
Gujarat).
This view is fully supported in Cliantha Research Ltd., In re [2019] 106 taxmann.com 406
(AAR - Maharashtra) and Bilcare Ltd., In re [2019] 106 taxmann.com 408 (AAR -
Maharashtra), though decisions were in different context.
However, in Mrs Vishakhar Oeashant Bhave, In re (2019) 191 taxmann.com 150 (AAR -
Maharashtra), it was held that IGST should be charged, as it is inter-state supply.
In my view, answer given in FAQ is correct as place of supply is in same State where supplier
of service is located and hence CGST and SGST/UTGST should apply.
Tax payable by intermediary is forward charge, it is not 'import of service' under RCM - Tax
payable by intermediary is forward charge, as he is supplier of service. Tax payable by him is
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not 'import of service' and tax payable is not under RCM -Fom Aluminium Machines P Ltd. In
re (2020) 81 GST 322 = 116 taxmann.com 204 (AAR-Karn).
Exporter in India paying commission to foreign commission agent - If an exporter in India
pays commission to foreign commission agent, the place of supply is out of India and hence
no GST is payable (and no reverse charge applicable to Indian exporter) - FAQ on GST Chapter
21 Q No. 25 issued by CBI&C on 15-12-2018.
Promotion of products of Principal is intermediary service, but not after sales service -
Promotion and marketing services in relation to scientific instruments of overseas client on
commission basis qualifies as 'intermediary service'; However, after-sale services provided
is not in nature of composite contract - Toshniwal Brothers (SR) (P.) Ltd., In re [2018] 98
taxmann.com 175 (AAR-Karnataka). - view upheld in Toshniwal Brothers (SR), In re (2019) 72
GST 185 - 102 taxmann.com 37 (AAAR - Karnataka), where it was held that pure promotion
and marketing services are intermediary services.
Facilitating sale of product of overseas companies - Facilitating sale of products of overseas
companies by undertaking sales presentations to prospective customers is service of sales
presentations classifiable as 'Other professional, technical and business services' under
service Code 9983. It is being rendered as an 'intermediary service' taxable at 18 per cent
GST - Rajendran Santhosh, In re [2019] 110 taxmann.com 348 (AAR - Karnataka) - affirmed
in appeal in Rajendran Santhosh, In re [2020] 119 taxmann.com 51 (AAAR - Kar.).
Facilitating selling, marketing and distribution of software products of parent company in
India is 'intermediary' service under SAC 998599 and GST @ 18% - McAfee Software (India)
P Ltd. In re [2020] 79 GST 381 = 110 taxmann.com 236 (AAR-Karn).
Pre-sale & marketing services provided with respect to products of the foreign clients is
'intermediary services' - Pre-sale & marketing services provided with respect to products of
the foreign clients is 'intermediary services' - Infinera India (P.) Ltd., In re - [2020] 113
taxmann.com 500 (AAAR-KARNATAKA).
Marketing and consultancy services to an overseas client in Indiawould fall within term
'intermediary services' as defined under section 2(13) - DKV Enterprises (P.) Ltd., In re[2020]
82 GST 479 = 117 taxmann.com 865 (AAR - AP).
[really, this would be so only if payment is related to specific sale or services. It cannot cover
general consultancy].
Management consultancy service is not 'intermediary service' - Management Consultancy
services provided by applicant to clients abroad falls under SAC Code 998311 and such
services does not in any way, facilitate or arrange supply of goods or services or both
between two or more persons and will not fall within definition of term 'intermediary' as per
section 2(13) of IGST Act, 2017 - Thomas Joseph Nellissery, In re [2019] 73 GST 172 = 104
taxmann.com 8 (AAR - Kerala).
Marketing support services to associate companies is export of service - In AMD India (P.)
Ltd. v. CST [2019] 106 taxmann.com 148 (CESTAT), the assessee was providing marketing
support services to its associate companies. It was held that this is export of service. The
assessee was not facilitating or arranging purchase and sale on behalf of AMD entities
 261

outside India. It was held that this is Business Auxiliary Service (BAS) and not 'intermediary
service'. It is export of service [seems border line case].
Accounting and payroll accounting for overseas clients is intermediary service? - In Vserv
Global (P.) Ltd., In re [2018] 99 taxmann.com 253 (AAR - Maharashtra), Applicant was
providing back office administrative and accounting support services, payroll processing and
maintenance of employee records to overseas clients. Orders for supply of said services
were received by applicant in its Mumbai office and also services were executed from its
office situated in Mumbai India. It was held that since applicant arranges/facilitates supply
of goods or services or both between overseas client and customers of overseas client,
applicant is clearly covered and falls in definition of 'intermediary'. Place of supply of service
is India and hence GST is payable. This is not export of service. - view upheld in Vserv Global
(P.) Ltd., In re [2019] 104 taxmann.com 423 (AAAR - Maharashtra) [really doubtful].
Promoting foreign university course in India is not export of service, it is intermediary
service and taxable - In Global Reach Education Services (P.) Ltd., In re [2018] 96
taxmann.com 107 (AAAR-West Bengal), appellant was promoting courses of foreign
university in India. The activity was to find suitable prospective students to undertake
courses, and, in accordance with university procedures and requirements, assisting in
recruitment of suitable students. It was held that, appellant is to be considered as an
intermediary in terms of section 2(13) of IGST Act and, therefore, services of appellant are
not 'Export of Services' under GST Act, and are eligible to tax. [confirming decision of AAR in
Global Reach Education Services (P.) Ltd., In re [2018] 92 taxmann.com 211 (AAR - KOL.)]
[In my view, the decision is correct].
In a contrary decision, in Sunrise Immigration Consultants (P.) Ltd. v. CCEST [2019] 106
taxmann.com 173 (CESTAT), assessee was providing referral service to foreign colleges and
students who wished to get admission in foreign based colleges. Further, people who wished
to settle in Canada approached assessee to obtain loan from foreign based banks. Assessee
referred their case to foreign bank and colleges and in return got commission from
banks/colleges if deal was matured. It was held that assessee could not be called as
intermediary. It was export of service [seems to be a border line case].
Pre-sale & marketing services provided with respect to products of the foreign clients is
'intermediary services' - Pre-sale & marketing services provided with respect to products of
the foreign clients is 'intermediary services' - Infinera India (P.) Ltd., In re [2020] 113
taxmann.com 500 (AAAR - Karnataka).
Marketing and consultancy services to an overseas client in India, said transaction would fall
within term 'intermediary services' as defined under section 2(13) - DKV Enterprises (P.) Ltd.,
In re [2020] 117 taxmann.com 865 (AAR - AP).
[really, this would be so only if payment is related to specific sale or services. It cannot cover
general consultancy].
Promotion of products of Principal is intermediary service, but not after sales service -
Promotion and marketing services in relation to scientific instruments of overseas client on
commission basis qualifies as 'intermediary service'. However, after-sale services provided
is not in nature of composite contract - Toshniwal Brothers (SR) (P.) Ltd., In re [2018] 98
 262

taxmann.com 175 (AAR-Karnataka) - view upheld in Toshniwal Brothers (SR) In re (2019) 72

GST 185 - 102 taxmann.com 37 AAAR - Karnataka), where it was held that pure promotion
and marketing services are intermediary services.
Promoting products of Principal is intermediary service - Sabre Travel Network India (P.) Ltd.,
In re [2019] 107 taxmann.com 467 (AAAR-Maharashtra).
Various services supplied to Principal abroad as mixed supply - In Commissioner, CGST, In
re (2019) 75 GST 477 = 107 taxmann.com 465 (AAAR-Maharashtra) [on appeal from Asahi
Kasai India (P) Ltd. In re (2019) 101 taxmann.com 269 (AAR-Maharashtra)], applicant was
providing various services to its Principal abroad. These covered accounting services (9982),
'Other Professional, technical and business services' (9983), Research and Development
Services (9981) and Other Miscellaneous services (9997). It was held that it is mixed supply
and only some services would be classified as 'intermediary services'. [The applicant is
clueless how to find value of such services when it is total amount charge].
Facilitating investment consultancy and permanent residence advisory services -
Marketing and facilitating investment consultancy and permanent residence advisory
services is intermediary service - Mayank Jain In re (2020) 122 taxmann.com 59 (AAAR-
Maharashtra).
Management consultancy service is not 'intermediary service' - Management Consultancy
services provided by applicant to clients abroad falls under SAC Code 998311 and such
services does not in any way, facilitate or arrange supply of goods or services or both
between two or more persons and will not fall within definition of term 'intermediary' as per
section 2(13) of IGST Act, 2017 - Thomas Joseph Nellissery, In re [2019] 104 taxmann.com 8
(AAR - Kerala)
Consultancy engineering services and business auxiliary service (service of locating potential
customers for products of foreign company), provided to foreign holding company is export
of service. It is not intermediary service - CCE v. Analog Devices India (P.) Ltd. [2019] 106
taxmann.com 213 (CESTAT).
If assessee, is itself engaged in providing services to its client and facilitating customers of its
client for providing those services by third party, assessee could not be categorized as
intermediary - Evalueserve.Com (P.) Ltd. v. CST, Gurgaon [2019] 106 taxmann.com 74
(CESTAT).
Software development service to holding company and marketing support services to
associate companies is export of service - In AMD India (P.) Ltd. v. CST [2019] 106
taxmann.com 148 (CESTAT), the assessee was providing software development service to its
holding company. It was held that this is export of service.
The assessee was also providing marketing support services to its associate companies. It
was held that is export of service. The assessee was not facilitating or arranging purchase
and sale on behalf of AMD entities outside India. It was held that this is Business Auxiliary
Service (BAS) and not 'intermediary service'. It is export of service.
15.10-1 Information Technology enabled Services (ITeS) and back end services are not
intermediary services
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CBI&C, vide circular No. 107/26/2019-GST dated 18-7-2019, had clarified issues relating to
ITeS services. This circular has been withdrawn ab initio vide CBI&C Circular No. 127/46/2019
- GST dated 4-12-2019 stating that there were some apprehensions about the circular.
In my view, what was stated was correct in respect of ITeS services. However, what was
stated about back end services had created lot of confusion and many show cause notices
were issued. Really, that part of circular which referred to back end services should have
been modified, instead of scrapping the whole circular.
The circular dated 18-7-2019 had stated as follows -
Information Technology enabled Services (ITeS services), though not defined under the GST
law, have been defined under the rule 10TA(e) of the Income-tax Rules, 1962 which pertains
to Safe Harbour Rules for international transactions. It defines ITeS services as—

"Information technology enabled services" means the following business process

outsourcing services provided mainly with the assistance or use of information
technology, namely:—
(i) back office operations;
(ii) call centres or contact centre services;
(iii) data processing and data mining;
(iv) insurance claim processing;
(v) legal databases;
(vi) creation and maintenance of medical transcription excluding medical advice;

(vii) translation services;

(viii) payroll;
(ix) remote maintenance;
(x) revenue accounting;
(xi) support centres;

(xii) website services;

(xiii) data search integration and analysis;
(xiv) remote education excluding education content development; or
(xv) clinical database management services excluding clinical trials,

but does not include any research and development services whether or not in the nature
of contract research and development services.
ITeS services are not intermediary services even if supplied to customer of customer -
Where ITeS services (Information Technology enabled Services) are supplied at back end,
 264

the supplier will not fall under the ambit of intermediary the IGST Act where these services
are provided on his own account by such supplier.
Even where a supplier supplies ITeS services to customers of his clients on clients' behalf,
but actually supplies these services on his own account, the supplier will not be categorized
as intermediary. In other words, a supplier "A" supplying ITeS services on his own account
to his client "B" or to the customer "C" of his client would not be intermediary in terms of
section 2(13) of the IGST Act.
ITeS services are export of services and export benefits are available.
In my view, these instructions are correct and valid even if the circular dated 18-7-2019 has
been scrapped.
Back end services which include support services of delivery - If backend services include
support services, during pre-delivery, delivery and post-delivery of supply (such as order
placement and delivery and logistical support, obtaining relevant Government clearances,
transportation of goods, post-sales support and other services, etc.), these will be
'intermediary services' and taxable. The extract from CBI&C circular is given below.
The supplier of backend services located in India arranges or facilitates the supply of goods
or services or both by the client located abroad to the customers of client. Such backend
services may include support services, during pre-delivery, delivery and post-delivery of
supply (such as order placement and delivery and logistical support, obtaining relevant
Government clearances, transportation of goods, post-sales support and other services,
etc.). The supplier of such services will fall under the ambit of intermediary under sub-
section (13) of section 2 of the IGST Act as these services are merely for arranging or
facilitating the supply of goods or services or both between two or more persons. In other
words, a supplier "A" supplying backend services as mentioned in this scenario to the
customer "C" of his client "B" would be intermediary in terms of sub-section (13) of section
2 of the IGST Act.
In my view, these instructions would be valid only if physical activity on goods is carried out
in India as it will be a performance based service under section 13(3)(a) of IGST Act and place
of supply would be India. Otherwise, this should not fall under intermediary service and good
that the circular has been withdrawn.
If both ITeS and support services supplied - If both ITeS and support services are supplied,
the classification of service will be on basis of Principal supply.
Back Office services to overseas clients is not intermediary service - In New Global Specialist
Engineering Services P Ltd. In re (2019) 73 GST 429 = 103 taxmann.com 122 (AAR-
Maharashtra), it was held that administrative and support services supplied to foreign client,
where payment is received in foreign exchange, is export of service and is zero rated.
Back office service is classifiable as support service under heading 998599. It is not
intermediary service - Fulcrum Info Services LLP In re (2020) 80 GST 370 = 110 taxmann.com
227 (AAR-Karn).
However, in V Sero Global In re (2018) 99 taxmann.com 253 (AAR-Maharashtra), it has been
held that back office service of administrative and accounting support service is
'intermediary service'. Place of supply is location of supplier of service i.e. India. Hence,
 265

service is not export of service and hence not 'zero rated supply' [By any stretch of
imagination, I cannot imagine how this activity can be 'intermediary service'. Validity of this
judgment is doubtful in view of clear circular of CBI&C dated 18-7-2019 in respect of ITeS].
15.10-2 Services of freight forwarder
Para 5.9.6 of CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012
gives following illustration.
Illustration - A freight forwarder arranges for export and import shipments. There could be
two possible situations here- one when he acts on his own account, and the other, when he
acts as an intermediary.
When the freight forwarder acts on his own account (say, for an export shipment)
A freight forwarder provides domestic transportation within taxable territory (say, from the
exporter's factory located in Pune to Mumbai port) as well as international freight service
(say, from Mumbai port to the international destination), under a single contract, on his own
account (i.e. he buys-in and sells freight transport as a principal), and charges a consolidated
amount to the exporter. This is a service of transportation of goods for which the place of
supply is the destination of goods. Since the destination of goods is outside taxable territory,
this service will not attract service tax. Here, it is presumed that ancillary freight services (i.e.
services ancillary to transportation- loading, unloading, handling etc.) are "bundled" with
the principal service owing to a single contract or a single price (consideration).
On an import shipment with similar conditions, the place of supply will be in the taxable
territory, and so service tax will be attracted.
When he acts as an intermediary
Where the freight forwarder acts as an intermediary, the place of provision will be his
location. Service tax will be payable on the services provided by him. However, when he
provides a service to an exporter of goods, the exporter can claim refund of service tax paid
under notification for this purpose.
Similarly, persons such as call centres, who provide services to their clients by dealing with
the customers of the client on the client's behalf, but actually provided these services on
their own account, will not be categorized as intermediaries.
15.10-3 Service on principal to principal basis is not intermediary service
Service provided to foreign Principal on principal to principal basis is not intermediary
service.
For example, service of marketing consultant is not 'intermediary service', if he gets his fees
at fixed rate and not on basis of turnover achieved.
In GoDaddy India Web Services P Ltd. In re (2016) 54 GST 681 = 67 taxmann.com 324 (AAR),
assessee was providing various types of services as 'bundled service' to its foreign Principal.
In addition to providing marketing and promotion service, assessee was also providing
services of supervision of call centre services and payment processing services. It was held
that the place of supply of service is outside taxable territory and hence service tax is not
applicable.
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In ABS India Ltd. v. CST (2008) 17 STT 223 (CESTAT), assessee had subsidiary company in
Singapore. Assessee-company booked orders in India for sale of goods manufactured by
subsidiary in Singapore. Assessee received commission from its Singapore subsidiary. It was
held that service was delivered to subsidiary. It cannot be said that service is delivered in
India.
15.10-4 Ironical situation - Receiving foreign exchange is taxed
This provision has created an ironical situation. If Indian commission agent provides service
to Principal outside India, he is required to pay IGST, though he is receiving payment in
foreign exchange. On the other hand, if a foreign commission agent provides service to
Indian Principal, the Indian Principal has to pay him in foreign exchange but no IGST is
payable.
Thus, a transaction where actually India received foreign exchange is subjected to IGST,
while transaction where there is outflow of foreign exchange from India is not subject to
IGST.
No IGST and no reverse charge on services provided by foreign Commission Agents to
Indian Principals - In case of foreign commission agents providing service to Indian Principal,
the place of supply of service is outside India. Hence, no IGST is payable even under reverse
charge.
15.10-5 Transactions between liaison/branch office in India and its parent company out of
India
A liaison office in India of foreign company is to have liaison between Indian customers and
the foreign Principal.
The foreign company can also establish branch office in India.
Basic distinction is that liaison office cannot undertake any commercial/trading/industrial
activity, directly or indirectly. Branch office can do so.
Issue is whether such liaison/branch office falls in definition of 'intermediary'. If yes, place
of supply of service of liaison office is India and GST can apply.
As per Explanation I(i) to section 8(2) of IGST Act, for the purposes of IGST Act, an
establishment in India and other establishment outside India shall be treated as
establishment of distinct persons.
As per Explanation 2 to section 8(2) of IGST Act, a person carrying on a business through a
branch or agency on a representational office in any territory shall be treated as having
establishment in that territory.
Liaison office in India and foreign company are establishments of same persons for
definition of 'export' IGST Act - FAQ on GST Chapter 21 Q No. 32 issued by CBI&C on 15-12-
2018 states as follows - 'Explanation 1(i) in section 8(2) of the IGST Act states that where a
person has establishment in India and any other establishment outside India, then such
establishments shall be treated as establishment of distinct persons. Where the Indian arm
is set up as a Liaison office or branch, they would be treated as establishments of same entity
and hence, the supply inter-se shall not qualify as export of serviced. - - However, if Indian
arm is set up as a wholly owned subsidiary incorporated under the Indian laws, the foreign
 267

company and the Indian subsidiary would not be governed by the provisions of distinct
person or related person as both are separate legal entities'.
Liaison office/branch office receiving maintenance expenses from foreign company is not
for 'export of services' - Liaison office in India of course does not generate any income itself.
It receives maintenance expenses from HO. Though liaison office receives payment in
foreign exchange, it is not 'export of service', since, as per section 2(6)(v) of IGST Act, one of
the conditions to treat a service as 'export of service' is that the supplier and recipient are
not mere establishments of a distinct person in accordance with explanation I of section 8
of IGST Act.
Services supplied by Liaison Office in India to HO abroad is not supply and cannot be taxed
- In Wilhelm Frickr SE In re (2021) 123 taxmann.com 277 (AAR-Haryana), it has been held
that the HO and Liaison Office cannot be treated as separate persons. There cannot be any
flow of services. The reimbursement of expenses of liaison office by HO cannot be treated
as a consideration. Thus, reimbursement would be outside the scope of supply.
In exactly contrary decision, in Fraunhofer-Gessellschaft Zur Forderung der angewwandten
Forschung, In re[2020] 120 taxmann.com 352 (AAR - KARNATAKA), it was held that liaison
activities which involve business and promotion of Head Office (HO) incorporated in
Germany being undertaken by Liaison Office in India, as per conditions stipulated by RBI,
amounts to supply under section 7(1)(c) of CGST Act, even in absence of consideration.
Where liaison Office (LO) in India is facilitating supply between Head Office (HO) in Germany
and Indian customers, liaison office and their HO shall be treated as establishments of
distinct persons, and being distinct legal entity would be covered under definition of
intermediary as per section 2(13) of the IGST Act, 2017. It would be supply of services (even
if no consideration) and Liaison Office in India would require registration under GST.
My view - In my view, decision of AAP-Haryana seem correct as you cannot provide service
to yourself. The Explanation 1(i) in section 8(2) of the IGST Act is a 'deeming provision' for
purposes of IGST Act and is relevant for definition of 'export of service'. It is well settled that
Legal fictions should not be stretched beyond the purpose for which they are enacted and
should not be extended beyond that legitimate field - Bengal Immunity Co. Ltd. v. State of
Bihar - AIR 1955 SC 661 = (1955) 6 STC 446 = (1955) 2 SCR 603 * Raymond v. State of
Chhattisgarh AIR 2007 SC 2854.
Legal fiction should not be extended beyond the language by which it is created. A deeming
provision cannot be pushed too far so as to result in an anomalous or absurd position -
Maruti Udyog Ltd. v. Ram Lal AIR 2005 SC 851 = (2005) 2 SCC 638.
The 'deeming provision' cannot be extended to such an extent which results in absurd and
anomalous situation which results in one providing service to oneself.
Salary of employees of foreign office paid in India - In Hitachi Power Europe GmbH, In
re[2020] 81 GST 706 = 117 taxmann.com 537 (AAR - Maharashtra), Expats were deputed in
India for project execution. They were employees of Project office in India. For
administrative convenience; salary of the employees were paid by foreign office and the
project office in India issued credit note of that amount to foreign office. It was held that
this is for payment of salary to employees. It is intra-company transaction. GST is not
 268

applicable on accounting entry made for purpose of Indian accounting requirements in

books of account of project office for salary cost of expat employees - same view in Hitachi
Power Europe GmbH, In re[2019] 80 GST 81 = 116 taxmann.com 102 (AAR - UP).
In my view, the decision can also be justified on the basis that payment made was as 'pure
agent'.
Branch/liaison office outside India providing liaison service to Indian parent company is
not import of service - An Indian parent company may have liaison office outside India. The
Indian parent company will remit amount to liaison office outside India. What is discussed
above applies to liaison office of Indian parent company abroad also.
Assuming that the liaison office out of India is 'intermediary', as per section 2(11) of IGST
Act, one of the conditions for treating a service as ''import of service' is that place of supply
of service of service should be in India. Since this condition is not satisfied, the service
received by Indian parent company cannot be 'import of service'. Consequently, Indian
company will not be liable to pay GST under reverse charge.
15.10-6 Money transfer service provided to foreign entity by Indian supplier of service is
intermediary service and subject to IGST
Foreign Money Transfer Service Operator (MTSO) (like Western Union) provide service of
transferring money from outside India to Indian recipient in India. This is similar to Money
Order service. The facility is used by persons outside India for remitting money from outside
to India to their relatives in India.
Remitter located outside India (say A) approaches Money Transfer Service Operator (MTSO)
(say B) located outside India for remitting money to a beneficiary in India (say E). A pays
money to B. For this service, B receives fee/commission from A.
B appoints agents in India (say C) (who is usually a Bank or post office or some financial
entity) for delivery of money to E. C is paid fee/commission from B for providing this service.
C may deliver money directly to E or C may appoint sub-agent (say D) for this purpose.
Usually no fee is charged from E but sometimes, some fee/charges may be recovered from
E also.
CBE&C has clarified vide CBE&C circular 180/06/2014-ST dated 14-10-2014 as follows - In
aforesaid case, relations between C (Indian Bank or post office) and B (foreign MTSO) are
not on principal to principal basis. C (Indian Bank or Post Office or other financial entity) is
an agent of MTSO. This, C is intermediary in services. Hence, as per rule 9(c) of Place of
Provision of Service Rules [now section 13(8)(b) of IGST Act], the place of supply of service is
India and hence C will be liable to pay service tax (now IGST). The value of service is equal to
commission or fee received by C form B.
Sub-agent (D) is also liable for fee/commission received from C [If value of service is less than
Rs 10 lakhs per annum, D should be eligible to avail exemption available to service provider].
Money changing service - If B is providing money changing service (for converting money
received from outside India into Indian rupees), GST will apply on these currency conversion
charges.
15.10-7 Service to foreign University for recruiting students
 269

In Global Reach Education Services (P.) Ltd. In re [2018] 92 taxmann.com 211 (AAR-West
Bengal), Applicant was facilitating recruitment/enrolment of students to foreign
Universities. Applicant was paid consideration in form of Commission, based on
performance in recruiting students, as a percentage of tuition fee collected from students
enrolled through applicant. It was held that this is not 'Export of Services' and hence taxable
under GST. It was held that this is 'intermediary service'.
15.10-8 Third country shipments - International Trading in goods - Exemption to services
provided by an intermediary
As international business is increasing, international trading in goods is increasing. The goods
do not touch India. Goods go from one country to another and only invoicing is done by
Indian registered taxable person. This is 'bill to ship to' transaction.
This can be termed as international trading of goods or Third Country Shipments (TCS).
If the Indian party buys and sales the goods, there is no issue of GST. However, if the Indian
party gets only commission, he becomes intermediary and liability of GST arises. Hence,
exemption from GST has been provided on such commission w.e.f. 1-10-2019.
Services provided by an intermediary when location of both supplier and recipient of goods
is outside the taxable territory have been exempted w.e.f. 1-10-2019 - Sr No. 12AA of
Notification No. 9/2017-IT(R) dated 28-6-2017, inserted w.e.f. 1-10-2019.
Following documents should be maintained for five years -
Following documents shall be maintained for a minimum duration of five years:
(1) Copy of Bill of Lading
(2) Copy of executed contract between Supplier/Seller and Receiver/Buyer of goods
(3) Copy of commission debit note raised by an intermediary service provider in taxable
territory from service recipient located in non-taxable territory
(4) Copy of certificate of origin issued by service recipient located in non-taxable
territory
(5) Declaration letter from an intermediary service provider in taxable territory on
company letter head confirming that commission debit note raised relates to
contract when both supplier and receiver of goods are outside the taxable territory.

Taxability till 1-10-2019 - Till 1-10-2019, there was no exemption available and GST @ 18%
was payable.
15.11 Services of hiring of means of transport
In case of services consisting of hiring of means of transport, including yachts but excluding
aircrafts and vessels, upto a period of one month. The place of supply shall be the location
of the supplier of service - section 13(8)(c) of IGST Act.
The words 'other than aircrafts and vessels' means that hiring of vessels or aircrafts,
irrespective of whether short term or long term, will be covered by the general provision,
i.e. place of location of recipient of service. Hiring of yachts would continue to be covered
 270

by section 13(8)(c) of IGST Act - para 4.1.3(iii) of MF(DR) letter No. 334/15/2014-TRU dated
10-7-2014
In Cookies World VertriebsgesellschaftmbHiL v. Finanzlandsdirektion fur Tirol (2013) 38 STT
561 (ECJ), assessee leased car from Germany and used in Austria for business. It was held
that lease charges are not liable to Vat in Austria.
15.12 Services of transportation of goods
The place of supply of services of transportation of goods, other than by way of mail or
courier, shall be the place of destination of the goods - section 13(9) of IGST Act.
Illustration - A consignment of cut flowers is consigned from Chennai to Amsterdam. The
place of supply of goods transportation service will be Amsterdam (outside India).
Conversely, if a consignment of crystal ware is consigned from Paris to New Delhi, the place
of provision will be New Delhi.
Thus, in case of outward ocean freight, if location of service recipient is out of India, IGST is
not payable as the recipient, being out of India, is bound to pay ocean freight in foreign
exchange and it will be 'export of service' and hence zero rated.
Transportation of goods from non-taxable territory to taxable territory is 'import of service',
liable to GST - Indian Potash Ltd. In re (2019) 112 taxmann.com 25 (AAR - AP).
Tax payable on outward freight when supplier and recipient are in India, but exempt upto
30-9-2021 in case of ocean and sea freight, but no exemption to freight forwarder or
courier services - If supplier and recipient of outward ocean freight from India are located
in India, section 13(9) of IGST Act does not apply.
In that case, section 12(8) of IGST Act applies.
As per section 12(8) of IGST Act (prior 1-2-2019), the place of supply was location of
registered person or where goods are handed over for their transportation. Hence, CGST
plus SGST/UTGST was payable.
Now, as per proviso to section 12(8) of IGST Act inserted vide IGST (Amendment) Act, 2018,
w.e.f. 1-2-2019, where the transportation of goods is to a place outside India, the place of
supply shall be the place of destination of such goods.
This amendment aligns section 12(8) of IGST Act with section 13(9) of IGST Act. Section 13(9)
of IGST Act provides that in case of transportation of goods for exports, destination will be
place of supply of services.
Thus, if goods are destined for a place out of India, its place of supply will be out of India,
even if location of recipient of service is in India.
However, if service supplier is in India and recipient of service (i.e. who is booking the goods)
is also in India, it will not qualify as 'export of service'. It will be treated as 'inter state supply'
as per section 7(5)(a) read with section 5(1) of IGST Act. Hence, IGST will be payable, even if
the recipient of service is in same State/Union Territory.
Thus, only effect of this amendment is that IGST will be payable in such cases and not CGST
and SGST/UTGST.
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Tax liability in case of freight forwarder and courier - In case of freight forwarder or courier
services, if both supplier and recipient of service are in India, IGST is payable if goods are
destined to a place out of India.
No tax liability on sea or ocean freight upto 30-9-2021 even if destination is out of India -
There is no tax liability as services by way of transportation of goods by a vessel or aircraft
from customs station of clearance in India to a place outside India. These are exempt from
tax from 25-1-2018. This exemption will cease on 30-9-2021 -Sr Nos. 19A and 19B of
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 amended
w.e.f. 1-10-2020.
No GST on transhipment of goods at customs station in India for further transport out of
India - In case of goods in customs station in India intended for transhipment to any country
outside India, the destination is not India. Hence, place of provision of service is not India,
as per rule 10 of Place of Provision of Service Rules. Thus, service tax on ocean freight will
not be payable in case of transhipment of goods in customs station in India for onward
transport outside India - CBE&C circular No. 204/2/2017-ST dated 16-2-2017 [clarification in
respect of service tax but applies to GST also].
GST on ocean freight importation of goods under reverse charge - In case of import of good
by vessel from out of India to first customs port in India, the importer in India is liable to pay
GST under reverse charge.
Satellite launch services by Indian company to foreign customers - If the satellite is
provided by Antrix Corporation Ltd. (Indian company wholly owned by Government) to
international customer, the satellite launch service falls under section 13(9) of CGST Act.
Since destination of goods is out of India, place of supply is outside India and it is export of
service. If the satellite is provided by Indian customer, the place of supply is location of
recipient of service as per section 12(8) of IGST Act hence, tax will be payable - CBE&C
circular No. 2/1/2017-IGST dated 27-9-2017.
15.13 Services of transportation of passengers
The place of supply in respect of a passenger transportation service shall be the place where
the passenger embarks on the conveyance for a continuous journey - section 13(10) of IGST
Act.
"Continuous journey" means a journey for which a single or more than one ticket or invoice
is issued at the same time, either by a single supplier of service or through an agent acting
on behalf of more than one supplier of service, and which involves no stopover between any
of the legs of the journey for which one or more separate tickets or invoices are issued - For
the purposes of this clause, 'stopover' means a place where a passenger can disembark
either to transfer to another conveyance or break his journey for a certain period in order
to resume it at a later point of time - section 2(3) of IGST Act.
15.14 Services on Board a conveyance
Place of supply of services provided on board a conveyance during the course of a passenger
transport operation, including services intended to be wholly or substantially consumed
while on board, shall be the first scheduled point of departure of that conveyance for the
journey - section 13(11) of IGST Act.
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In Faaborg-Gelting Linien A/S v. Finanzamt Flensburg (2012) 36 STT 119 = 22 taxmann.com

177 (ECJ), restaurant services were provided on board ships when ship was operated
between Denmark and Germany. It was held that restaurant transactions are essentially
service transaction and was provided at place where supplier had establishment i.e. in
Denmark [As per Place of Provision of Service Rules, in return journey, Germany will be place
of provision of service].
CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012 states as follows
-

Para 5.12.1 What are services provided on board conveyances? - Any service provided on
board a conveyance (aircraft, vessel, rail, or roadways bus) will be covered here. Some
examples are on-board service of movies/music/video/software games on demand,
beauty treatment etc., albeit only when provided against a specific charge, and not
supplied as part of the fare.
Para 5.12.2 What is the place of provision of services provided on board conveyances? -
The place of provision of services provided on board a conveyance during the course of
a passenger transport operation is the first scheduled point of departure of that
conveyance for the journey.
Illustration
A video game or a movie-on-demand is provided as on-board entertainment during the
Kolkata-Delhi leg of a Bangkok-Kolkata-Delhi flight. The place of provision of this service will
be Bangkok (outside taxable territory, hence not liable to tax).
If the above service is provided on a Delhi-Kolkata-Bangkok-Jakarta flight during the
Bangkok-Jakarta leg, then the place of provision will be Delhi (in the taxable territory, hence
liable to tax).
15.15 Residuary provision applies to all services not specified elsewhere
Except is case of specified services discussed above, the place of supply of services shall be
the location of the recipient of service. However, in case the location of the recipient of
service is not available in the ordinary course of business, the place of supply shall be the
location of the supplier of service - section 13(2) of IGST Act.
Section 13(2) of IGST Act is a residuary provision and applies when no other provision
relating to any specific service applies.
In case of consultancy services, the place of provision of service is where customer is located
- Kollektivavtalstiftelsen TRR v. Shatteverket (2012) 37 STT 172 = 26 taxmann.com 116 (ECJ).
In Tech Mahindra Ltd. v. CCE (2013) 39 STT 785 = 33 taxmann.com 354 (CESTAT), assessee
had received contract for providing onsite software maintenance services outside India. The
services were provided by assessee's subsidiaries outside India. They raised invoice on the
assessee (who is in India). Assessee raised invoice on its customers from India. It was held
that service provided by assessee to his customers is export of service and service received
by assessee from its subsidiaries outside India is import of service and service tax (now IGST)
is payable under reverse charge.
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This view has been upheld in Tech Mahindra Ltd. v. CCE (2014) 48 GST 327 = 50 taxmann.com
365 = 78 VST 135 (Bom HC DB).
In Tandus Flooring India P Ltd. In re (2014) 43 GST 26 = 40 taxmann.com 513 = 64 VST 56
(AAR), applicant, a wholly owned subsidiary of Tandus, Singapore, was providing marketing
and sales support for distribution of products manufactured outside India. Applicant was to
act as communication channel between foreign companies and their Indian dealers.
Payment for services was received from foreign parties and not from Indian dealers. It was
held that place of supply of service is outside India.
If telephone cards (SIM cards) of telecom operator in UK are sold to distributors outside UK,
the place of provision of service is outside UK - Lebara Ltd. v. Commissioner for Her Majesty's
Revenue and Customs (2012) 37 STT 775 = 28 taxmann.com 139 (ECJ).
In Universal Services India Pvt Ltd. In re (2016) 91 VST 483 (AAR), the assessee was providing
payment processing service to WWD US on principal to principal basis. These services were
for domain registration, web hosting, transfer services etc. It was held that as per rule 3 of
POPS, the place of provision of service is outside India and hence service tax is not payable.
Further, WWD US was providing the services to Indian customers and payment was made
by Indian customers directly to WWD US. It was held that applicant is not providing any
service to Indian customers- same view in Godaddy India Web Services Pvt. Ltd. In re (2016)
92 VST 1 (AAR).
Service of identifying prospective customers in India for party outside India is export of
service (i.e. place of provision of service is outside India) - Gecas Services v. CST [2014] 43
GST 354 = 41 taxmann.com 388 = 79 VST 461 (CESTAT).
Sourcing garments in India for sale abroad in USA (vendor development in India for principal
abroad) is export of service - Gap International v. CST [2014] 52 taxmann.com 528 = 76 VST
44 (CESTAT) - quoted and followed in Canon India v. CCE [2018] 67 GST 211 = 92
taxmann.com 380 (CESTAT).
Line producer engaged by appellant for shooting of a feature film in Brazil was supplying
motion picture production service, classifiable under SAC 999612. The place of supply is
India. It is import of service and the appellant is liable to pay IGST - Udayan Cinema (P.) Ltd.,
In re [2019] 103 taxmann.com 219 (AAR - West Bengal).
Agency fees paid to foreign banks for arranging finance - Agency fees paid to foreign banks
for arranging finance is liable to service tax under reverse charge - Tata Steel v. CST (2015)
63 taxmann.com 247 (CESTAT). [In other words, place of provision of service is India. It would
be 'import' of service].
Place of Supply of Service of development of software and services on software - Software
is intangible. It does not have unique existence and can exist on different servers at any point
of time. Hence, in case of service of development of software (development, design and
programming of information technology software) and services on software (testing,
debugging, modification, etc., i.e. customisation, adaptation, upgradation, enhancement,
implementation of information technology software), the place of supply is the location of
recipient of service - CBIC circular No. 209/1/2018-ST, dated 4-5-2018.
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Software development service to holding company is export of service - In AMD India (P.)
Ltd. v. CST [2019] 106 taxmann.com 148 (CESTAT), the assessee was providing software
development service to its holding company. It was held that this is export of service.
Port Services supplied by port authorities to its clients - Port Authorities provide various
services to its clients like arriving of wagons, haulage of wagons, loading/unloading of
wagons, movement of cargo etc. These are all 'cargo handing' services. If location of supplier
and recipient is in India, the service would fall under section 12(2) of IGST Act and place of
supply will be location of service recipient if he is registered or address of recipient (if
unregistered). If his address is not known, the place of supply will be location of supplier of
services (i.e. port authority). If location of supplier or recipient is out of India, the service
would fall under section 13(2) of IGST Act and place of supply will be location of recipient of
service - CBI&C circular No. 103/22/2019-GST dated 28-6-2019 [In my view, the first part of
answer is correct. In case of second part, section 13(3) of IGST Act should apply as it is
performance based service and place of supply should be place where service is actually
performed].
In Bharat Petroleum Corporation v. CST (2020) 118 taxmann.com 539 (CESTAT), it was held
that commission or agency fee remitted to foreign entities for handling of vessels in foreign
ports is not taxable and RCM does not apply.
15.16 Avoidance of double taxation
In order to prevent double taxation or non-taxation of the supply of a service, or for the
uniform application of rules, the Central Government shall have the power to notify any
description of service or circumstances in which the place of supply shall be the place of
effective use and enjoyment of a service - section 13(13) of IGST Act.
15.17 Summary of provisions of 'place of supply' within India and in course of imports and
exports
Nature of service Place of supply service in Place of supply of service in
case of transaction other than case of transaction during
exports or imports import or export

Directly related to immovable Location of immovable property Parallel provision in section

property, lodging or or boat or vessel. If immovable 13(4) of IGST Act.
accommodation for functions property or boat or vessel is
located outside India, then
location of recipient of service
shall be place of supply. If in
more than one States or UT,
then in proportion - section
12(3) of IGST Act
Restaurant and catering services, Location where service is Place where service is actually
personal grooming, beauty provided - section 12(4) of IGST performed - section 13(3) of
treatment, health services including Act. IGST Act
cosmetic and plastic surgery
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Training and performance appraisal (a) to a registered person, shall Place where service is actually
be the location of such person performed - section 13(3) of
(b) to a person other than a IGST Act
registered person, the location
where the services are actually
performed - section 12(5) of
IGST Act.
Performance based services on Residual provision in section Place where service is actually
goods physically made available to 12(2) performed - section 13(3)(a)
supplier of service to provide the of IGST Act
service
Services to individual where Residual provision in section Place where service is actually
physical presence of recipient or 12(2) performed - section 13(3)(b)
person acting on his behalf is of IGST Act
required
Admission to a cultural, artistic, The place where the event is Parallel provision in section
sporting, scientific, educational, or actually held or where the park 13(5) of IGST Act.
entertainment event or amusement or such other place is located -
park or any other place and services section 12(6) of IGST Act.
ancillary thereto

Organization of a cultural, artistic, (i) If the service is provide to a Place where event is taking
sporting, scientific, educational or registered person, place of place - section 13(5) of IGST
entertainment event including supply shall be the location of Act
supply of service in relation to a such person (ii) if the service is
conference, fair, exhibition, provided to a person other than
celebration or similar events, or (b) a registered person. Place of
services ancillary to organization of supply shall be place where
any of the above events or services, event is actually held. If the
or assigning of sponsorship to such event is held outside India,
events place of supply shall be the
location of service recipient. -
section 12(7) of IGST Act.

Transportation of goods including to (a) a registered person, shall Other than mail or courier -
by mail or courier be the location of such person destination of goods - section
(b) a person other than a 13(9) of IGST Act
registered person, shall be the In case of mail or courier -
location at which such goods residual section 13(2) of IGST
are handed over for their Act
transportation - section 12(8)
of IGST Act.
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Passenger transportation to (a) a registered person, shall Where the passenger embarks
be the location of such person for continuous journey -
(b) a person other than a section 13(10) of IGST Act
registered person shall be the
place where the passenger
embarks on the conveyance for
a continuous journey. If for
future use, then as per residual
provision in section 12(2)-
section 12(9) of IGST Act.
On board a conveyance including location of the first scheduled Parallel provision in section
vessel, aircraft, train or motor point of departure of that 13(11) of IGST Act
vehicle conveyance for the journey-
section 12(10) of IGST Act.
Telecommunication Services In case of fixed lines or leased Residual provision as per
including data transfer, circuit or dish antenna, where it section 13(2) of IGST Act
broadcasting, cable and DTH is located, in case of post paid
basis, billing address, in case of
pre-payment by voucher,
address of selling agent or
location where voucher sold. In
other cases, address of recipient
of service.

Banking and other financial Location of the recipient of Location of supplier of service
services including stock broking services on the records of the in case of (interest bearing)
services supplier of services - section account holder and stock
12(12) of IGST Act. brokers - section 13(8)(a) of
If the location of the recipient IGST Act
of services is not on the records
of the supplier of services, the
place of supply shall be location
of the supplier of services.
Intermediary (broker or commission Residuary provision as per Location of supplier of service-
agent - other than stock broker) section 12(2) section 13(8)(b) of IGST Act
Insurance Services (a) to a registered person, be Location of immovable
the location of such person (b) property in case of immovable
to a person other than a property insurance and
registered person, be the residuary section 13(2) of IGST
location of the recipient of Act in case of other insurance
services on the records of the
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supplier of services - section

12(13) of IGST Act.
Advertisement services to the Proportionate basis to different Residuary section 13(2) of
Central Government, a State States and Union Territories - IGST Act
Government, a statutory body or a section 12(14) of IGST Act.
local authority, meant for
identifiable States or Union
Territories, shall be taken as located
in each of such States or Union
Territory
Online Information and Database Residual provision in section Location of recipient of service
Access or retrieval of service 12(2) - section 13(12) of IGST Act
Services not covered in any of (a) made to a registered person Location of recipient of
above (residual services) shall be location of service service. If that location not
recipient - section 12(2)(a) of known, then location of
IGST Act (b) made to any person supplier of service - section
other than a registered person 13(2) of IGST Act
shall be (i) the location of the
recipient where the address on
record exists, and (ii) the
location of the supplier of
services in other cases - section
12(2)(b) of IGST Act.
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Exports and Imports

16.1 Export of goods and services
Exports of goods and services are important for any nation.
Effect if supply is not 'export of goods' or 'export of services' as per definition - If supply of
goods or services is not 'export of goods' or 'export of services' as per definition, the supply
will not be 'zero rated supply' [e.g. service exported but payment in foreign exchange not
received]. In that case, the supply will be 'inter-state supply' and IGST will be payable Really
this is against basic concept of GST which is destination based consumption tax. The tax
should not apply when goods or service is consumed out of India.
16.1-1 Export promotion under GST
Exports are priority of any country.
Goods and services are to be exported, taxes are not to be exported. WTO stipulates free
and fair global trade. Giving export incentives will be against principle of fair trade and hence
export incentives are not allowed under WTO. However, goods and services can be made
free of domestic taxes.
Supplies to SEZ unit and SEZ Developer are treated at par with physical exports.
Provisions in CGST Act have been designed to make exports tax free.
Export benefits under GST - In relation to GST, following are the concessions/incentives for
exports :
(1) Exemption from GST on final products or
(2) Refund of GST paid on inputs.
Exporting units need raw materials without payment of taxes and duties, to enable them to
compete with world market. Government has devised following schemes for this purpose -
(a) Special Economic Zones at various places where inputs are allowed to be imported
without payment of duty and finished goods are exported
(b) Export Oriented Undertakings (EOU)
(c) Duty Drawback Scheme
(d) Schemes of Advance Authorisation and DFIA.
(e) EPCG scheme to import capital goods without payment of customs duty for use in
goods to be exported.

Elaborate procedures have been prescribed for the above, to ensure that the benefits are
not misused.
16.1-2 Zero rated supply
"Zero-rated supply" means a supply of any goods or services or both in terms of section 16
of IGST Act - section 2(23) of IGST Act.
Export of goods or services or both and supplies of goods or services or both for authorised
operations to SEZ unit or SEZ developer will be zero rated supply - section 16(1) of IGST Act
[The words in italics inserted vide section 123 of Finance Act, 2021 from date to be notified].
 279

Credit of input tax may be availed for making zero-rated supplies, even if such supply is
exempted supply - section 16(2) of IGST Act.
Export of goods - "Export of goods" with its grammatical variations and cognate expressions,
means taking goods out of India to a place outside India - section 2(5) of IGST Act.
Transaction is not export if goods do not move physically out of India - In Dolphine Die Cast
(P.) Ltd., In re [2020] 116 taxmann.com 746 (AAR - KARN), the applicant engaged in
manufacture and export of Aluminium and Zinc Die Castings, manufactured 'die' to foreign
customer for manufacture of die castings. Applicant raised invoice on foreign customer for
the die but kept the die with himself. It was that this does not amount to export under
section 2(5) of the IGST Act. It is an intra state transaction under section 8(1) of IGST Act
[Thus, CGST and SGST/UTGST will be payable].
GST Compensation Cess is covered under 'zero rated supply' - Basic principle is that taxes
should not be exported. Exports have to be zero rated. This principle applies to GST
Compensation Cess also. Hence, (a) Exporters can claim refund of GST Compensation Cess
(b) Compensation Cess will not be charged on goods exported under bond or LUT - CBE&C
circular No. 1/1/2017-Compensation Cess dated 26-7-2017.
If GST compensation Cess is payable on inputs but not on output supply of goods exported,
refund of ITC of GST Compensation Cess can be claimed - - CBI&C circular No. 45/19/2018-
GST dated 30-5-2018.
16.1-3 Distinction between exempted supply and zero rated supply
Distinction between exempted supply and zero rated supply is as follows - FAQ on GST
Chapter 21 Q No. 3 issued by CBI&C on 15-12-2018.
Exempted supply Zero rated supply

"Exempt supply" means supply of any goods or "Zero-rated supply" means a supply of any goods
services or both which attracts Nil rate of tax or or services or both in terms of section 16 of IGST
which may be wholly exempt from tax under Act - section 2(23) of IGST Act. Export of goods or
section 11 of CGST Act or under section 6 of IGST services or both and supplies of goods or services
Act, and includes non-taxable supply- section or both to SEZ unit or SEZ developer for authorised
2(47) of CGST Act. operations will be zero rated supply - section 16(1)
of IGST Act [The words in italics inserted vide
Finance Act, 2021 from date to be notified].
Value of exempt supplies will be considered for Value of zero rated supply will be added in value
apportionment of GST on common inputs and of taxable supplies for apportionment of GST on
common input services common inputs and common input services
Person dealing exclusively in exempted supply Person making zero rated supply requires GST
need not register registration (except in case of service providers
having turnover less than Rs 20 lakhs
ITC available if exempt supplies are exported ITC available if exempt supplies are exported
(they are considered as zero rated).
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Registered person shall issue Bill of Supply Person making zero rated supply has to issue
normal tax invoice with specified extra markings

16.1-4 GST provisions in relation to exports

WTO [World Trade Organisation] encourages free trade. Hence, export incentives are
discouraged by WTO, as these hamper free trader. However, exports can be made free of
domestic taxes. India being member of WTO has to follow WTO norms.
To comply with WTO norms, Government offers two schemes as far as GST is concerned, as
per section 16(3) of IGST Act-
(a) Export goods or services or both without payment of GST under bond or LUT. In such
cases, the exporter can avail Input Tax Credit on inputs, capital goods and input
services. He can utilise this credit elsewhere i.e. for payment of GST on domestic
supply. Alternatively, he can claim refund of input tax credit - section 16(3)(a) of IGST
Act.
(b) Export goods or services or both on payment of IGST and claim refund of IGST paid.
In this case, the exporter can avail Input Tax Credit [Thus, this is indirect refund of
ITC] - section 16(3)(b) of IGST Act.

Refund of IGST paid on goods exported under section 16(3)(b) is handled by customs
department. These issued are discussed in this chapter.
All other refund claims (like refund of Input Tax Credit in case of export of goods or services,
refund of IGST paid on export of services, refund due to inverted duty structure, refund of
tax paid my mistake, refund for any other reason) are processed by Central or State
Government GST authorities as per their jurisdiction over the taxable person. These issues
are discussed in a later chapter on 'refunds'.
General provision for making payment of IGST on zero rated supply and claiming refund
proposed to be restricted - Present section 16(3) of IGST Act provides for two options in case
of zero rated supply - (a) Pay IGST on zero rated supply and claim refund of IGST paid through
customs procedure (b) Make zero rated supply under bond and LUT without payment of
IGST on outward supply and claim refund of Input Tax Credit corresponding to input goods
contained in supply of zero rated goods or services.
The first option is easy and simple with minimum hassles. Moreover, refund of GST paid on
input services and capital goods can be availed by using this route.
The second option is clumsy and getting refund is very difficult. Some excuses are found to
reject refund claim and huge amount is blocked. Further, refund of GST paid on input
services and capital goods cannot be availed by using this route.
However, the first method is being misused by claiming ITC on basis of bogus invoices and
making payment of IGST on zero rated supply and getting refund.
Hence, the general provision for making payment of IGST on zero rated supply and claiming
refund has been restricted.
As per section 16(3) of IGST Act substituted vide Section 123 of Finance Act, 2021 w.e.f. date
to be notified, normally, person making zero rated supply shall follow only second option i.e.
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make zero rated supply under bond and LUT without payment of IGST on outward supply
and claim refund of Input Tax Credit corresponding to input goods contained in supply of
zero rated goods or services.
Further, the amount received as refund shall be liable to be paid back, if payment for supply
is not received in foreign exchange, within time specified under FEMA - proviso to section
16(3) of IGST Act substituted vide Section 123(b) of Finance Act, 2021 w.e.f. date to be
notified.
Option of paying IGST on output supply and claiming refund of IGST paid on output supply
will be available only to specified class of persons making zero rated supply and class of
goods or services which may be exported on payment of IGST and claiming refund - section
16(4) of IGST Act inserted vide Section 123(b) of Finance Act, 2021 w.e.f. date to be notified.
Really, the remedy is worse that decease. There may be some misuse, but looking at press
reports, such misuse may be less than 0.1% of total tax revenue collected by Government.
To plug such leakage of revenue, 97% of genuine exporters are made to suffer.
16.1-5 Export of services
Section 2(6) of IGST Act states as follows -
"Export of services" means the supply of any service when-
(a) the supplier of service is located in India
(b) the recipient of service is located outside India
(c) the place of supply of service is outside India
(d) the payment for such service has been received by the supplier of service in
convertible foreign exchange or in Indian rupees wherever permitted by RBI, [The
words in italics inserted vide IGST (Amendment) Act, 2018, w.e.f. 1-2-2019 and
(e) the supplier of service and recipient of service are not merely establishments of a
distinct person in accordance with Explanation 1 of section 8 of IGST Act [what is
meant is that branch and HO of same taxable person shall not be treated as two
distinct persons for this provision. Thus, there cannot be export of service to own
branch office outside India].

Interestingly, in case of export of goods, there was no condition of receipt of payment in

foreign exchange upto 23-3-2020- confirmed in CBI&C circular No. 37/11/2018-GST dated
15-3-2018. Now, it is required w.e.f. 23-3-2020.
Service supplied by establishment of person in India to own establishment out of India
exempt - Service supplied by establishment of person in India to own establishment out of
India is exempt, if place of supply is out of India - Sr No. 10E of Notification No. 9/2017-IT
(Rate) both dated 28-6-2017 as inserted w.e.f. 27-7-2018.
Export of service when part of service is outsourced to a person out of India - It is possible
that Exporter of service [say A] may receive order from B from out of India for supply of
service. The exporter (A) may not be able to provide all service from India. He may outsource
part of service to a person out of India (not to its own establishment outside India) [say C].
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In that case, C will bill to A in foreign exchange. A will pay IGST under reverse charge and
take ITC. Later, A will raise invoice for whole amount on B in foreign exchange. The entire
amount will be treated as export by B for purpose of refund on export of services. B will pay
full amount to A in foreign exchange but A will pay C directly out of the amount paid by B
and only bring balance amount in India. This is permissible as per RBI directions. Hence, A
will be entitled to export benefit on total value of services - CBI&C circular No. 78/52/2018-
GST dated 31-12-2018.
Administrative and support service supplied to foreign client is zero rated - In New Global
Specialist Engineering Services P Ltd. In re (2019) 73 GST 429 = 103 taxmann.com 122 (AAR-
Maharashtra), it has been held that administrative and support services supplied to foreign
client, where payment is received in foreign exchange, is export of service and is zero rated.
16.1-6 If payment for export of services is not received in specified period
One of the conditions for 'export of service' is that payment should be received in convertible
foreign exchange. If such payment is not received, the supply is not 'export of service'.
Consequently, it will not be zero rated supply.
As per section 7(5)(a) of IGST Act, when the supplier is located in India and the place of
supply is outside India, the supply of goods or services or both shall be treated to be a supply
in course of inter State trade or commerce.
Section 5(1) of IGST Act levies IGST on all inter-state supplies of goods or services or both.
Thus, if payment is not received within prescribed period, IGST will become payable. Mere
reversal of input tax credit will not be sufficient.
This appears strange for the following reasons - (a) GST is a consumption based tax. If the
service is consumed outside India, GST should not be payable (b) The CGST Act and IGST Act
applies to whole of India. Thus, these Acts do not have extra territorial jurisdiction.
Interestingly, in case of export of goods, there was no condition of receipt of payment in
foreign exchange upto 23-3-2020- confirmed in CBI&C circular No. 37/11/2018-GST dated
15-3-2018. Now, it is required w.e.f. 23-3-2020.
16.2 Export to Nepal and Bhutan are 'normal export'
India has rupee trade with Nepal and Bhutan. Hence, specific provisions have been made in
GST Law.
Exports of goods and services to Nepal and Bhutan and supplies to SEZ is 'export' even if
payment is received in Indian rupees - MF(DR) circular No. 5/5/2017-GST dated 11-8-2017
and CBI&C circular No. 8/8/2017-GST dated 4-10-2017, as amended by CBI&C circular No.
88/07/2019-GST dated 1-2-2019, has clarified as follows -
As per RBI Master Circular, invoicing can be made in Indian rupees or foreign currency.
However, payment should be received in free foreign exchange. Payment can be received in
Indian Rupees if it is through a freely convertible Vostro account of a non-resident bank
situated in country other than a member country of Asian Clearing Union (ACU) or Nepal or
Bhutan.
As per MF(DR) circular dated 4-10-2017, such receipts could be considered as remittances
in foreign exchange.
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As per CBI&C circular dated 1-2-2019, in view of amendment to section 2(6) of IGST Act w.e.f.
1-2-2019, in case of exports, payment can be received in Indian rupees if RBI permits.
As per Regulation 3(1)(ii) of Foreign Exchange Management (Manner of Receipt and
Payment) Regulations, 2016 issued by RBI, in case of Nepal and Bhutan, payment can be in
rupees. For exports to Nepal, receipt can be in foreign exchange only if specifically permitted
by Nepal Rashtra Bank, In case of Islamic Republic of Iran, it will be as per directions of RBI.
RBI does permit receipt of payment in rupees from Nepal, Bhutan or even SEZ. Hence,
exports to Nepal and Bhutan and supplies to SEZ can be made under LUT even if payment is
received in Indian rupees.
The position was same prior to 1-2-2019 in respect of export of goods and exports could be
made under LUT. However, export of services to Nepal and Bhutan under LUT was not
permissible. Now, this is permissible w.e.f. 1-2-2019, as explained below.
Supply of services to Nepal or Bhutan where payment received in Indian rupees is 'export'
w.e.f. 1-2-2019 - Services supplied where place of supply of service is Nepal or Bhutan are
exempt from IGST, even if payment is received in Indian Rupees - Sr No. 10D of Notification
No. 9/2017-IT (Rate) dated 28-6-2017 as inserted on 27-10-2017 - see - FAQ on GST Chapter
21 Q No. 33 issued by CBI&C on 15-12-2018.
Till 27-10-2017, in case of export of services, there was specific requirement of getting
payment in convertible foreign exchange. Thus, if service was supplied to recipient in Nepal
or Bhutan, tax was payable if payment was not received in foreign exchange. This
requirement was removed w.e.f. 27-10-2017.
However, it was not 'export of service' as section 2(6)(iv) of IGST Act required receipt of
payment in foreign exchange. Now, w.e.f. 1-2-2019, receipt of payment can be in Indian
rupees if RBI permits. Hence, now. Exports of services to Nepal and Bhutan can be made
under LUT -CBI&C circular No. 88/07/2019-GST dated 1-2-2019.
Exempt Supply shall exclude supply of services to Nepal and Bhutan for purpose of reversal
of ITC - Value of 'Exempt Supply' for purposes of rules 42 and 43 of CGST Rules (reversal of
ITC) shall exclude the value of supply of services to Nepal and Bhutan where place of supply
in Nepal or Bhutan even when payment is received in Indian rupees [These services are
exempt vide Notification No. 42/2017-IT (Rate) dated 27-10-2017] - Explanation (a) to rule
43(2) of CGST Rules, inserted w.e.f. 15-11-2017 and amended on 23-1-2018.
Now, this provision is redundant w.e.f. 1-2-2019.
Exempt Supply shall exclude supply of services to Nepal and Bhutan for purpose of reversal
of ITC - Value of 'Exempt Supply' for purposes of rules 42 and 43 of CGST Rules (reversal of
ITC) shall exclude the value of supply of services to Nepal and Bhutan where place of supply
in Nepal or Bhutan even when payment is received in Indian rupees [These services are
exempt vide Notification No. 42/2017-IT (Rate) dated 27-10-2017] - Explanation (a) to rule
43(2) of CGST Rules, inserted w.e.f. 15-11-2017 and amended on 23-1-2018.
Earlier clarifications - Export to Nepal will be treated as normal export and export procedure
to Nepal will be same as that to other countries - S No. 34 of Tweet FAQ released by CBI&C
on 26-6-2017.
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In case of export of goods to Nepal, there is no requirement of receipt of payment in foreign

exchange -- confirmed in CBI&C circular No. 37/11/2018-GST dated 15-3-2018.
Supply of services to Nepal and Bhutan exempt upto 1-2-2019, if payment was received in
Indian Rupees - Till 1-2-2019, service supplied to Nepal and Bhutan was not 'export' if
payment was received in foreign exchange. However, supply of services to Nepal and Bhutan
were exempt upto 1-2-2019, if payment was received in Indian Rupees - Sr. No. 10D of
Notification No. 9/2017-IT(R) dated 28-6-1017. Now, w.e.f. 1-2-2019, this will be treated as
'export' even if payment is received in Indian Rupees. Hence, this entry has been omitted
w.e.f. 4-2-2019 as no more required.
16.3 Export of goods on payment of 0.1% IGST (or 0.05% of CGST plus 0.5% of SGST/UTGST)
if export through merchant exporter
The manufacturer exporter can export his goods directly either on payment of GST or
without payment of GST.
'Manufacturer exporter' means a person who exports goods manufactured by him or intends
to export such goods - para 9.32 of FTP 2015-2020.
Merchant Exporter means a person engaged in trading activity and exporting or intending
to export goods - para 9.33 of FTP 2015-2020.
In case of exports by manufacturer through merchant exporter, the provision was that the
manufacturer was required to pay tax and the merchant exporter was required to claim
refund. This was blocking funds of exporters and exports were suffering.
Provisions relating to tax on export of goods have been altered w.e.f. 23-10-2017, vide
Notification Nos. 40/2017-CT (Rate), 41/2017-IT (Rate) and 40/2017- UTT (rate) all dated 23-
10-2017. The revised procedure is as follows.
The manufacturer supplier (termed as registered supplier) should be registered under GST.
He should supply goods to merchant exporter (termed as registered recipient). The
registered recipient should be registered under GSTIN and Export Promotion Council or
Commodity Board recognized by Department of Commerce.
The merchant exporter (registered recipient) should place an order of registered supplier
and its copy shall be provided to jurisdictional tax officer of registered supplier.
The registered supplier shall clear goods on payment of 0.1% IGST (or 0.05% of CGST plus
0.5% of SGST/UTGST).
Goods should be dispatched directly from place of registered supplier to port, ICD, Airport
of Land customs station from where goods are to be exported.
Goods can also be sent to a registered warehouse from where goods can be sent to port,
ICD, Airport of Land customs station from where goods are to be exported.
The goods can be aggregated at the registered warehouse and then sent to port, ICD, Airport
of Land customs station from where goods are to be exported. In such case, the registered
recipient shall endorse receipt of goods on the tax invoice and also acknowledgement of
receipt of goods in the registered warehouse. These should be provided to the registered
supplier as well as to jurisdictional tax officer of such supplier.
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The registered recipient is required to export the goods within 90 days from date of issue of
tax invoice. Otherwise, the exemption is not available.
The registered recipient shall indicate GSTIN of supplier and tax invoice number of registered
supplier in the shipping bill or bill of export, as applicable.
After export, the registered recipient shall provide copy of shipping bill or bill of export
containing details of GSTIN of supplier and his tax invoice of registered supplier with proof
of filing of export general manifest (EGM) or export report.
Payment of 0.5%/0.1% tax by supplier is optional, not mandatory - Payment of 0.1%/0.05%
tax by registered supply is conditional and not mandatory. The supplier can supply goods to
merchant exporter on full payment of tax at normal rate - CBI&C circular No. 37/11/2018-
GST, dated 15-3-2018 - reiterated in FAQ on GST Chapter 14 Q No. 82 issued by CBI&C on
15-12-2018.
In such case, the merchant exporter can export goods on payment of GST and claim refund.
Alternatively he can export under bond/LUT and claim refund of Input Tax Credit of GST paid
by supplier.
Merchant Exporter can take ITC of 0.05%/0.1% tax paid by supplier - The Merchant
Exporter can take ITC of 0.05%/0.1% tax paid by supplier - CBI&C circular No. 37/11/2018-
GST dated 15-3-2018.
Refund claim by merchant exporter - The merchant exporter can claim refund of input tax
credit as per rule 89(4B) of CGST Rules. The procedure has been specified in CBI&C circular
No. 94/13/2019-GST dated 28-3-2019.
Refund of ITC to registered supplier - Though the notification or rule does not specifically
say so, really it is a situation of inverted duty structure. Hence, the registered supplier who
is paying tax @ 0.1% can claim refund of ITC. This view has been confirmed in CBI&C circular
No. 37/11/2018-GST dated 15-3-2018 and FAQ on GST Chapter 14 Q No. 14 issued by CBI&C
on 15-12-2018.
(Thus, problem of fund blockage has been transferred from merchant exporter to the
manufacturer-supplier).
Merchant Exporter cannot pay IGST on exported goods and claim refund of IGST, if supplier
has supplied goods on payment of 0.1% tax - If goods were procured on payment of 0.1%
GST, export on payment of IGST not permissible. If still IGST is paid on export of goods or
services, its input tax credit is not available - Rule 96(10) of CGST Rules, inserted on 23-1-
2018 but with retrospective effect from 23-10-2017 - reiterated in CBI&C circular No.
37/11/2018-GST dated 15-3-2018.
16.4 Procedure for export by direct exporter under bond or LUT without payment of GST
The procedure has been specified in rule 96A of CGST Rules.
Till 23-10-2017, this provision was applicable to all exporters. Now, for merchant exporters,
the provision has been changed as discussed above.
In case of other exporters, the requirement of bond has been mostly dispensed with. Thus,
all direct exporters are required to execute only LUT w.e.f. 4-10-2017. Now, bond and
guarantee is required in very few cases.
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LUT/bond is required for export of services without payment of IGST - FAQ No. 69 issued by
CBI&C on banking sector on 27-12-2018.
The exporter is required to execute a bond or Letter of Undertaking, prior to exports, binding
him to (a) pay tax with interest, within 15 days after three months from date of issue of
invoice, if goods are not exported. This period can be extended by Commissioner. (b) 15 days
after expiry of one year or such further period as may be allowed by Commissioner, from
date of issue of invoice for export, if payment is not received by the exporter or in convertible
foreign exchange or in Indian Rupees, where permitted by RBI - rule 96A(1) of CGST Rules, as
amended w.e.f. 1-2-2019.
Refund of input tax credit will be permissible even if export is made after three months. It is
not necessary to pay IGST and claim refund of IGST. Extension of three months period can
be given by jurisdictional Commissioner on ex post facto basis keeping in view the facts and
circumstances of each case. This principle applies in case of export of service also - CBI&C
circular No. 37/11/2018-GST, dated 15-3-2018.
Forms of bond and LUT have been given in CBI&C circular No. 26/2017-Cus, dated 1-7-2017.
The bond should be in form RFD-11 submitted on common portal. The LUT shall be deemed
to have been accepted as soon as an acknowledgement reference number (ARN) is
generated online. Any physical document is not required to be submitted. If it is later found
that the exporter was not eligible to submit LUT, the LUT shall be deemed to have been
rejected ab initio - CBI&C circular No. 40/14/2018-GST, dated 6-4-2018.
Details of GST invoice should be indicated in shipping bill. Details of export shall be submitted
in form GSTR-1 return.
Application for refund shall be filed electronically after the export manifest or export report
is delivered by person in charge of conveyance under section 41 of Customs Act - CBI&C
circular No. 26/2017-Cus, dated 1-7-2017.
Further, if payment is not received in convertible foreign exchange, within one year from
date of export, exporter has to bind himself to pay tax with interest [If exports are to Nepal
and Bhutan, how payment can be received in convertible foreign exchange?]
If such payment is not made, facility of clearance under bond or LUT will be withdrawn.
The procedure will apply to supplies to SEZ and SEZ Developer also - rule 96A(6) of CGST
Rules, 2017.
[Really, how payment can be received from SEZ in convertible foreign currency?]
LUT not required in case of export of exempted or non-GST goods - LUT not required in case
of export of exempted or non-GST goods. The exporter may follow procedure under Central
Excise or State Vat Law or Customs Act - CBI&C circular No. 45/19/2018-GST dated 30-5-
2018. [State Vat Act may apply to alcoholic liquor. How it can apply to other goods?]
ARE-1 not required except where Central Excise Duty is applicable - As per Guidance Note
for Importers and Exporters' issued by Customs issued on 30-6-2017 and CBI&C circular No.
26/2017-Cus, dated 1-7-2017, exporter is required to inform GSTN invoice in the shipping
bill. ARE-1 is dispensed with, except in respect of commodities to which provisions of Central
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Excise Act would continue to be applicable. [Petroleum products are still covered under
Central Excise].
Refund of input tax permissible even if LUT or bond was not executed at the time of supply
- LUT is a procedural provision. Hence, even if exports were made without LUT, substantive
benefit may not be denied. Refund of input tax is permissible even if LUT or bond was not
executed before supply. Facility of export under ex facto basis may be permitted taking into
account facts and circumstances of each case - CBI&C circular No. 37/11/2018-GST, dated
15-3-2018 - reiterated in FAQ on GST Chapter 14 Q No. 10 issued by CBI&C on 15-12-2018.
16.4-1 Who can execute LUT
CBI&C, vide circular No. 8/8/2017-GST dated 4-10-2017 has clarified as follows -
All exporters registered under GST can export goods or services without payment of IGST,
on execution of LUT, except those who have been prosecuted for offence under any law
where tax evade exceeds Rs 250 lakhs. The LUT is valid for whole financial year. However, if
payment is not received within prescribed period, facility of LUT is deemed to have been
withdrawn. If payment is received later, the facility to export under LUT is restored.
During the period when LUT is not allowed, export can be under bond with bank guarantee
or on payment of IGST.
LUT/bond is to be submitted to concerned Central/State tax authority having jurisdiction
over the taxable person will be accepted by Deputy/Assistant Commissioner within three
working days. If the LUT/bond is not accepted within three working days, it will be deemed
to have been accepted.
Running bond is required to maintained. The bond amount should cover amount of self
assessed estimated tax liability on export. If bond amount is not sufficient, fresh bond should
be executed.
Till mandatory self-sealing is operationalised, sealing of containers shall be done under
supervision of jurisdictional central excise officer.
LUT - LUT can be on letter head of exporter with signature and seal of authorised person.
LUT shall be valid for twelve months. If the exporter fails to comply with the conditions of
the LUT he may be asked to furnish a bond. Exports may be allowed under existing
LUTs/Bonds till 31st July 2017.
Acceptance of bond/LUT - The Bond/LUT shall be accepted by the jurisdictional
Deputy/Assistant Commissioner having jurisdiction over the principal place of business of
the exporter. The exporter is at liberty to furnish the bond/LUT before Central Tax Authority
or State Tax Authority. However, if in a State, the Commissioner of State Tax so directs, by
general instruction, to exporter, the Bond/LUT in all cases be accepted by Central tax officer
till such time the said administrative mechanism is implemented. Bond or LUT should be
accepted in maximum three working days.
Relaxation in LUT due to Covid-19 upto 30-6-2020 - In view of Covid-19, time limit for filing
LUT for FY 2020-21 has been extended upto 30-6-2020 - CBIC circular No. 137/07/2020-GST
dated 13-4-2020.
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Self-Declaration about non-prosecution is not required with every refund claim -

Declaration about non-prosecution is already filed with LUT. Hence, further Self-Declaration
about non-prosecution is not required with every refund claim - CBI&C circular No.
37/11/2018-GST dated 15-3-2018.
16.4-2 IGST not payable even when Exports made beyond period as prescribed in rule
96A(1)
Rule 96A (1) of the CGST Rules provides that any registered person may export goods or
services without payment of Integrated tax after furnishing a LUT/bond and that he would
be liable to pay the tax due along with the interest as applicable within a period of fifteen
days after the expiry of three months or such further period as may be allowed by the
Commissioner from the date of issue of the invoice for export, if the goods are not exported
out of India. The time period in case of services is fifteen days after the expiry of one year or
such further period as may be allowed by the Commissioner from the date of issue of the
invoice for export, if the payment of such services is not received by the exporter in
convertible foreign exchange.
It has been reported that the exporters have been asked to pay Integrated tax where the
goods have been exported but not within three months from the date of the issue of the
invoice for export. In this regard, it is emphasized that exports have been zero rated under
the IGST Act and as long as goods have actually been exported even after a period of three
months, payment of Integrated tax first and claiming refund at a subsequent date should
not be insisted upon.
In such cases, the jurisdictional Commissioner may consider granting extension of time limit
for export as provided in the said sub-rule on post facto basis keeping in view the facts and
circumstances of each case. The same principle should be followed in case of export of
services - para 45 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
16.4-3 Self declaration that applicant is not prosecuted is not required if LUT was executed
It is learnt that some field formations are asking for a self-declaration with every refund
claim to the effect that the applicant has not been prosecuted. The facility of export under
LUT is available to all exporters in terms of notification No. 37/2017- Central Tax dated
04.10.2017, except to those who have been prosecuted for any offence under the CGST Act
or the IGST Act or any of the existing laws in force in a case where the amount of tax evaded
exceeds two hundred and fifty lakh rupees. Para 2(d) of the Circular No. 8/8/2017-GST dated
04.10.2017, mentions that a person intending to export under LUT is required to give a self-
declaration at the time of submission of LUT that he has not been prosecuted.
Persons who are not eligible to export under LUT are required to export under bond. It is
clarified that this requirement is already satisfied in case of exports under LUT and asking
for self-declaration with every refund claim where the exports have been made under LUT
is not warranted - para 46 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
16.4-4 Refund of ITC permissible even if Exports made without LUT/Bond
Export of goods or services can be made without payment of Integrated tax under the
provisions of rule 96A of the CGST Rules. Under the said provisions, an exporter is required
to furnish a bond or Letter of Undertaking (LUT) to the jurisdictional Commissioner before
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effecting zero rated supplies. A detailed procedure for filing of LUT has been specified vide
Circular No. 8/8/2017 -GST dated 4.10.2017.
In some cases, such zero-rated supplies were made before filing the LUT and refund claims
for unutilized input tax credit got filed. In this regard, it is emphasized that the substantive
benefits of zero rating may not be denied where it has been established that exports in terms
of the relevant provisions have been made. The delay in furnishing of LUT in such cases may
be condoned and the facility for export under LUT may be allowed on ex post facto basis
taking into account the facts and circumstances of each case - para 44 of CBI&C Circular No.
125/44/2019 - GST dated 18-11-2019.
16.4-5 Income Tax PAN as IEC number for DGFT
DGFT has decided to use income tax PAN as IEC number. If the taxable person is registered
under GST, then his GSTIN number should be quoted (which contains PAN as part of GSTIN
number). For residuary categories, UIN issued by GSTN and authenticated by DGFT will be
used. For others, common number will be notified by DGFT - DGFT TN 9/2018 dated 12-6-
2017.
Earlier, IEC/e-IEC a 10 digit number was allotted to a person- para of FTP 2015-2020. Now,
PAN or UIN will be used.
16.4-6 Sealing of containers for exports
Modern practice is to stuff goods in containers. Goods can be cleared from factory after
sealing the container.
Goods can be self sealed in the premises of taxable person or at Container Freight
Station/Inland Container depot/Port.
The practice of sealing under supervision of excise officers has been discontinued w.e.f. 1-9-
2017. The procedure has been specified in CBI&C circular No. 26/2017-Cus dated 1-7-2017.
Mandatory RFID sealing in case of movement of warehoused goods under bond has been
postponed indefinitely - CBI&C circular No. 54/2018-Cus dated 31-12-2018.
If exporter intends to avail facility of self sealing in his premises, he should inform details of
premises whether a factory or warehouse or any other place where container stuffing is to
be carried out.
He should be registered in GST and filing GSTR 1 and GSTR 2 returns. In case of status holders
they need not be registered under GST [There will be hardly any such status holder].
The premises will be inspected by jurisdictional Customs Officer of the rank of
Superintendent or Appraiser of Customs. Application should be submitted 15 days in
advance. The premises will be inspected and if found suitable for stuffing and sealing, report
will be submitted to AC/DC of Customs. He will forward the report to Principal
Commissioner/Commissioner of Customs who would grant permission of self sealing.
This permission will be valid for all customs stations. It will be circulated with GSTIN number
of exporter.
The permission will be informed to jurisdictional Superintendent of Customs every time self
sealing is carried out at the premises.
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The exporter will seal the container with tamper proof electronic seal of standard
specification. The electronic seal should have a unique number which will be declared in the
shipping bill. Before sealing the container, the exporter shall feed the prescribed data in the
electronic bill.
All self sealed containers will be subject to risk based criteria and intelligence, for
examination at port. The integrity of electronic seal will be examined at the port.
If the premises are not found to be suitable for stuffing and self sealing, exporter shall bring
the goods to CFS/ISD/Port for sealing.
Electronic sealing of containers under self sealing - RFID Tamper Proof One Time Bolt
Containers Seals should comply with ISO standard No. 17712/2013. The manufacturers of
such seals should submit self attested certificate to Director (Customs), CBI&C, North Block,
New Delhi before commencing sales. Name of approved vendors of seals will be uploaded
by CBI&C. In some hinterland ICDs, there is no reading facility of RFID. The custodians of such
ICDs should get such facilities - CBI&C circulars No. 36/2017-Cus dated 28-8-2017 and No.
37/2017-Cus dated 20-9-2017.
Sealing of packages for export - In my view, the sealing requirement is only in respect of
containers and not for small packages which are separately exported.
HSN classification of RFID e-seals - The RFID e-seals is seal with electronic add on (RFID) to
detect security breach. It is classifiable under heading 8309 90 30.
Mandatory sealing postponed - Mandatory RFID sealing in case of movement of
warehoused goods under bond has been postponed to 1-1-2019 - CBIC circular No. 24/2018-
Cus dated 31-7-2018.
16.5 Refund of IGST paid on goods exported out of India
A taxable person has option to pay IGST on goods exported out of India and claim refund.
He may like to do this if he has excess Input Tax Credit which may be otherwise not utilizable.
Provisions are contained in rule 96 of CGST and SGST Rules, 2017. These are explained in
CBI&C circular No. 26/2017-Cus dated 1-7-2017 and Instruction No. 15/2017-Cus dated 9-
10-2017.
Verification of claims of IGST refunds - Procedure for IGST refunds has been fully
automated. However, instances have come to notice of department of availing ITC on bogus
or ineligible documents, variation in FOB value etc. Hence, a procedure has been prescribed
to verify IGST refund claims on export through GST officers. The procedure has been
specified in CBI&C circular No. 16/2019-Cus dated 17-6-2019.
Shipping Bill shall be deemed to be application for refund - Shipping Bill filed by exporter of
goods shall be deemed to be application for refund of IGST. Departure Manifest, Export
Manifest or Export Report covering the number and date of shipping bill should have been
filed. The applicant should have filed valid return in form GSTR-3 or GSTR-3B as the case may
be - Rule 96(1) of CGST and SGST Rules, 2017 [The words 'of goods' were inserted with
retrospective effect from 23-10-2017. The words 'Departure Manifest' were inserted w.e.f.
31-12-2018].
Details of export invoices shall be transferred to customs electronically - Details of export
invoices in respect of goods contained in valid return in form GSTR-3 or GSTR-3B as the case
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may be, shall be transmitted to system in respect of designated by Customs. The system
shall confirm that the goods have been exporters out of India - Rule 96(2) of CGST and SGST
Rules, 2017 [The words in italics inserted with retrospective effect from 23-10-2017].
Submission of details of export invoices when extension has been granted to filing of GSTR-
1 - Where date of filing GSTR-1 has been extended by Commissioner, the supplier shall
furnish information relating to export invoices in table 6A of form GSTR-1 after return in
form GSTR-3B has been furnished. This will be transmitted electronically by common portal
to system designated by the Customs - first proviso to rules 96(2) and 96A(2) of CGST Rules
inserted w.e.f. 28-10-2017.
Information in table 6A furnished will be auto drafted in form GSTR-1 for same tax period -
- second proviso to rules 96(2) and 96A(2) of CGST Rules inserted w.e.f. 28-10-2017.
Processing of refund by customs system or by customs officer - The system designated by
the customs, or the proper officer of customs (in case of manual application of refunds), as
the case may be, shall process the claim of refund in respect of export goods, on confirmation
of export of goods and valid return. IGST in respect of each Shipping Bill will be transferred
to bank account of applicant as mentioned in registration particulars of applicant - Rule 96(3)
of CGST and SGST Rules, 2017 [The words in italics inserted with retrospective effect from
23-10-2017].
Refund applications will be processed through PFMS portal. Till PFMS system is functional,
refund may be made through issue of consolidated cheque - CBI&C instruction No. 16/2017-
Cus dated 9-10-2017.
Withholding of refund - The refund can be withheld if jurisdictional Commissioner of CGST,
SGST or UTGST requests withholding under section 54(10) or 54(11) of CGST and SGST Act
or the customs officer determines that goods were exported in violation of customs law -
Rule 96(4) of CGST and SGST Rules, 2017.
If the refund is withheld, intimation shall be sent to applicant and jurisdictional
Commissioner and copy will be transmitted on common portal - Rule 96(5) of CGST and SGST
Rules, 2017.
After such intimation, the proper officer of CGST, SGST or UTGST will pass order in part B of
form GST RFD-07 - Rule 96(6) of CGST and SGST Rules, 2017.
If refund was withheld on request from Commissioner, the jurisdictional officer shall
proceed with refund after passing order under GST RFD-06.
Refund to Government of Bhutan instead of refund to exporter - Central government may
refund IGST to Government of Bhutan on exports to Bhutan for such class of goods as may
be notified - Rule 96(8) of CGST and SGST Rules, 2017.
Refund of IGST paid on services exported - Refund of IGST paid on services exported shall
be filed in form GST RFD-01 and shall be dealt with in accordance with provisions of rule 89
of CGST Rules - Rule 96(9) of CGST and SGST Rules, 2017 amended with retrospective effect
from 23-10-2017.
Instructions by customs department - The Guidance Note for Importers and Exporters'
issued by Customs issued on 30-6-2017 prescribes following procedure.
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Shipping Bill (or Bill of Export) filed by an exporter will be deemed to be application for
refund of refund of IGST paid on goods exported. The application will be deemed to have
been filed only when person in charge of conveyance carrying the goods files export
manifest or export report, covering number and date of shipping bill or bill of export and
applicant has furnished a valid return.
16.5-1 Refund when difference in value declared in tax invoice and shipping bill does not
match
It has also been brought to the notice of the Board that in certain cases, where the refund
of unutilized input tax credit on account of export of goods is claimed and the value declared
in the tax invoice is different from the export value declared in the corresponding shipping
bill under the Customs Act, refund claims are not being processed.
It is clarified that the zero-rated supply of goods is effected under the provisions of the GST
laws. An exporter, at the time of supply of goods declares that the goods are meant for
export and the same is done under an invoice issued under rule 46 of the CGST Rules. The
value recorded in the GST invoice should normally be the transaction value as determined
under section 15 of the CGST Act read with the rules made thereunder. The same transaction
value should normally be recorded in the corresponding shipping bill/bill of export. During
the processing of the refund claim, the value of the goods declared in the GST invoice and
the value in the corresponding shipping bill/bill of export should be examined and the lower
of the two values should be taken into account while calculating the eligible amount of
refund - para 47 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
16.5-2 Realisation of foreign exchange is required in case of export of goods w.e.f. 23-3-
2020
Till 23-3-2020, refund of IGST or ITC in case of export of goods was allowed even if export
proceeds were not realized. However, now, though refund of IGST or ITC in case of exports
is granted, the amount with interest will be refundable by exporter within 30 days. If not so
refunded, the amount can be recovered with interest, if foreign exchange in respect of
export of goods is not realized within period allowed under FEMA. If later, the amount is
recovered by exporter, it can be claimed as refund.
The statutory provision, as inserted w.e.f. 23-3-2020 is as follows.
Recovery of refund of unutilised input tax credit or integrated tax paid on export of goods
where export proceeds not realized - Where any refund of unutilised input tax credit on
account of export of goods or of integrated tax paid on export of goods has been paid to an
applicant but the sale proceeds in respect of such export goods have not been realised, in
full or in part, in India within the period allowed under FEMA, including any extension of
such period, the person to whom the refund has been made shall deposit the amount so
refunded, to the extent of non-realisation of sale proceeds, along with applicable interest
within thirty days of the expiry of the said period or, as the case may be, the extended period,
failing which the amount refunded shall be recovered in accordance with the provisions of
section 73 or 74 of the CGST Act, as the case may be, as is applicable for recovery of
erroneous refund, along with interest under section 50 of CGST Act - rule 96B(1) of CGST
Rules inserted w.e.f. 23-3-2020.
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Where sale proceeds, or any part thereof, in respect of such export goods are not realised
by the applicant within the period allowed under FEMA, but the RBI writes off the
requirement of realisation of sale proceeds on merits, the refund paid to the applicant shall
not be recovered - proviso to rule 96B(1) of CGST Rules inserted w.e.f. 23-3-2020.
Where the sale proceeds are realised by the applicant, in full or part, after the amount of
refund has been recovered from him under sub-rule 96B(1) and the applicant produces
evidence about such realisation within a period of three months from the date of realisation
of sale proceeds, the amount so recovered shall be refunded by the proper officer, to the
applicant to the extent of realisation of sale proceeds, provided the sale proceeds have been
realised within such extended period as permitted by RBI - rule 96B(2) of CGST Rules inserted
w.e.f. 23-3-2020.
Provision as applicable upto 23-3-2020- It was clarified that the realization of consideration
in convertible foreign exchange, or in Indian rupees wherever permitted by Reserve Bank of
India, is one of the conditions for export of services. In case of export of goods, realization
of consideration is not a pre-condition. In rule 89(2) of the CGST Rules, a statement
containing the number and date of invoices and the relevant Bank Realization Certificates
(BRC) or Foreign Inward Remittance Certificates (FIRC) is required in case of export of
services whereas, in case of export of goods, a statement containing the number and date
of shipping bills or bills of export and the number and the date of the relevant export invoices
is required to be submitted along with the claim for refund. It is therefore clarified that
insistence on proof of realization of export proceeds for processing of refund claims related
to export of goods has not been envisaged in the law and should not be insisted upon - para
48 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019. [Now this clarification does
not apply for refunds after 23-3-2020].
16.5-3 Procedure for Refund of IGST paid on Exports
The refund of Integrated tax paid on goods exported out of India is governed by rule 96 of
the CGST Rules. The shipping bill filed by an exporter is deemed to be an application for
refund in such cases, but the same is deemed to have been filed only when the export
manifest or export report is filed and the applicant has filed the return in FORM GSTR-3B for
the relevant period duly indicating the integrated tax paid on goods exported in Table 3.1(b)
of FORM GSTR-3B . In addition, the exporter is expected to furnish the details of the exported
goods in Table 6A of FORM GSTR-1 of the relevant period. Only where the common portal is
able to validate the consistency of the details so entered by the applicant, the relevant
information regarding the refund claim is forwarded to Customs Systems. Upon receipt of
the information from the common portal regarding furnishing of these details, the Customs
Systems processes the claim for refund and an amount equal to the Integrated tax paid in
respect of such export is electronically credited to the bank account of the applicant - para
58 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
16.5-4 Solutions to difficulties faced by exporters in getting refund
Initially, exporters faced many difficulties in getting refunds. The reasons and solutions were
given, as summarized below.
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Mismatch in GSTR-1 and GSTR-3B - Exporters have declared export supplies as IGST paid
on inter-state domestic outward supplies while filing GSTR-3B. In some cases, IGST has been
short paid. Hence, cumulative payment of IGST during July 2017 to March 2021 will be
prepared by Customs Policy wing and will get it confirmed from GSTN. The exporter will
submit CA certificate before 30-10-2021 at port of export that there is no discrepancy. On
that basis refund will be sanctioned and will be post audited. In case of short payment of
IGST, the exporters will make payment in subsequent GSTR-3B with CA certificate if amount
exceeds Rs. 10 lakhs. Post refund audit will be carried out - CBI&C circular No. 12/2018-Cus
dated 29-5-2018 as amended by MF(DR) circular No. 25/2019-Cus dated 27-8-2019 and
MF(DR) circular No. 4/2021-Cus dated 16-2-2021.
This relaxation for comparison between GSTR-3B and GSTR-1 will continue for the period
April 2018 to March 2019 also - MF(DR) circular No. 25/2019-Cus. dated 27-8-2019.
The Certificate can be issued by practicing Cost Accountant also - CBIC circular No. 33/2018-
Customs dated 19-9-2018.
Alternate mechanism in case of invoice mismatch - In case of invoice mismatch, the SB005
is displayed. Sine invoice mis-match is the major reason for delay in refund in case of exports,
an alternate mechanism has been developed where details will be submitted in prescribed
form given in Annexure of MF(DR) circular No. 5/2018-Cus dated 23-2-2018. This procedure
is available for shipping bills upto 31-12-2019 - CBI&C Circular No.22/2020-Customs dated
21-4-2020 [earlier CBI&C circular No. 08/2018-Customs dated 23-3-2018, CBI&C circular No.
15/2018-Cus dated 6-6-2018, circular No. 40/2018-Cus dated 24-10-2018 and CBI&C circular
No. 26/2019-Customs dated 27-8-2019].
Now, permanent provision has been made to solve issues relating to alternate mechanism
for invoice mismatch. Fee of Rs 1,000 will be payable for Handling of mismatch between
Shipping Bill and GST returns in Customs Automated System - CBI&C circular No.05/2021-
Cus dated 17-2-2021.
Levy of Fees (Customs Documents) Regulations, 1970 have been amended w.e.f. 17-2-2021
to make provision for payment of Rs 1,000 as fees for handling of mismatch between
shipping bill and GST returns in Customs Automated System.
Avoidance of error due to mismatch of EGM - Error due to mismatch with EGM is another
reason for delay in processing refund claim. A procedure has been specified in CBI&C circular
No. 68/2018-Customs dated 16-3-2018 to avoid the error.
Error SB003 due to mismatch between GSTIN entry in shipping Bill and in GSTR-1/GSTR-3B
- Error SB003 due to mismatch between GSTIN entry in shipping Bill and in GSTR-1/GSTR-3B
occurs when shipping bill is filed by HO while GSTR1-GSTR-3B is uploaded by factory. In such
cases, entity seeking refund will give undertaking that its other office will not claim any
refund - CBI&C circular No. 15/2018-Cus. dated 6-6-2018.
Same procure will apply where exporter has mentioned PAN instead of GSTIN - MF(DR)
circular No. 22/2015-Cus. dated 16-7-2018.
Error SB006 due to discontinuance of transference copy of shipping bill - Error SB006 occurs
due to discontinuance of transference copy of shipping bill. An alternate mechanism to treat
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final Bill of Lading as valid document for integrated with EGM should be followed - CBI&C
circular No. 08/2018-Customs dated 23-3-2018.
Wrong mention of shipping bill about payment of IGST - In some cases, exporter pays IGST
but by mistake mentions 'NA' in shipping Bill instead of 'P'. In such case, refund should be
granted after verifying payment of IGST based on GS returns - CBI&C circular No. 08/2018-
Customs dated 23-3-2018.
Removal of mismatch is permissible by amending through table 9 of GSTR-1 or by rectifying
GSTR-3B return - Mismatch of invoice can be removed by amending GSTR-1 through table
9. Error made in GSTR-3B can be rectified by following procedure prescribed in CBI&C
circular No. 26/26/2017-GST dated 29-12-2017 - CBI&C circular No. 37/11/2018-GST dated
15-3-2018.
16.5-5 Refund of IGST paid on goods exported even if higher rate of duty drawback claimed
Refund of IGST paid on goods exported can be withheld only in circumstances arising of rule
96(4) of CGST Rules. Refund of IGST on zero rated exported goods cannot be withheld even
if higher rate of duty drawback claimed - Amit Cotton Industries v. Principal Commissioner of
Customs (2019) 75 GST 33 = 107 taxmann.com 167 (Guj HC DB).
16.5-6 Standard Operating Procedure (SOP) to be followed by exporters whose refund
claim kept in abeyance
There have been numerous instances of frauds in getting refunds in case of exports. ITC is
taken on basis of bogus invoices. The ITC is used for payment of IGST on exports and then
refund of IGST paid on exported goods is obtained.
CBI&C has issued Standard Operating Procedure (SOP) to be followed by exporters, vide
CBI&C Circular No. 131/1/2020-GST [CBEC-20/16/07/2020-GST] dated 23-1-2020. It is stated
that in case of doubtful refund claims, Verification is carried out and till then refund scroll is
kept in abeyance. In cases of exporters where refunds are kept in abeyance, exporters are
required to submit details in form appended to the circular dated 23-1-2020. If verification
is not carried out within one month, exporter can lodge complaint on website of cbic.gov.in.
16.5-7 Confiscation of goods entered for exportation for wrongful remission or refund of
tax
The following goods shall be liable for confiscation - any goods entered for exportation under
claim of remission or refund of any duty or tax or levy to make a wrongful claim in
contravention of the provisions of Customs Act or any other law for the time being in force
- section 113(ja) of Customs Act inserted w.e.f. 28th March, 2021.
16.5-8 Penalty for fraudulent utilisation of input tax credit for claiming refund on goods
entered for export
Where any person has obtained any invoice by fraud, collusion, wilful misstatement or
suppression of facts to utilise input tax credit on the basis of such invoice for discharging any
duty or tax on goods that are entered for exportation under claim of refund of such duty or
tax, such person shall be liable for penalty not exceeding five times the refund claimed -
section 114AC of Customs Act inserted w.e.f. 28th March, 2021.
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For the purposes of section 114AC of Customs Act, the expression "input tax credit" shall
have the same meaning as assigned to it in section 2(63) of the Central Goods and Services
Tax Act, 2017 - explanation to section 114AC of Customs Act inserted w.e.f. 28th March,
2021.
16.6 Refund of IGST not permissible if inputs were obtained at concessional rate of GST or
supplier claims deemed export benefit or goods were imported without payment of
customs duty and IGST
Rule 96(10) of CGST Rules specifies restrictions on availing refund of IGST paid on goods or
services exported on payment of IGST.
Rule 96(10) of CGST Rules was substituted on 4-9-2018 with retrospective effect from 23-
10-2017.
It was further amended on 9-10-2018 providing that the rule will not apply to capital goods
procured under EPCG. This amendment has not been given retrospective effect. However,
even earlier, such refund was permissible if capital goods were imported under EPCG - CBI&C
circular No. 70/44/2018-GST dated 26-10-2018.
Rule 96(10) as substituted on 4-9-2018 (with retrospective effect from 23-10-2017) and
further amended on 9-10-2018 reads as follows.
The persons claiming refund of integrated tax paid on exports of goods or services should
not have -
(a) received supplies on which the benefit of the Government of India, Ministry of
Finance notification No. 48/2017-Central Tax, dated the 18th October, 2017,
published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide
number G.S.R 1305 (E), dated the 18th October, 2017 except so far it relates to
receipt of capital goods by such person against Export Promotion Capital Goods
Scheme [Deemed Exports] or notification No. 40/2017-Central Tax (Rate), dated the
23rd October, 2017, published in the Gazette of India, Extraordinary, Part II, Section
3, Sub-section (i), vide number G.S.R 1320(E), dated the 23rd October, 2017 [0.1%
scheme] or notification No. 41/2017-Integ-rated Tax (Rate), dated the 23rd October,
2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section
(i), vide number G.S.R 1321(E), dated the 23rd October, 2017 [0.1% scheme] has been
availed; or
(b) availed the benefit under notification No. 78/2017-Customs, dated the 13th October,
2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section
(i), vide number G.S.R 1272(E), dated the 13th October, 2017 [EOU scheme] or
notification No. 79/2017-Customs, dated the 13th October, 2017, published in the
Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R
1299(E), dated the 13th October, 2017 [Advance Authorisation or EPCG] except so far
it relates to receipt of capital goods by such person against Export Promotion Capital
Goods Scheme. [Rule 96(10) of CGST Rules as amended w.e.f. on 4-9-2018 with
retrospective effect from 23-10-2017 - The words in italics inserted w.e.f. 9-10-2018].
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Explanation - For the purpose of rule 96(10), the benefit of the notifications mentioned
therein shall not be considered to have been availed only where the registered person has
paid IGST and GST Compensation Cess on inputs and has availed exemption of only Basic
Customs Duty (BCD) under the said notifications - explanation inserted on 23-3-2020 but
with retrospective effect from 23-10-2017.
16.6-1 Analysis of rule 96(10) of CGST Rules
The intention of rule 96(10) of CGST Rules is that if the exporter has imported inputs (a)
without payment of IGST under Advance Authorisation or DFIA or by EOU or (b) procured
material at concessional rate of 0.1% or (c) where supplier of exporter is claiming deemed
export benefits, the exporter cannot export goods on payment of IGST and claim refund of
IGST. He can claim refund of Input Tax Credit only (This procedure is clumsy).
Exception is that if capital goods were procured under EPCG authorisation without payment
of IGST, the exporter can still export goods on payment of IGST and claim refund of IGST
(This process is simple).
This is elaborated below.
When exporter is entitled to obtain inputs without GST or at concessional rate? [covered
in clause (a) above] - The exporter is entitled to obtain inputs without payment of GST or
at concessional rate of GST in following cases -
(1) Notification No. 48/2017-CT dated 18-10-2017 - Deemed exports - tax is payable -
supplier or recipient can claim refund of tax. Thus, if the supplier of exporter claims
deemed export benefit, the exporter cannot export goods on payment of IGST and
claim refund of IGST paid. However, he can claim refund of input tax credit on other
goods under rule 89(4A) of CGST Rules.
(2) Notification Nos. 40/2017-CT (Rate), 41/2017-IT (Rate) and 40/2017- UT (rate) all
dated 23-10-2017 - In case of exports by manufacturer through merchant exporter,
the manufacturer supplier can supply goods to merchant exporter @ 0.05% CGST
and 0.05% SGST/UTGST or 0.1% IGST. If merchant exporters procures such goods at
concessional rate, he cannot export goods on payment of IGST and claim refund of
IGST paid on exports. However, he can claim refund of input tax credit on other goods
under rule 89(4B) of CGST Rules.

When exporter can obtain inputs without payment of customs duty and IGST - covered in
clause (b) - In following cases, the exporter can import goods without payment of customs
duty and IGST
(1) Goods imported by EOU without payment of IGST and Compensation cess which is
exempt upto 31-3-2022 - notification 52/2003-Cus dated 31-3-2003 as amended and
para 6.01(d)(ii) of FTP 2015-20. Thus, if exporter has imported inputs under EOU
scheme without payment of IGST, he cannot export goods on payment of IGST and
claim refund of IGST paid on exported goods. However, he can claim refund of input
tax credit on other goods under rule 89(4B) of CGST Rules.
(2) Goods imported under Advance Authorisation or DFIA Authorisation without
payment of IGST and GST Compensation Cess which is exempted upto 31-3-2022
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under Notification No. 78/2017-Cus dated 13-10-2017 as amended [imports by EOU]

or 79/2017-Cus both dated 13-10-2027 [There are various original customs
notifications in respect of advance authorisation]. Thus, if exporter has imported
inputs without payment of IGST under Advance Authorisation or DFIA, he cannot
export goods on payment of IGST and claim refund of IGST paid on exported goods.
However, he can claim refund of input tax credit on other goods under rule 89(4B) of
CGST Rules.

This restriction is not applicable if he had imported capital goods under EPCG.
This is also clarified in FAQ on GST Chapter 21 Q No. 17 issued by CBI&C on 15-12-2018.
Explanation - For the purpose of rule 96(10), the benefit of the notifications mentioned
therein shall not be considered to have been availed only where the registered person has
paid IGST and GST Compensation Cess on inputs and has availed exemption of only Basic
Customs Duty (BCD) under the said notifications - explanation inserted on 23-3-2020 but
with retrospective effect from 23-10-2017.
16.6-2 Restriction applies only in case person claiming refund of IGST himself had availed
benefit of the exemption and not where the prior supplier had availed the benefit of the
exemption notification
It is clarified that the restriction under rule 96(10) of the CGST Rules, as amended
retrospectively by notification No. 39/2018-Central Tax, dated 04.09.2018, applies only to
those purchasers/importers who are directly purchasing/importing supplies on which the
benefit of certain notifications, as specified in rule 96(10) of CGST Rules has been availed -
para 5.2 of CBIC Circular No. 59/33/2018-GST dated 4-9-2018.
This was also clarified earlier as follows - The aforesaid restriction applies only in case
supplier himself had availed benefit of the specified exemption notification and not where
the prior supplier had availed the benefit of the exemption notification - CBI&C circular No.
45/19/2018-GST dated 30-5-2018.
16.6-3 Refund of IGST paid on exported goods during the period 13-10-2017 to 9-10-2018
There is some confusion as rule 96(10) was amended on 4-9-2018 but with retrospective
effect from 13-10-2017 (though legally such retrospective amendment is not permissible).
It has been clarified that refund of IGST paid on exported goods is permissible if goods were
exported during 13-10-2017 to 9-10-2018 even if inputs or capital goods were obtained
without payment of IGST. However, after 9-10-2018, refund of IGST paid on exports will not
be allowed if goods (inputs or capital goods) were obtained without payment of IGST. Thus,
IGST cannot be paid on final product exported if inputs were imported without payment of
IGST.
After 9-10-2018, manufactured goods can be exported on payment of IGST if capital goods
were obtained under EPCG authorisation. Refund of IGST will be permissible. However, in
case of goods exported after 9-10-2018, if inputs or capital goods (other than under EPCG
Authorisation) are obtained without payment of IGST, final product cannot be exported on
payment of IGST. Even if paid, its refund will not be admissible - CBI&C circular No.
70/44/2018-GST dated 26-10-2018.
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16.6-4 Refund of input tax credit availed of goods exported if supplier had claimed deemed
export benefit
Rule 89(4A) of CGST Rule (amended with retrospective effect from 23-10-2017) provides as
follows.
If the supplier has claimed benefit of deemed exports under Notification No. 48/2017-CT
dated 18-10-2017 (deemed exports), refund of input tax credit, availed in respect of other
inputs or input services is available if the recipient makes a zero rated supply or if he exports
goods - - rule 89(4A)of CGST Rules, inserted on 23-1-2018 but with retrospective effect from
23-10-2017.
16.6-5 Refund of input tax credit if goods were procured on payment of 0.1% GST or
without GST under Adjudicating Authority or DFIA
Rule 89(4B) of CGST Rules amended w.e.f. 9-10-2018 states as follows.
Where the person claiming refund of unutilised input tax credit on account of zero rated
supplies without payment of tax has -
(a) received supplies on which the supplier has availed the benefit of the Government of
India, Ministry of Finance, notification No. 40/2017-Central Tax (Rate), dated the 23rd
October, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-
section (i), vide number G.S.R 1320(E), dated the 23rd October, 2017 (supply to
merchant exporter on payment of 0.05% of SGST plus 0.05% of CGST) or notification
No. 41/2017-Integrated Tax (Rate), dated the 23rd October, 2017, published in the
Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R
1321(E), dated the 23rd October, 2017(supply to merchant exporter on payment of
0.1% of IGST); or
(b) availed the benefit of notification No. 78/2017-Customs, dated the 13th October,
2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section
(i), vide number G.S.R 1272(E), dated the 13th October, 2017 (Exempting goods
imported by EOU from basic customs duty and IGST upto 31-3-2021) or notification
No. 79/2017-Customs, dated the 13th October, 2017, published in the Gazette of
India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1299(E),
dated the 13th October, 2017(Exempting goods imported under Advance
Authorisation, DFIA or EPCG Authorisation from IGST upto 31-3-2021),

the refund of input tax credit, availed in respect of inputs received under the said
notifications for export of goods and the input tax credit availed in respect of other inputs
or input services to the extent used in making such export of goods, shall be granted [rule
89(4B) of CGST Rules as amended w.e.f. 9-10-2018].
Rule 89(4B) as existing upto 9-10-2018 — In the case of supplies received on which the
supplier has availed the benefit of notification No. 40/2017-Central Tax (Rate) dated 23rd
October, 2017 (supply to merchant exporter on payment of 0.05% of SGST plus 0.05% of
CGST) or notification No. 41/2017-Integrated Tax (Rate) (supply to merchant exporter on
payment of 0.1% of IGST) or dated 23rd October, 2017 or notification No. 78/2017-Customs
dated the 13th October, 2017 (Exempting goods imported by EOU from basic customs duty
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and IGST upto 31-3-2019) or notification No. 79/2017-Customs dated the 13th October,
2017 (Exempting goods imported under Advance Authorisation, DFIA or EPCG Authorisation
from IGST upto 31-3-2020), or all of them, refund of input tax credit, availed in respect of
inputs received under the said notifications for export of goods and the input tax credit
availed in respect of other inputs or input services to the extent used in making such export
of goods, shall be granted - Rule 89(4B) of CGST Rules inserted on 23-1-2018 but with
retrospective effect from 23-10-2017.
The supplier can import capital goods without payment of customs duty and IGST - The
aforesaid restriction is not applicable to supplier who has imported capital goods under
these provisions. Thus, even if supplier of goods to exporter had imported capital goods
without payment of customs duty or IGST under EPCG scheme and used them to
manufacturer goods supplied to exporter, the exporter can pay IGST on his goods exported
and claim refund - CBI&C circular No. 45/19/2018-GST dated 30-5-2018].
16.7 Supply at duty free shops at International Airports
There is great controversy on this issue.
In Hotel Ashoka v. ACCT [2012] 3 SCC 204 = 35 STT 382 = 20 taxmann.com 765 = 276 ELT 433
= 48 VST 443 (SC), it has been held that sale in duty free shop at international airport before
goods crossed customs frontier is not subject to sales tax as the transaction is beyond
customs frontier of India - followed in State of Karnataka v. Flemingo Duty Free Shop P Ltd.
(2014) 45 GST 578 = 45 taxmann.com 463 (Kar HC DB).
It was thought that this decision under sales tax will apply under GST also. It is understood
that GST is not charged by many retail outlets in international airport beyond immigration
counter on supplies made from such retail shops.
In Atin Krishna v. UOI (2019) 75 GST 373 = 107 taxmann.com 411 (All HC DB), it was held that
sale of goods at International departure terminal is 'export of goods' under Customs Law as
well as under GST. - same view in Sandeep Patil v. UOI (2019) 110 taxmann.com 155 (Bom
HC DB) * Cial Duty Free & Retail Services Ltd. (CDRSL)v.Union of India [2020] 119
taxmann.com 388 (Kerala HC).
However, in Rod Retail (P.) Ltd. In re [2018] 92 taxmann.com 317 (Delhi AAR), it has been
held that sale of goods in international airport to outbound traveller in security hold area is
not 'export' and GST is payable as the outlet is not out of India, though the outlet may be
beyond customs frontier of India. The supply is not 'export' as defined in IGST Act. In this
judgment, the aforesaid judgment of Supreme Court was noted and discussed. However, it
was held that this judgment will not apply in view of provisions of GST Law.
Same view has been expressed in Vasu Clothing (P.) Ltd. v. Union of India [2018] 100
taxmann.com 451 (MP HC DB).
As per section 15 of IGST Act, the IGST paid on any supply of goods to outbound tourist shall
be refunded, in the manner and subject to such conditions and safeguards as may be
prescribed, if such goods are taken out of India. Though this section has not yet been
notified, the provision indeed implies that IGST has to be paid unless exempted.
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Further, exemption from IGST and GST Compensation Cess has been granted on such
supplies w.e.f. 1-7-2019, which also implies that IGST and GST Compensation Cess was
payable during 1-7-2017 to 30-6-2019.
There is no concept of customs frontier of India in respect of export of goods, though section
7(2) of IGST Act refers to customs frontier of India in respect of high seas sale.
The duty free shop is obviously in India.
Thus, it appears that (at least as per departmental view) IGST and GST Compensation Cess
was payable on such supplies during 1-7-2017 to 30-6-2019. However, some arguments are
possible, which are discussed later.
Payment for goods in duty free shops in rupees - CBI&C, vide circular No. 50/2017-Cus
dated 18-12-2017 has clarified as follows - (a) Price of goods in duty free shops should be
displayed in rupees only (b) In case of incoming passenger, the limit is Rs. 25,000 and
payment can be made in rupees by debit/credit card in duty free shop in arrival hall (c) There
is no restriction on amount in case of outgoing passenger and he can pay any amount in
rupees by debit/credit card in departure hall.
Exemption from IGST and GST Compensation Cess w.e.f. 1-7-2019 to outgoing
international tourists - IGST and GST Compensation Cess payable on supply of goods by a
retail outlet established in the departure area of an international airport, beyond the
immigration counters, is exempted w.e.f. 1-7-2019 - Notification Nos. 11/2019-IT (Rate) and
1/2019-Compensation Cess (Rate) both dated 29-6-2019.
The exemption is only if supply is made to person who is not normally resident of India who
have stayed in India for less than six months. Thus, the exemption is not available to supply
made to Indian residents tourists going out of India for short duration.
Refund of taxes to the retail outlets established in departure area of an international
Airport beyond immigration counters making tax free supply to an outgoing international
tourist - Retail outlet established in departure area of an international airport, beyond the
immigration counters, supplying indigenous goods to an outgoing international tourist who
is leaving India shall be eligible to claim refund of tax paid by it on inward supply of such
goods - rule 95A(1) of CGST Rules inserted w.e.f. 1-7-2019.
The expression "outgoing international tourist" shall mean a person not normally resident
in India, who enters India for a stay of not more than six months for legitimate non-
immigrant purposes - Explanation to rule 95A of CGST Rules inserted w.e.f. 1-7-2019.
IGST and GST Compensation Cess payable on supply of goods by a retail outlet established
in the departure area of an international airport, beyond the immigration counters, is
exempted w.e.f. 1-7-2019 - - Notification Nos. 11/2019-IT (Rate) and 1/2019-Compensation
Cess (Rate) both dated 29-6-2019.
Retail outlet claiming refund of the taxes paid on his inward supplies, shall furnish the
application for refund claim in FORM GST RFD-10B on a monthly or quarterly basis, as the
case may be, through the common portal - rule 95A(2) of CGST Rules inserted w.e.f. 1-7-
2019.
The self-certified compiled information of invoices issued for the supply made during the
month or the quarter, as the case may be, along with concerned purchase invoice shall be
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submitted along with the refund application - rule 95A(3) of CGST Rules inserted w.e.f. 1-7-
2019.
The refund of tax paid by the said retail outlet shall be available if- (a) the inward supplies of
goods were received by the said retail outlet from a registered person against a tax invoice;
(b) the said goods were supplied by the said retail outlet to an outgoing international tourist
against foreign exchange without charging any tax; (c) name and Goods and Services Tax
Identification Number of the retail outlet is mentioned in the tax invoice for the inward
supply; and (d) such other restrictions or conditions, as may be specified, are satisfied - rule
95A(4) of CGST Rules inserted w.e.f. 1-7-2019.
The provisions of rule 92 of CGST Rules shall, mutatis mutandis, apply for the sanction and
payment of refund under this rule - rule 95A(5) of CGST Rules inserted w.e.f. 1-7-2019.
Who can claim refund ? - Retail Outlets established in the departure area of an international
airport beyond immigration counters, making tax free supply to outgoing international
tourist shall be entitled to claim refund of taxes (IGST, SGST, CGST and GST Compensation
Cess) - Notification Nos. 11/2019-CT (Rate) dated 29-6-2019, 10/2019-IT (Rate) dated 29-6-
2019 and 11/2019-UTT (Rate) dated 29-6-2019.
Procedure for claiming refund - Procedure for claiming refund by retail outlets has been
specified in CBI&C circular No. 106/25/2019-GST dated 29-6-2019. The retail outlets will
have to registered under CGST Act. The refund will be invoice wise and not general on
account of accumulated credit. Corresponding ITC has to be reversed (as its refund is being
claimed). Refund of input services is not available.
Details of passenger like passport, boarding pass, passenger declaration and copy of invoice
will have to be produced. Refund claim has to be filed manually. The claim will be processed
and sanctioned by proper officer within 15 days.
What about supplies during 1-7-2017 to 30-6-2019? - Those sellers who have not collected
IGST or Compensation cess during 1-7-2019 to 30-6-2019 seem to be in trouble.
As per section 2(5) of IGST Act, "Export of goods" with its grammatical variations and cognate
expressions, means taking goods out of India to a place outside India.
The outbound tourist is bound to take goods out of India after its purchase. Hence, it can be
argued GST is consumption based tax and since the goods sold to outbound tourists are for
consumption outside India, taxing such goods is against concept of GST.
It is also well settled that when two interpretations are possible, interpretation which
subserves the purpose should be applied.
Considering these factors, in my view, sale to out-bound tourist is 'export of goods'. It is zero
rated supply and there should be no IGST on such sale even during 1-7-2017 to 30-6-2019.
Let us hope that relief will be given to such retail outlets which did not collect the taxes
during 1-7-2017 to 30-6-2019.
Luckily, the controversy is now settled w.e.f. 1-7-2019.
16.8 Export through post by e-commerce operators
E-commerce operators can export goods through Foreign Post Office (FPO). These exports
will be zero rated. Declaration is to be filed in PBE-1. Exports by e-commerce operators can
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be from any foreign post office. However, exports under MEIS can be only from Foreign Post
Offices at Delhi, Mumbai and Chennai. Details of procedure has been specified in CBI&C
circular No. 14/2018-Cus dated 4-6-2018.
16.9 Supply of duty free ship stores from licensed warehouse
Section 2(38) of Customs Act define 'Stores' as goods for use in a vessel or aircraft and
includes diesel and spare parts and other articles of equipment, whether or not they are
required for immediate fitting.
The ships/aircrafts coming from abroad require spares and consumables for their ships and
hence special provisions have been made.
Imported stores can be kept in warehouse without assessment of duty and without payment
of duty for supply to ships/aircrafts. - section 85 of Customs Act.
Removal of stores from warehouse - The stores can be removed from warehouse without
payment of duty to be taken back on foreign going vessel. A 'shipping bill' has to be
submitted if the 'stores' are to be removed without payment of duty. Warehouse rent and
other penalties etc. if applicable, are payable before removal of stores. - section 88 of
Customs Act.
Supply from customs bonded warehouse of duty free ship stores to Naval ships, ocean
going merchant ships is taxable under GST - In Nirmal Kumar Parsan v. Commissioner of
Commercial Taxes [2020] 113 taxmann.com 422 (SC), it has been held that sales tax is
payable on sale of stores made from bonded warehouse to outgoing ships, as there is no
foreign destination - same view in Madras Marine v. State of Madras (1986) 3 SCC 552 = 63
STC 169 (SC).
Supply from warehouse for storage of duty free ship stores to Naval ships, ocean going
merchant ships is subject to IGST, as goods supplied are within customs area as defined in
section 2(11) of Customs Act. Hence, it is inter-state supply - Fairmacs Ship Stores P Ltd. In
re (2018) 67 GST 733 = 94 taxmann.com 125 (AAR-AP) (decision reversed in appeal as
explained below) * Parsan Brothers In re (2018) 68 GST 438 = 94 taxmann.com 88 (AAR - AP).
In view of decision of Supreme Court, validity of following decisions is doubtful.
The appellant (Fairmacs Shipstores) filed appeal against the order claiming that the supply
was 'export'. The Appellate Authority decided that this is a fresh issue and hence fresh
application should be filed. Accordingly, the appellant applied again and raised fresh issue.
In Fairmacs Shipstores (P.) Ltd., In re [2018] 99 taxmann.com 108 (AAR - Andhra Pradesh), it
was held that outward supplies of goods by applicant company which was a duty free ship
store supplier through special warehouse to ocean going merchant ships, which were in
foreign run, Indian Navy Ships and Indian Coast Guard Ships would be treated as exports.
Following reasons were given -
(a) As per section 2(4) 'customs frontier of India' means the limits of a customs area as
defined in section 2 of the Customs Act, 1962.
(b) As per the Circular F. No. 21/31/63, dated 17-8-1996, the Government of India,
decided to treat Indian Naval vessels, as 'foreign going vessels' for the purposes of
section 87 of the Customs Act, 1962.
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(c) As per section 88(A) of the Customs Act, 1962, the goods supplied to merchant ships
on foreign run will be treated as export. As per section 16 of IGST Act, 2017, the
exports will be treated as 'zero' rated supplies.

Supply of goods from bonded warehouse to vessels on Board at the Indian port where
consideration is received in foreign exchange is exempt from GST - Wilhelmsen Maritime
Services P. Ltd. In re (2019) 107 taxmann.com 384 (AAR-Maharashtra).
Supply of stores to foreign going vessels from bonded warehouse are neither supply of goods
nor services. However, other supplies of stores (not from customs bonded warehouse) to
foreign going vessels while staying anchored at a port in India, are subject to GST - Shewratan
Company (P.) Ltd., In re [2019] 111 taxmann.com 230 (AAR-WEST BENGAL) * Shewratan
Company (P.) Ltd. In re [2020] GST 1 = 110 taxmann.com 408 (AAR - WEST BENGAL).
16.10 Removal of goods outside India for exhibition or on consignment basis for export
promotion
CBI&C Circular No. 108/27/2019-GST dated 18.07.2019 has clarified that removal of goods
out of India for exhibition or on consignment basis for export promotion is neither 'supply'
nor 'export'. Since it is not 'export', LUT or bond is not required. Goods should be sent under
Delivery Challan. The exporter should maintain proper records in form given in Annexure to
the circular dated 18-7-2019. As and when goods are sold, tax invoice should be issued. If
goods are not brought back within six months, tax invoice should be issued and GST paid.
If goods are sold within six months, refund claim under rule 89(4) of CGST for ITC can be filed
even if goods were cleared without bond or LUT.
IGST not payable on Re-import of goods sent out of India for exhibition or on consignment
basis for export promotion - Goods can be sent out of India for exhibition or on consignment
basis for export promotion. This is not 'supply' as there is no consideration, except in case of
activities covered under schedule I of CGST Act (supplies to related persons or agents who
sale on behalf of Principal), as clarified in MF(DR) circular No. 108/27/2019-GST dated 18-7-
2019. There is no requirement of LUT/bond while sending such goods. Since it is not 'supply',
it is not zero rated supply either. When such goods are re-imported, IGST is not payable,
even if goods were sent under LUT. Even when goods were sent to related persons or agents
on consignment basis, it is not 'supply' and hence IGST is not payable if these goods are re-
imported within 6 months - MF(DR) circular No. 21/2019-Cus. dated 24-7-2019.
16.11 Deemed Exports
India gets foreign aid from World Bank, Asia Development bank etc. for various prestigious
projects in India for which global tenders are invited and India gets aid in foreign currency.
Indian manufacturers and suppliers of services from India have to quote in competition with
foreign suppliers. Evaluation of bids is done without considering customs duty. Since the
supply of goods and services are for projects financed with free foreign exchange, these
supplies are treated as 'deemed exports'.
Similarly, supplies to EOU units and supplies against annual advance authorisation are also
'deemed exports'.
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These are so called because the goods and services do not leave the country. Suppliers of
goods and services get payment in Indian rupees and not in foreign currency.
Deemed exports refer to those transactions in which goods supplied do not leave country,
and payment for such supplies is received either in Indian rupees or in free foreign exchange.
Supply of goods as specified in para 7.02 of Foreign Trade Policy 2015-2020 shall be regarded
as 'deemed exports', provided that goods are manufactured in India.
As per Foreign Trade Policy 2015-2020, following are treated as deemed exports :
Supplies against Advance Authorisation/DFIA
Supplies to EOU/STP/EHTP/BTP
Supplies against EPCG authorization
Supply of marine freight containers
Supplies to projects against international competitive bidding

Supplies to projects with zero customs duty

Supply of goods to mega power projects against International Competitive Bidding
Supplies to UN Agencies
Supply of goods to nuclear projects through competitive bidding

16.11-1 Deemed Exports in GST

CGST Act has made provisions of 'deemed exports'.
Deemed Exports means such supplies of goods as may be notified under section 147 of CGST
Act.
The Government may, on the recommendations of the GST Council, notify certain supplies
of goods as deemed exports, where goods supplied do not leave India, and payment for such
supplies is received either in Indian rupees or in convertible foreign exchange, if such goods
are manufactured in India - section 147 of CGST Act.
As per Explanation 2(b) to section 54 of CGST Act, "relevant date" for filing refund in case of
supply of goods regarded as deemed exports where a refund of tax paid is available in
respect of the goods, is the date on which the return relating to such deemed exports is filed.
Refund claim in case of deemed export - In respect of supplies regarded as deemed exports,
the application shall be filed by the recipient of deemed export supplies- fourth proviso to
Rule 89(1) of CGST and SGST Rules, 2017.
16.11-2 Deemed exports as notified on 18-10-2017
Following has been notified as 'deemed exports' vide Notification No. 48/2017-CT dated 18-
10-2017.
1. Supply of goods by a registered person against Advance Authorisation. Till 15-1-2019,
there was condition of pre-import i.e. inputs were required to be procured or domestically
procured before physical exports. This condition has been omitted w.e.f. 15-1-2019. Now,
the goods so supplied (against advanced authorisation), when exports have already been
 306

made after availing input tax credit on inputs used in manufacture of such exports, shall be
used in manufacture and supply of taxable goods (other than nil rated or fully exempted
goods) and a certificate to this effect from a chartered accountant should be submitted to
the jurisdictional commissioner of GST or any other officer authorised by him within 6
months of such supply. Such certificate shall not be required if input tax credit has not been
availed on inputs used in manufacture of export goods [amendment dated 15-1-2019].
[corresponding amendments have been made in case of imports in customs notifications on
10-1-2019].
2. Supply of capital goods by a registered person against Export Promotion Capital Goods
Authorisation
3. Supply of goods by a registered person to Export Oriented Unit/STP/EHTP/BTP.
4. Supply of gold by a bank or Public Sector Undertaking specified in the notification No.
50/2017-Customs, dated the 30th June, 2017 (as amended) against Advance Authorisation.
16.11-3 Refund claim in case of deemed export either by recipient or supplier
In respect of supplies regarded as deemed exports, the application may be filed by - (a) the
recipient of deemed export supplies; or (b) the supplier of deemed export supplies in cases
where the recipient does not avail of input tax credit on such supplies and furnishes an
undertaking to the effect that the supplier may claim the refund -- third proviso to Rule 89(1)
of CGST and SGST Rules, 2017 as amended w.e.f. 18-10-2017.
Procedure to be followed for refund claim - Procedure to be followed for refund claim in
case of deemed exports has been elaborated in FAQ on GST Chapter 14 Q No. 76 issued by
CBI&C on 15-12-2018.
Refund to recipient permitted on other inputs or input services if he makes zero rated
supply - If the supplier has claimed benefit of deemed exports under Notification No.
48/2017-CT dated 18-10-2017, refund of input tax credit, availed in respect of other inputs
or input services is available if the recipient makes a zero rated supply - - rule 89(4A) of CGST
Rules, inserted on 23-1-2018 but with retrospective effect from 23-10-2017.
If supplier/recipient claims refund of GST, the recipient cannot export on payment of IGST
and claim refund of IGST - If the supplier is claiming deemed export benefits, export by
recipient of goods on payment of IGST not permissible. If still IGST is paid on export of goods
or services, its input tax credit is not available - Rule 96(10) of CGST Rules, inserted on 23-1-
2018 but with retrospective effect from 23-10-2017.
16.11-4 Evidence to be submitted with refund claim in respect of 'deemed export'
Following evidence is required to be produced while filing refund application in respect of
'deemed exports' as specified vide Notification No. 48/2017-CT dated 18-10-2017.
1. Acknowledgement by the jurisdictional Tax officer of the Advance Authorisation holder or
EPCG Authorisation holder, as the case may be, that the said deemed export supplies have
been received by the said Advance Authorisation or EPCG Authorisation holder, or a copy of
the tax invoice under which such supplies have been made by the supplier, duly signed by
the recipient Export Oriented Unit that said deemed export supplies have been received by
it. [Thus, in case of EOU, acknowledgement by EOU is sufficient].
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2. An undertaking by the recipient of deemed export supplies that no input tax credit on
such supplies has been availed of by him.
3. An undertaking by the recipient of deemed export supplies that he shall not claim the
refund in respect of such supplies and the supplier may claim the refund.
16.12 Change in Export Promotion Schemes
DGFT Trade Notice No. 11/2018 dated 30-6-2017 had clarified about export promotion
schemes and GST issues. However, subsequently there have been many changes.
Some changes have been made in Export Promotion Schemes to align them with GST
provision.
However, the GST Law does not specifically refer to provisions in respect of foreign trade
policy. Some changes in respect of Foreign Trade Policy have been incorporated in customs
law. However, GST Law and Foreign Trade Policy is not aligned, which often creates many
ambiguities and confusions.
16.13 Import of goods
"Import of goods" with its grammatical variations and cognate expressions, means bringing
goods into India from a place outside India - section 2(10) of IGST Act.
Supply of goods imported into the territory of India, till they cross the customs frontiers of
India, shall be treated to be a supply of goods in the course of inter-State trade or commerce
- section 7(2) of IGST Act.
Goods procured outside India and kept outside India is not 'import of goods' - In INA
Bearings P Ltd., In re (2019) 101 taxmann.com 149 (AAR-Maharashtra), the applicant had
placed order outside India for procurement of inputs. Tools required for manufacture of
goods were manufactured by foreign supplier and raised invoice for tools on appellant. The
foreign supplier used these tools for manufacture of components out of India and then
supply those components to Indian buyer. The tools were never brought to India. It was held
that this is not import of goods (tools) and GST is not payable on those tools. Goods procured
outside India and kept outside India is not 'import of goods'.
16.13-1 IGST on import of goods
So far, CVD (Countervailing Duty) equal to excise duty was imposed on imported goods. In
addition SAD (Special Additional Duty) of 4% was imposed in lieu of sales tax or Vat.
Now, these two duties have been replaced by IGST w.e.f. 1-7-2017.
As per section 3(7) of Customs Tariff Act (introduced w.e.f. 1-7-2017), any article being
imported into India shall be liable to pay Integrated Goods and Services Tax (IGST) at such
rate as is leviable under section 5 of IGST Act, 2017, on a like article on its supply in India, on
the value of imported article on value as determined under section 3(8) of Customs Tariff
Act.
As per section 3(8) of Customs Tariff Act (introduced w.e.f. 1-7-2017), the 'value' will be - (a)
Value of imported article determined under section 14(1) of Customs Act or tariff value of
such article under section 14(2) of Customs Act (b) duty of customs leviable on that article
under section 12 of Customs Act and any sum chargeable on that article under any law for
the time being in force as an addition to, and in the same manner as, a duty of customs, but
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does not include any tax referred to in section 3(7) or the cess referred to in section 3(9) of
Customs Tariff Act.
IGST is not customs duty - IGST collected at time of import is not levied under Customs Act
or Customs Tariff Act. Only machinery of Customs Law is used to collect IGST.
IGST on education cess and SAHE cess - Section 94 of Finance (No. 2) Act, 2004 states that
education cess on customs duty a 'duty of customs'. As per section 94(3) of Finance (No. 2)
Act, 2004, all provisions of Customs Act, and rules and regulations made under that Act will
apply to education cess on imported goods, including those relating to refund, exemption
from duty and imposition of penalty.
Secondary and higher education Cess of 1% of the total duties of customs has been imposed
on imported goods vide section 136 read with section 139 of Finance Act, 2007, which have
parallel provisions.
Thus, Education cess and Secondary and Higher Education Cess are collected as 'duty of
customs'. Hence, IGST will be payable on education cess and SAHE cess. This is confirmed in
S No. 32 of Tweet FAQ released by CBI&C on 26-6-2017.
Is IGST payable on dumping duty, protective duty and other duties? - Anti-dumping duty
[section 9A], countervailing duty on subsidised articles [section 9], protection duties [section
6] and safeguard duty [section 8B] are levied under customs Tariff Act. These are not 'duties
of customs', though provisions of Customs Act are used for its levy and recovery.
Anti-dumping duty is not 'duty of customs' - CC v. Chandra Prabhu International Ltd. (2014)
44 GST 701 = 43 taxmann.com 447 = 302 ELT 168 (Del HC DB).
In Caprihans India v. CC 2001(129) ELT 162 (CEGAT LB), it was held that anti-dumping duty
collected is not a 'duty of customs' leviable under Customs Act.
Hence, in my view, IGST is not payable on such duties.
However, as per Guidance Note for Importers and Exporters' issued by Customs issued on
30-6-2017, IGST and GST Compensation Cess is payable on dumping duty and protective duty
also.
IGST on project imports - In case of project imports, the goods will be classified under 9801
and IGST rate will be taken as 18%.
No IGST on baggage - IGST is not payable on baggage.
16.13-2 GST Compensation Cess on import of goods
As per section 3(9) of Customs Tariff Act (introduced w.e.f. 1-7-2017), any article being
imported into India shall be liable to pay Goods and Services Tax Compensation Cess at such
rate as is leviable under section 8 of GST (Compensation to States) Cess Act, 2017, on a like
article on its supply in India, on the value of imported article on value as determined under
section 3(10) of Customs Tariff Act.
As per section 3(10) of Customs Tariff Act (introduced w.e.f. 1-7-2017), the 'value' will be -
(a) Value of imported article determined under section 14(1) of Customs Act or tariff value
of such article under section 14(2) of Customs Act (b) duty of customs leviable on that article
under section 12 of Customs Act and any sum chargeable on that article under any law for
the time being in force as an addition to, and in the same manner as, a duty of customs, but
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does not include any tax referred to in section 3(7) or the cess referred to in section 3(9) of
Customs Tariff Act.
Since IGST is not 'duty of customs', really such cess cannot be levied on IGST. Further, first
proviso to section 8(2) of GST (Compensation to States Act) state that value for purpose of
compensation cess is same as per section 15 of CGST Act.
The Guidance Note for Importers and Exporters' issued by Customs issued on 30-6-2017 also
calculates Compensation Cess on same value as applicable to IGST. However, in case 2 as
per Annexure I of the Note, there is typing mistake. Instead of (a) + (b) + (c), it is typed as (a)
+ (b) + (d), though calculation is correct.
16.13-3 Calculation of customs duty w.e.f. 2-2-2018
Total customs duty payable w.e.f. 2-2-2018 is 30.98%, as given below, if IGST rate is taken as
18% and basic customs duty rate is taken as 10%.
Assessable value = CIF Value of imported goods converted into Rupees at exchange rate
specified in notification issued by CBI&C.
Calculation of customs duty payable is as follows, w.e.f. 2-2-2018
Seq. Duty Description Duty % Amount Total Customs
Duty
(A) Assessable Value Rs. 10,000.00

(B) Basic Customs Duty 10 1,000.00 1,000.00

(C) Social Welfare Cess on 'B' 100.00 100.00

(D) Sub-total for IGST - A + B+C 11,100.00

(E) IGST - on 'D' as per IGST rate 18 1,998.00 1,998.00

(F) Total Customs Duty 3,098.00

(G) Total duty rounded to Rs. 3,100

16.13-4 IGST rate when exemption subject to non-availment of input tax credit
In SRF Ltd v. CC (2015) 50 GST 445 = 56 taxmann.com 407 = 318 ELT 607 (SC), Assessee
imported Nylon Filament Yarn. The yarn was exempt from excise duty if no Cenvat credit
was taken. Since the goods were imported, said condition could not be fulfilled. It was held
that if an imported article is one which has been manufactured or produced, then it must be
presumed, for purpose of CVD, that such an article can likewise be manufactured or
produced in India. Actual manufacture in India is not required. Hence, assessee was eligible
for exemption from CVD.
This principle should apply to IGST also.
16.13-5 Credit of IGST paid on imported goods
'Guidance Note for Importers and Exporters' issued by Customs issued on 30-6-2017 has
clarified as follows -
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An importer has to declare GSTIN in Bill of Entry. Relevant details will be furnished by
importer in form GSTR-2 return. Customs EDI system will be interconnected with GSTN for
validation of ITC. Bill of Entry data in on-EDI locations will be digitized and used for validation
of ITC provided by GSTN.
This system was not implemented earlier. Now, the details of IGST paid on imported goods
are available in GSTR-2B of recipient w.e.f. September 2020. Thus, importer as well as GST
auditor can verify eligibility of ITC of IGST paid on imported goods.
16.14 High seas sale i.e. sale in course of imports
Many importers, acting as agents, import goods and goods are sold before goods are cleared
from customs. The buyer then clears goods from Customs. This was termed as 'sale in the
course of import' in Central Sales Tax Act, if such sale takes place before goods are cleared
from customs.
The Central Sales Tax Act required that such sale should be by transfer of documents. In IGST
Act, paragraph 8(b) of Schedule III of CGST Act specifically states that such sale should be by
endorsement of documents of title to the goods.
This is commercially termed as 'high seas sale', though really that term was not used in CST
Act at all. This term is not used in GST Act also. [Really High Seas means beyond 200 nautical
miles from base line].
In Brij Tulsian v. CTO (1997) 107 STC 75 (WBTT), it was held that goods lying in customs
station including its outer boundary can be sold by transfer of documents and goods will be
treated as 'sale in the course of import by transfer of documents' and will be covered under
section 5(2) of CST Act.
In MMTC v. STO 1998 AIR SCW 3475 = 111 STC 434 = AIR 1999 SC 121, it was held that 'bill
of lading' represents goods and transfer of it operates as the transfer of goods. Hence, if bill
of lading was endorsed in favour of buyer before the goods had crossed the limit of port, it
will be sale in the course of import and not liable to sales tax - same view in Minerals &
Metals v. State of Andhra Pradesh 1999(106) ELT 23 = 110 STC 394 (AP HC DB).
High seas sales agreement to be on stamp paper - As per CC, ACC. Mumbai Facility Notice
No. 18/2012 dated 22-5-2012 [280 ELT T15], High Seas sale agreement should be on stamp
paper of Rs. 100 in Maharashtra [The reason given is that the agreement is similar to
Customs bond. Really it is not similar to customs bond at all. However, instead of wasting
energy over petty issues, it is advisable to execute agreement on stamp paper of value as
per State law]. The agreement date should be after the ship has started sailing, not because
law requires so, but to avoid harassment of customs and GST authorities [You can argue and
convince a person who is willing to understand but you cannot convince a person who
refuses to get convinced!].
Import complete only when goods cross customs barrier - In J V Gokal v. ACST 1960 (2) SCR
852 = AIR 1960 SC 595 = 11 STC 186 = 110 ELT 106 (SC 5 member constitution bench), it was
held that sale by transfer of documents when goods are on high seas or before they cross
customs barrier is a 'sale in the course of import'. It was also held that import is complete
only when goods cross customs barrier in India. Import starts when goods cross the customs
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barrier in a foreign country and ends when they cross customs barrier in the importing
country.
16.14-1 No GST on High seas sales, GST payable only while clearing goods from customs
Paragraph 8(b) of Schedule III of CGST Act has been inserted vide CGST (Amendment) Act,
2018 w.e.f. 1-2-2019.
This paragraph 8(b) states that supply of goods by the consignee to any other person, by
endorsement of documents of title to the goods, after the goods have been dispatched from
the port of origin located outside India but before clearance for home consumption shall be
treated neither as a supply of goods nor a supply of services.
Thus there is no GST liability on high seas sales. GST is payable only when goods are cleared
from customs. This is confirmed in FAQ on GST Chapter 21 Q No. 71 issued by CBI&C on 15-
12-2018.
In case of high seas sale, GST will be levied only when the goods are cleared from customs.
The importer, i.e. last buyer will be required to furnish the entire chain of documents such
as original invoice, high seas sale contract, details of service charges/commission etc. In case
of doubt, the declared value may be rejected by department. In that case, valuation will be
as per Customs Valuation Rules - CBI&C circular No. 33/2017-Cus dated 1-8-2017.
This can also be justified from the fact that there is no provision in Customs Act to grant set
off (Input Tax Credit) of IGST paid on earlier high seas sale, while clearing goods from
customs.
As per Explanation to section 17(3) of CGST Act inserted vide CGST (Amendment) Act, 2018,
w.e.f. 1-2-2019 such high seas sale will not be considered as 'value of exempted supply' for
purpose of reversal of ITC of common input services].
Same position even prior to the Amendment to Act - Even earlier, there was no GST liability
on such high seas sales, as discussed below.
Section 7(2) of IGST Act provides that supply of goods imported into India, till they cross
customs frontiers of India, shall be treated to be supply of goods in inter-State trade or
commerce.
On such 'high seas sale', SGST or CGST will not be payable even if such sale take place within
12 nautical miles inside the sea or even when goods are lying in customs area.
As per proviso to section 5(1) of CGST Act, IGST levied on goods imported into India shall be
paid at the point when customs duties are leviable on such imported goods.
Thus, in case of high seas sale, IGST is not leviable - - BASF India Ltd., In re [2018] 95
taxmann.com 1 (AAR - MAHARASHTRA). In this case, it was held that ITC of common input
services will have to be reversed [This part of judgment is now not valid in view of specific
insertion of explanation to section 17(3) of CGST Act].
16.15 Sale when goods are stored in customs bonded warehouse in India
Often, imported goods are stored in customs bonded warehouse instead of clearing from
customs on payment of customs duty and IGST. This defers payment of customs duty. Goods
are later cleared from customs bonded warehouse on payment of customs duty and IGST.
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In some cases, goods are sold when they are lying in warehouse. Later, the buyer clears the
goods from customs bonded warehouse. For example, A imports the goods and stores them
in customs bonded warehouse. He sales the goods to B. Later, B prepares and submits ex-
Bond Bill of Entry to customs authorities. Then B clears the goods from customs warehouse
on payment of duty.
If B sales the goods to C before clearance of customs, C will submit ex-bond Bill of Entry, pay
customs duty and IGST and clear goods from customs.
Issue was whether GST is payable when A sales goods to B or when B sales goods to C when
goods are lying in the customs bonded warehouse.
Paragraph 8(a) of Schedule III of CGST Act has been inserted vide CGST (Amendment) Act,
2018, w.e.f. 1-2-2019.
This paragraph 8(a) states that supply of warehoused goods to any person before clearance
for home consumption shall be treated neither as a supply of goods nor a supply of services.
Explanation 2 to Schedule III states that for the purposes of paragraph 8 the expression
"warehoused goods" shall have the same meaning as assigned to it in the Customs Act, 1962.
Thus, it is clear that GST is not payable when goods stored in customs bonded warehouse
are sold before clearance.
As per Explanation to section 17(3) of CGST Act inserted vide CGST (Amendment) Act, 2018,
w.e.f. 1-2-2019 such sale in customs bonded warehouse will not be considered as 'value of
exempted supply' for purpose of reversal of ITC of common input services.
Goods cross customs frontier of India only when goods are cleared from customs bonded
warehouse - The CBI&C circular agrees that goods cross customs frontier of India only when
goods are cleared from customs bonded warehouse.
This is also otherwise well settled principle.
Section 2(4) of IGST Act states that 'Customs Frontiers of India' means the limits of a 'customs
area' as defined in section 2 of Customs Act, 1962.
Customs area means all area of Customs Station or a warehouse and includes any area where
imported goods or export goods are ordinarily kept pending clearance by Customs
authorities [section 2(11) of Customs Act. The words in italics are introduced w.e.f. 1-7-
2017].
Customs Station means (a) customs port (b) international courier terminal (c) foreign post
office (d) customs airport and (e) land customs station [section 2(13) of Customs Act] [words
in italics inserted w.e.f. 31-3-2017].
Thus, goods in customs warehouse are also goods in 'customs area'.
In Kiran Spinning Mills v. CC 1999 (113) ELT 753 = 2000 AIR SCW 2090 = AIR 2000 SC 3448
(SC 3 member bench), it has been held that goods continue to be in customs barrier when
they are in customs bonded warehouse. Import would be completed only when goods cross
customs barrier and not when they land in India or enter territorial waters.
Thus, if documents are transferred when goods are in customs bonded warehouse, it will be
treated as transfer of documents before goods cross customs barrier - view confirmed in
State Trading Corporation v. State of Tamil Nadu (2003) 129 STC 294 = 149 ELT 3 (Mad HC
 313

DB) - followed in Tarajyot Polymers v. DCTO (2005) 140 STC 239 (Mad HC DB), where it was
held that mere storing goods in warehouse is not 'entry into local area' and no entry tax can
be imposed. It was also held that mere storage of goods in warehouse will not create any
tax liability.
This was also followed in State of Tamil Nadu v. Rajan Universal Export (2010) 4 GST 137 =
28 VST 279 (Mad HC DB).
Import complete only when goods cross customs barrier - In J V Gokal v. ACST 1960 (2) SCR
852 = AIR 1960 SC 595 = 11 STC 186 = 110 ELT 106 (SC 5 member constitution bench), it was
held that sale by transfer of documents when goods are on high seas or before they cross
customs barrier is a 'sale in the course of import'. It was also held that import is complete
only when goods cross customs barrier in India. Import starts when goods cross the customs
barrier in a foreign country and ends when they cross customs barrier in the importing
country.
Value for IGST when goods are sold when they were in customs warehouse - Where the
goods deposited in a warehouse under the provisions of the Customs Act, 1962 are sold to
any person before clearance for home consumption or export under the said Act, the value
of such goods for the purpose of calculating the IGST under section 3(7) of Customs Act shall
be,—
(a) where the whole of the goods are sold, the value determined under section 3(8) or
the transaction value of such goods, whichever is higher; or
(b) where any part of the goods is sold, the proportionate value of such goods as
determined under section 3(8) or the transaction value of such goods, whichever is
higher - section 3(8A) of Customs Tariff Act, inserted w.e.f. 29th March 2018.

Where the whole of the warehoused goods or any part thereof are sold more than once
before such clearance for home consumption or export, the transaction value of the last
such transaction shall be the transaction value for the purposes of section 3(7)(a) or section
3(7)(b) of Customs Tariff Act - - first proviso to section 3(8A) of Customs Tariff Act, inserted
w.e.f. 29th March 2018.
In respect of warehoused goods which remain unsold, the value or the proportionate value,
as the case may be, of such goods shall be determined in accordance with the provisions of
section 3(8) of Customs Tariff Act - - second proviso to section 3(8A) of Customs Tariff Act,
inserted w.e.f. 29th March 2018.
Meaning of 'transaction value' - For the purposes of this sub-section, the expression
"transaction value", in relation to warehoused goods, means the amount paid or payable as
consideration for the sale of such goods - Explanation to section 3(8A) of Customs Tariff Act,
inserted w.e.f. 29th March 2018.
Earlier departmental clarification w.e.f. 1-4-2018 - As per CBI&C circular No. 3/1/2018-IGST
dated 25-5-2018, IGST is payable only when goods are cleared from customs and not for
earlier sale during warehouse w.e.f. 1-4-2018. Thus, GST is not payable when A sales goods
to B or B sales goods to C when goods are in the warehouse.
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The first reason given was that as per section 7(2) of IGST Act, supply of goods till they cross
customs frontier of India is supplier in of goods in inter-State trade or commerce. Further as
per proviso to section 5(1) of IGST Act read with section 12 of Customs Act, IGST on imported
goods is payable at the time of clearance of goods under section 68 of Customs Act from
warehouse. [In fact this reason is valid for the period prior to 31-3-2018 also].
Another reason given was that as per section 3(8A) of Customs Act as amended w.e.f. 31-3-
2018, IGST is payable on basis of last transaction value. [Really this reason has nothing to do
with taxability of IGST when sale is taking place in the warehouse].
This CBI&C circular dated 25-5-2018 has been rescinded vide CBI&C circular No. 4/1/2019-
GST dated 1-2-2019, as now Paragraph 8(a) of Schedule III of CGST Act, inserted vide CGST
(Amendment) Act, 2018 w.e.f. 1-2-2019, specifically provides that these transactions are
neither supply of goods nor supply of services.
16.16 Third country shipments where goods do not touch India
As international business is increasing, international trading in goods is increasing. The goods
do not touch India. Goods go from one country to another and only invoicing is done by
Indian registered taxable person.
This is 'bill to ship to' transaction. In the aforesaid example, Z from country B ships goods to
Y in country A but raises invoice on X, a registered person in India.
The issue arises of GST liability of X who is registered in India.
Paragraph 7 of Schedule III of CGST Act has been inserted vide CGST (Amendment) Act, 2018.
w.e.f. 1-2-2019
This paragraph 7 states that Supply of goods from a place in the non-taxable territory to
another place in the non-taxable territory without such goods entering into India shall be
treated neither as a supply of goods nor a supply of services.
Thus, it is now clear that there is no GST liability on such sales.
This has been confirmed in SPX Flow Technology (India) (P.) Ltd., In re [2021] 123
taxmann.com 406 (AAR - Gujarat). In this case, it was held that IGST was payable upto 31-1-
2019 on such transactions.
As per Explanation to section 17(3) of CGST Act inserted vide CGST (Amendment) Act, 2018,
w.e.f. 1-2-2019 such third country shipments will not be considered as 'value of exempted
supply' for purpose of reversal of ITC of common input services.
Thus, one controversy has been settled.
16.16-1 Exemption to services provided by an intermediary in third country shipments
In case of Third Country Shipments (TCS), if the Indian party buys and sales the goods, there
is no issue of GST. However, if the Indian party gets only commission, he becomes
intermediary and liability of GST arises. Hence, exemption from GST has been provided on
such commission w.e.f. 1-10-2019, as stated below.
Services provided by an intermediary when location of both supplier and recipient of goods
is outside the taxable territory have been exempted w.e.f. 1-10-2019 - Sr No. 12AA of
Notification No. 9/2017-IT(R) dated 28-6-2017, inserted w.e.f. 1-10-2019.
Following documents should be maintained for five years -
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Following documents shall be maintained for a minimum duration of five years:

(1) Copy of Bill of Lading
(2) Copy of executed contract between Supplier/Seller and Receiver/Buyer of goods
(3) Copy of commission debit note raised by an intermediary service provider in taxable
territory from service recipient located in non-taxable territory
(4) Copy of certificate of origin issued by service recipient located in non-taxable
territory
(5) Declaration letter from an intermediary service provider in taxable territory on
company letter head confirming that commission debit note raised relates to
contract when both supplier and receiver of goods are outside the taxable territory.

Taxability till 1-10-2019 - Till 1-10-2019, there was no exemption available and GST @ 18%
was payable.
16.16-2 Earlier controversy on such third country shipments
Earlier, a view was possible that GST is payable on such transaction.
Section 2(10) of IGST Act states that 'import of goods' means bringing into India from a place
outside India.
Section 2(5) of IGST Act states that 'export of goods' means taking goods out of India to a
place outside India.
Thus, it is obvious that the transaction is neither export of goods nor import of goods.
However, it cannot be said that this transaction has no nexus with India.
Statutory provisions in IGST Act - Section 7(5)(a) of IGST Act provides that supply of goods
or services or both where the supplier is located in India and the place of supply is outside
India shall be treated to be a supply of goods or services or both in the course of inter-State
supply.
Thus, as per clear provisions of this section, supply by person registered in India to customer
out of India is inter-state supply and the person registered in India should be liable to pay
IGST.
Bill to ship to transaction when supplier from out of India supplies goods on instructions of
Indian registered person - The international trading transaction is covered under section
10(1)(b) of IGST Act, which is often termed as 'bill to ship to' transaction.
As per section 10(1)(b) of IGST Act, when the foreign supplier despatches the goods on
directions of Indian registered person, it shall be deemed that the Indian registered person
(who is 'third person' as per above provision) shall be deemed to have received the goods at
his principal place of supply, even if physically he has not received the goods.
Thus, this can be 'deemed import' of goods by Indian taxable person for purpose of GST.
However, this is not 'deemed import' for purpose of Customs Act.
IGST on 'deemed import' in case of third country shipment - If the transaction is 'deemed
import' under section 10(1)(b) of IGST Act, question of payment of IGST becomes relevant.
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As per section 3(7) of Customs Tariff Act (as amended w.e.f. 29th March 2018), any article
being imported into India shall be liable to pay Integrated Goods and Services Tax (IGST) at
such rate as is leviable under section 5 of IGST Act, 2017, on a like article on its supply in
India, on the value of imported article as determined under section 3(8) or section 3(8A) of
Customs Tariff Act.
Thus, if such transaction is 'deemed import' as per CGST Act, IGST should be leviable, though
this is not 'deemed import' for purposes of Customs Act, as there is no parallel provision in
Customs Act.
Decision of AAR - In Synthite Industries Ltd. In re [2018] 67 GST 100 = 92 taxmann.com 144
(AAR-KERALA), it has been held that if goods are procured from one country and directly
supplied to customer in another country, it is neither import nor export. Principle of 'high
seas sale' applies and GST is not payable. In Enmarol Petroleum India (P.) Ltd., In re [2018]
100 taxmann.com 124 (AAR - Maharashtra), it has been held that in case of such out and out
transaction, no GST is payable. It is 'non taxable supply'.
In Enmarol Petroleum India (P.) Ltd., In re [2019] 72 GST 129 = 100 taxmann.com 124 (AAR -
Maharashtra), it has been held that in case of such out and out transaction, no GST is
payable. It is 'non-taxable supply'.
However, in Sterlite Technologies Ltd. In re (2021) 83 GST 249 = 117 taxmann.com 325 (AAR-
Gujarat), it was that this is 'supply' and IGST will be payable as the transaction is neither
import nor export [In my view, the decision needs review].
16.16-3 Conclusion about taxability of third country shipment transactions
As stated above, a view was clearly possible that IGST was payable on such transaction.
However, now a specific provision has been made and the controversy has been settled.
It can be argued that the amendment to Schedule III of CGST Act is clarificatory in nature
and should apply to transactions prior to the specific amendment also.
Taxable person can also take support of decision of Authority of Advance Ruling (AAR) to
claim that no GST was payable on third party shipment transactions.
16.17 Importation of service is 'supply'
As per section 7(1)(b) of CGST Act, importation of service, for a consideration whether or not
in the course or furtherance of business, is 'supply' and subject to GST.
Thus, import of service from HO or branch outside India will be subject to GST even if no
payment was made to HO or branch outside India.
Import of service from related person taxable even if without consideration - Import of
services by a (*) person from a related person or from any of his other establishments
outside India, in the course or furtherance of business is taxable even if without
consideration - paragraph 4 of Schedule I of CGST Act [ * - The word was 'taxable'. This word
has been omitted vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019. Thus, import by any
person from a related person outside India shall be 'import', but it should be in the course
or furtherance of business.
16.17-1 Reverse charge on import of services
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If service is imported from out of India, the recipient is liable to pay GST under reverse
charge.
As per Notification Nos. 13/2017-CT (Rates) and 10/2017-IT (Rates) dated 28-6-2017,
effective from 1-7-2017, in case of any service supplied by any person who is located in a
non-taxable territory to any person (other than non-taxable online recipient) (Import of
service), if the supplier of service is any person located in a non-taxable territory, any person
located in the taxable territory (other than non-taxable online recipient), is liable to pay GST
under reverse charge.
If the recipient of OIDAR service is non-taxable online recipient, reverse charge is not
applicable.
16.17-2 Branch office outside India providing service to Indian parent company is not
import of service
An Indian parent company may have liaison office outside India. The Indian parent company
will remit amount to liaison office outside India. In that case, that liaison office is
'intermediary'.
As per section 2(11) of IGST Act, one of the conditions for treating a service as "import of
service" is that place of supply of service should be in India. Since this condition is not
satisfied, the service received by Indian parent company cannot be 'import of service'.
Consequently, Indian company will not be liable to pay service tax under reverse charge.
16.17-3 Exemption to services imported by UN or specified international organisations
Import of services by United Nations or a specified international organisation for official use
of the United Nations or the specified international organisation is exempt from GST - Sr No.
10G of Notification No. 9/2017-IT (Rate) both dated 28-6-2017 as inserted w.e.f. 27-7-2018.
Explanation. - For the purposes of this entry, unless the context otherwise requires,
"specified international organisation" means an international organisation declared by the
Central Government in pursuance of section 3 of the United Nations (Privileges and
Immunities) Act, 1947 (46 of 1947), to which the provisions of the Schedule to the said Act
apply.
16.17-4 Exemption to import of services by diplomatic mission or consular
Import of services by Foreign diplomatic mission or consular post in India, or diplomatic
agents or career consular officers posted therein is exempt from GST - Sr No. 10H of
Notification No. 9/2017-IT (Rate) both dated 28-6-2017 as inserted w.e.f. 27-7-2018.
They have to obtain certificate from Protocol Division of Ministry of External Affairs, based
on principle of reciprocity. The certificate can be withdrawn. The import of services should
be for official purposes of the foreign diplomatic mission or consular post; or for personal
use of the said diplomatic agent or career consular officer or members of his or her family.
16.17-5 IGST not payable on import of services under reverse charge if value of royalty and
license fee was included in customs value
IGST is not payable on import of services under reverse charge if value of royalty and license
fee was included in customs value of goods imported - Notification No. 6/2018-IT (Rate)
dated 25-1-2018 and FAQ on GST Chapter 21 Q No. 74 issued by CBI&C on 15-12-2018.
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Special Economic Zones (SEZ) and EOU

17.1 Supplies to and from SEZ (Special Economic Zone)
Supply from SEZ is 'import' and import duty will be payable. Only that IGST will be payable
instead of CVD and special CVD - S No. 38 of Tweet FAQ released by CBI&C on 26-6-2017.
SEZ Unit or SEZ Developer are required to register separately under GST - A person having
a unit, as defined in the Special Economic Zones Act, 2005, in a Special Economic Zone or
being a Special Economic Zone developer shall have to apply for a separate registration, as
distinct from his place of business located outside the Special Economic Zone in the same
State or Union territory - second proviso to section 25(1) of CGST Act, inserted vide CGST
(Amendment) Act, 2018 w.e.f. 1-2-2019.
Even earlier, this was provided in Rule and FAQ as follows - SEZ is a separate business vertical
and requires separate GST registration under section 25 of CGST Act - first proviso to rule
8(1) of CGST Rules, 2017 and FAQ No. 6 of FAQ on Drugs and Pharmaceuticals issued by
Directorate General of Taxpayer Services on 31-7-2017.
Exemption to services imported by SEZ unit or developer for authorized operations -
Services imported by SEZ unit or developer for authorized operations are exempt from GST
- Notification No. 18/2017-IT (Rate) dated 5-7-2017.
Exemption to goods and services imported by SEZ and SEZ developer - All goods and
services imported by SEZ unit and SEZ developer for authorized operations are exempt from
IGST - Notification No. 64/2017-Cus dated 5-7-2017 [earlier Notification No. 15/2017-IT
(Rate) dated 30-6-2017, which has been rescinded w.e.f. 5-7-2017, possibly because
corresponding customs notification has been issued].
Goods and services supplied to SEZ by DTA for authorised operations are 'zero rated' -
Export of goods or services or both and supplies of goods or services or both for authorised
operations to SEZ unit or SEZ developer will be zero rated supply - section 16(1) of IGST Act
[The words in italics inserted vide section 123 of Finance Act, 2021 from date to be notified.
Refund application in case of supply of goods to SEZ - In respect of supplies of goods to a
Special Economic Zone unit or a Special Economic Zone developer, the application for refund
shall be filed by the supplier of goods after such goods have been admitted in full in the
Special Economic Zone for authorized operations, as endorsed by the specified officer of the
Zone - third proviso (a) to Rule 89(1) of CGST and SGST Rules, 2017.
However, SEZ unit itself cannot claim refund - Adani Power Ltd. v. Commissioner of Central
Tax [2019] 111 taxmann.com 142 (CESTAT). * Vaachi International P Ltd. In re (2020) 121
taxmann.com 191 (Appellate Authority (GST) -AP).
Refund application in case of supply of services to SEZ - In respect of supplies of services to
a Special Economic Zone unit or a Special Economic Zone developer, the application for
refund shall be filed by the supplier of services along with such evidence regarding receipt
of services for authorized operations as endorsed by the specified officer of the Zone - third
proviso (b) to Rule 89(1) of CGST and SGST Rules, 2017.
E-way Bill when supply of goods from DTA unit to SEZ in same State - Supply of goods from
DTA unit to SEZ is defined as 'inter-State supply'. However, if such supply is in same State, e-
way bill is not required if such movement has been exempted from provisions of e-way bill
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by concerned State Government under rule 138(14)(d) of CGST Rules - CBI&C circular No.
47/21/2018-GST dated 8-6-2018.
Supplies made from hotel within SEZ are zero rated , if for authorised operations- Supplies
of hotel services (hospitality services like accommodation and food) made by Special
Economic Zone (SEZ) co-developer from non-processing zone to its clients located in SEZ for
authorized operations will be treated as zero rated supplies, However, it is liable to pay GST
on supplies made to clients located outside territory of SEZ - Sapthagiri Hospitality (P.) Ltd.,
In re [2018] 98 taxmann.com 126 (AAR-Gujarat) - view confirmed in Sapthagiri Hospitality
(P.) Ltd., In re [2019] 73 GST 446 = 103 taxmann.com 317 (AAAR-Gujarat) [contention of
appellant was that SEZ Act has overriding provisions and GST Act is not applicable in SEZ at
all].
Supply of accommodation services to SEZ for authorised operations is inter-state supply. It
is zero rated and exempt. However, it is taxable if not for authorised operations - Mrs Poppy
Dorothy Noel In re [2020] 79 GST 364 = 110 taxmann.com 231 (AAR-Karn). [The
accommodation was outside SEZ zone].
17.1-1 Import of goods by SEZ units and developer exempt from IGST
Import of goods by SEZ unit or developer for authorized operations are exempt from IGST -
Notification No. 64/2017-Cus dated 5-7-2017.
17.1-2 Are SEZ units liable to pay GST on supplies to DTA unit?
If SEZ supplies goods to DTA unit, the DTA unit is required to file Bill of Entry and pay
applicable customs duty, which also includes IGST.
The doubt is whether, it will be considered as supply by SEZ unit to DTA and whether SEZ
unit itself will be liable to pay GST, in addition to customs duty (which includes IGST) paid by
DTA unit.
In my view the provision by DTA unit paying tax can be compared to reverse charge i.e. the
tax is to be paid either by supplier or recipient, and not both.
Once IGST is paid on that transaction by recipient (DTA unit), it will be absurd to ask supplier
to pay tax on same transaction, This will be clearly double tax - IGST paid by supplier and
recipient also on same goods.
As per section 2(m) of SEZ Act, supplying goods to DTA is 'export'. As per section 51 of SEZ
Act overrides other laws.
Hence, in my view, SEZ unit is not liable to pay any tax, applying rule of harmonious
construction.
17.1-3 Exemption to SEZ unit from goods transport services provided by Railways
Ministry of Railways has clarified as follows vide Railway Board Letter No. TCR/1078/2017/37
dated 28-3-2018.
Railways shall not charge GST on freight charges to freight charges and on
demurrage/wharfage in case of supply of service of transport of goods to SEZ Unit. Railways
will file LUT with tax department.
SEZ unit should apply at PCCM office with copy of letter of approval and other relevant
documents and declaration that SEZ status is current. Then Zonal Railways (not below SAG)
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will advise CAO/FOIS Office for implementation of same in FIOS/TMS. LA and relevant
documents should be verified periodically.
17.1-4 Relevant provisions in SEZ Act in respect of GST
SEZ Act was prior to GST Act and hence obviously, SEZ Act makes no reference to GST.
However, some provisions in SEZ Act are relevant in respect of GST.
Section 51 of SEZ Act states that provisions of SEZ Act shall have effect notwithstanding
anything inconsistent in any other law or any instrument having effect by virtue of any law
other than the SEZ Act. Thus, any provision in GST law or notification issued thereunder
cannot override provision of SEZ Act.
As per section 2(m) of SEZ Act, supplying goods, or providing services, from the Domestic
Tariff Area to a unit or Developer is 'export' [However, interestingly, section 2(o) of SEZ Act,
which defines 'import', does not state that supply from SEZ to DTA is 'import'].
As per section 2(i) of SEZ Act, "Domestic Tariff Area" means the whole of India (including the
territorial waters and continental shelf) but does not include the areas of the Special
Economic Zones.
Section 26(1)(e) of SEZ Act states that developer and the entrepreneur shall be entitled to
exemption from service tax under Chapter V of Finance Act on taxable services provided to
a developer or Unit to carry on the authorised operations in the SEZ.
Section 26(2) of SEZ Act states that Central Government may prescribe terms and conditions
subject to which the benefits shall be granted to developer or entrepreneur under section
26(1). Thus, exemption under section 26(1) of SEZ Act is subject to conditions prescribed, if
any. Naturally, it is expected that such conditions should be prescribed under SEZ Act and
Rules only. However, practically provisions are contained in GST Act and Rules.
SEZ unit or developer can undertake 'authorised operations' i.e. operations authorised u/s
4(2) of SEZ Act to Developer and section 15(9) of SEZ Act to unit in SEZ [section 2(c) of SEZ
Act].
Authorised operations are specified in the letter of approval issued by Development
Commissioner of SEZ [section 25(9) of SEZ Act].
Authorised operations include setting up, operation, maintenance and expansion of Unit.
Goods for construction of building for setting up Unit can be included in letter of approval.
Any question as to whether any goods are required for authorised operation or not shall be
decided by Development Commissioner - MC&I (DC) Instruction No. 3/2006 (F No. 5/1/2006-
EPZ) dated 24-3-2006.
Thus, all services provided to carry on authorised operations by SEZ are exempt. These
include setting up, operation, maintenance and expansion of SEZ unit.
Legally, provisions of SEZ Act prevail over notification issued under service tax provisions, in
view of section 51 of SEZ Act.
Only service directly provided to SEZ can be exempt, service to intermediary not exempt -
The service is exempt only if directly provided to SEZ/SEZ unit and not when service is
provided to intermediary who, in turn, provides service to SEZ or SEZ unit.
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Services not included in authorised operations are not exempt - Though the provisions do
no specifically say so, general view is that exemption is available only to services included in
authorised operations of SEZ and not to other services.
Services deemed to be consumed within SEZ even if provided out of SEZ -In Vision Pro Event
Management v. CCE (2019) 365 ELT 555 (CESTAT), it was held that event management
service provided to SEZ is deemed to be consumed in SEZ even if provided outside SEZ.
Food supplied to SEZ or employees of SEZ - In Coffee Day Global Ltd. In re (2018) 69 GST 420
= 96 taxmann.com 247 (AAR Maharashtra), it was been held that supply of beverages using
coffee vending machines are not certified as authorised operations by proper officer of SEZ
and hence are not 'zero rated supply'.
Same view in Merit Hospitality Services P Ltd. In re (2018) 69 GST 298 = 95 taxmann.com 206
(AAR - Maharashtra), where it was held that supply of food to employees of SEZ unit is not
covered under authorised operations and hence is not a zero rated supply. This view has
been confirmed in appeal in Merit Hospitality Services P Ltd. In re (2018) 70 GST 814 = 99
taxmann.com 75 (AAAR - Maharashtra).
17.1-5 Supply of service of short term accommodation, conferencing, event management
services etc. to SEZ unit and SEZ developer
As per section 7(5)(b) of IGST Act, supply of goods or services or both to SEZ unit or SEZ
Developer is inter-State supply. This is specific provision and hence will prevail over general
provision as contained in section 12(3)(c) of IGST Act, which states that in case of supply of
short term accommodation or event management services, place of supply is where
immovable property is located. Hence, in case of supply of such services, IGST will be payable
and not CGST and SGST/UTGST.
Further, if such supply is for operations, these will be zero rated supplies. These can be made
under LUT/bond without payment of GST or on payment of IGST. If such supply is for
authorised operations, IGST will be refunded if paid or input tax credit refund can be
obtained if supplied under LUT/Bond. Endorsement of specified officer of SEZ will be
required that these services are for authorised operations - CBI&C circular No. 48/22/2018-
GST dated 14-6-2018.
Accommodation services in hotels rendered to SEZ unit is zero rated, LUT should be
executed - Accommodation service proposed to be rendered by applicant to SEZ units were
covered under IGST as it was an inter-State supply as per section 7(5)(b) of IGST Act, 2017
and same could be treated as zero rated supplies and invoice could be raised without
charging Tax after executing LUT under section 16 - Carnation Hotels (P.) Ltd., In re [2019]
110 taxmann.com 196 (AAR - Karnataka)
Contrary decision of AAR in respect of accommodation Services supplied to SEZ unit - In
case of accommodation services supplied to employees and guests of SEZ units outside the
SEZ are taxable to CGST and SGST (of State where the hotel is located) - Gogte Infrastructure
Development Corporation Ltd. In re (2018) 68 GST 20 = 93 taxmann.com 201 (AAR - Kar).
17.1-6 DTA unit can supply to SEZ on payment of IGST or without payment of IGST
Since supplies to SEZ unit and SEZ developer are zero rated, DTA unit can supply goods to
SEZ unit or SEZ Developer on payment of GST under section 16(3)(b) of IGST Act or without
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payment of tax under section 16(3)(a) of IGST Act - Garuda Power P Ltd. In re (2018) 68 GST
682 = 06 taxmann.com 42 (AAR - West Bengal).
17.1-7 SEZ unit liable to pay GST under reverse charge where applicable?
As per FAQ on GST Chapter 21 Q No. 41 issued by CBI&C on 15-12-2018, SEZ unit will be
liable to pay GST under reverse charge, wherever applicable.
Really, supplies to SEZ unit are zero rated. The supplier is not liable to pay GST. In reverse
charge, only liability of supplier is shifted to recipient. If the supplier is not liable to pay GST,
where is the question of shifting that liability to recipient?.
17.1-8 Supply from Free Trade Warehousing Zone (FTWZ) to DTA
Free Trade Warehousing Zone (FTWZ) scheme is part of SEZ scheme. FTWZ is a customs
bonded warehouse.
These operate on same lines as SEZ. The focus will be on trading and warehousing. Goods
can be imported without payment of customs duty in these zones. These can be either re-
exported or supplied within India on payment of normal customs duties.
FTWZ can hold goods on behalf of foreign suppliers, foreign buyer, DTA supplier and DTA
buyer subject to fulfilment of provisions of rule 18(5) of SEZ Rules - MC&I(DC) SEZ Instruction
No. 60 dated 6-7-2010.
If foreign supplier exports goods to FTWZ and then sales goods to DTA unit on payment of
customs duty (which includes IGST), further IGST is not payable and the foreign supplier does
not require registration under GST - Sadesa Commercial Offshore De Macau Ltd. In re (2019)
72 GST 215 = 102 taxmann.com 42 (AAR- TN). - same view in Bank of Nova Scotia In re (2019)
72 GST 607 = 102 taxmann.com 38 (AAR - Tamil Nadu).
17.2 EOU/STP/EHTP/BTP units
EOU units have to procure goods on payment of GST as applicable. Supplies to EOU are like
any other supplies. Zero rating is applicable to EOU only in case of goods or services exported
by them - CBI&C, circular No. 8/8/2017-GST dated 4-10-2017.
Most of benefits available to EOU have been withdrawn.
DGFT Trade Notice No. 11/2018 dated 30-6-2017 has clarified as follows -
EOU can import goods without payment of whole of basic customs duty. IGST and GST
Compensation Cess will be exempt upto 31-3-2021 - Notification No. 52/2003-Cus dated 31-
3-2003 as amended on 24-3-2020 and para 6.01(d)(ii) of FTP 2015-20 as amended on 31-3-
2020.
On domestic supplies, IGST/CGST/SGST/UTGST will be payable by the domestic supplier. The
EOU unit can take its Input Tax Credit and claim refund in case of exports by EOU - MF(DR)
circular No. 5/5/2017-GST dated 11-8-2017.
EOU units clearing goods in DTA or to other EOU unit will be required to pay
IGST/CGST/SGST/UTGST as applicable.
In addition, they will have to reverse proportionate customs duty on the basis of SION
published by DGFT or norms approved by Norms Committee of DGFT (when no SION is
fixed).
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In case of procurement from DTA, if the inputs are used for manufacture of products under
DTA sale, refund of any benefits taken on inputs shall be made - DGFT press release dated
7-7-2017.
Goods covered under fourth schedule of Central Excise - In case of goods covered under
Fourth Schedule to Central Excise (on which excise duty is payable w.e.f. 1-7-2017), customs
duty, CVD and SAD will be exempt. In case of domestic procurement central excise duty will
be exempt. In case of DTA clearances, the EOU will be required to pay central excise duty
equal to aggregate of duties of customs. The effective rate will be as per Notification No.
23/2003-CE.
Supplies to EOU are 'deemed exports' - Supplies to EOU by DTA unit are deemed exports -
Notification No. 48/2017-CT, dated 18-10-2017.
Clarifications relating to bond and inter-unit transfer by EOU - CBI&C Circular No. 29/2017-
Cus, dated 17-7-2017 states as follows -
EOUs are allowed duty free import of goods under notification No. 52/2003-Customs dated
31-3-2003. However, in view of GST the said notification has been consequently amended
by notification No. 59/2017-Customs, dated 30-6-2017.
The B-17 bond, being a general purpose running bond will serve the requirement of
continuity bond to be submitted under Customs (Import of Goods at Concessional Rate of
Duty) Rules, 2017, and therefore EOU/STP/EHTP units are not required to submit separate
continuity bond.
Form of B-17 bond has been revised vide Notification No. 1/2018-Central Excise (NT) dated
5-12-2018.
The requirements of information about estimated quantity and value of goods to be
imported are to be provided under Rule 5(1)(a) of the (Import of Goods at Concessional Rate
of Duty) Rules, 2017 for a period not exceeding one year. This means that units may submit
the requirements for any shorter period than one year and then can give requirements for
the subsequent period. Also there is no bar in the said rules to amend/give additional
information. Therefore, the units can amend/modify/add such information from time to
time as per the requirement of import of goods.
The inter unit transfer would be on invoice on payment of applicable GST taxes. However,
such transfer would be without payment of custom duty. The supplier unit will endorse on
such documents the amount of custom duty, availed as exemption, if any, on the goods
intended to be transferred. The recipient unit would be responsible for paying such basic
customs duty, as is obligated under Notification No. 52/2003-Cus, dated 31-3-2003 (as
amended), when the finished goods made out of such goods or such goods are cleared in
DTA. The circular No. 35/2016-Customs, dated 29-7-2016 would stand amended to the
extent that no procurement certificates would be required for inter- unit transfer.
Procedure to procure goods from DTA which are 'deemed exports' - Procedure for
procurement of goods by EOU for deemed exports has been specified in CBI&C circular No.
14/14/2017-GST dated 6-11-2017. The EOU unit is required to give prior intimation in form
A giving details of goods to be procured and details of supplier. The goods to be procured
should have been pre-approved by Development Commissioner. On receipt of goods,
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endorsed copy of tax invoice shall be sent to registered supplier, jurisdictional GST officer of
registered supplier and his own jurisdictional officer. Records should be maintained in form
B. Digital copy of form B shall be submitted to jurisdictional officer in CD or Pen drive.
Supply of services and software from EOU to DTA - For services, including software units.
Sale in DTA in any mode, including online data communication is permissible upto 50% of
FOB value of exports or 50% of foreign exchange earned, where payment is received in
foreign exchange. However, sale in DTA in respect of services classified under heading 9988
and 9989 in GST, but covered under LOP/para 9.31 of FTP as manufacturing of goods, will
continue to be covered under para 6.08(a). At the time of clearance, applicable GST and
compensation cess will apply as per GST classification - para 6.08(b) of FTP amended on 7-6-
2018.
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Time of supply of goods and services

18.1 Liability of GST on basis of time of supply
The liability to pay CGST/SGST on the goods and services shall arise at the time of supply of
goods and services, as determined in accordance with provisions of section 12 of CGST Act -
section 12(1) of CGST Act.
Major change was in respect of payment of GST on advances received - One major
departure from existing provisions was that GST on goods and services is payable when
advance is received. Earlier, there was such provision in respect of service tax but not in case
of Central Excise, CST or State Vat.
Luckily, the provision in respect of payment of tax on advances in respect of supply of goods
has been suspended w.e.f. 15-11-2017, though it is continuing for supply of services.
Provisions of time of supply unnecessarily made complicated - The provisions of time of
supply seem to have been copied from law of some other Country. The provisions are made
unnecessarily complicated and involved, by mixing the provisions with date of invoice, date
of receipt of payment etc.
Basically, since supply is taxable event, the rate applicable as on date of supply will normally
apply, if invoice is issued immediately on date of supply.
Further, even when tax is paid when advance is received, tax invoice cannot be issued at
that stage. Tax invoice is required to be issued only after supply and hence only rate as
applicable at that time will apply. Thus, provisions of time of supply make no sense.
18.2 Time of supply of goods
The time of supply of goods shall be the earlier of the following dates [section 12(2) of CGST
Act]-
(a) the date of issue of invoice by the supplier or the last date on which he is required,
under section 31 of CGST Act, to issue the invoice with respect to the supply [The
words were 'section 31(1)'. These have been changed to section 31 vide CGST
(Amendment) Act, 2018 w.e.f. 1-2-2019. The amendment is because time limit for
issue of invoice for supply of goods has been specified in section 31(4) and section
31(7) also].
(b) Not applicable w.e.f. 15-11-2017 [Till 15-11-2017, the event was as follows - Receipt
of payment i.e. when advance payment received. This provision is not applicable
w.e.f. 15-11-2017 as per Notification No. 66/2017-CT dated 15-11-2017]

GST if advance upto Rs 1,000 received can be paid at the time of issue of invoice - Where
the supplier of taxable goods receives an amount up to one thousand rupees in excess of
the amount indicated in the tax invoice, the time of supply to the extent of such excess shall,
at the option of the said supplier, be the date of issue of invoice - proviso to section 12(1) of
CGST Act.
Thus, if advance upto Rs 1,000 is received, GST is not payable at that stage. In that case, GST
will be payable when invoice is raised.
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Time of supply is date of issue of invoice in case of supply of goods and not on date of
receipt of advance - In case of supplier of goods, the tax is payable on issue of invoice only
i.e. no tax payable when advance is received - Notification No. 66/2017-CT dated 15-11-
2017.
This relaxation is only to suppliers of goods and not to providers of services.
During the period 13-10-2017 to 15-11-2017, this relaxation was available only to taxable
persons whose annual turnover in the preceding financial year was less than Rs 1.50 crores
(or in case of new taxable persons, where turnover in current financial year is likely to be
less than Rs 1.50 crore). This relaxation was only to suppliers of goods and not to providers
of services.- Notification No. 40/2017-CT dated 13-10-2017 as existing upto 15-11-2017.
After 15-11-2017, this relaxation applies to all suppliers of goods, irrespective of turnover,
but not to supplier of services.
18.2-1 Explanations relating to aforesaid provisions
Explanation 1.- For the purposes of clauses (a) and (b), the supply shall be deemed to have
been made to the extent it is covered by the invoice or, as the case may be, the payment.
Explanation 2.- For the purpose of clause (b), "the date on which the supplier receives the
payment" shall be the date on which the payment is entered in his books of account or the
date on which the payment is credited to his bank account, whichever is earlier.
18.2-2 Meaning of removal of goods
As per section 31(1) of CGST Act, registered person is required to issue tax invoice before or
at the time of removal of goods for supply to recipient or delivery of goods or making goods
available to recipient.
"Removal'', in relation to goods, means - (a) dispatch of the goods for delivery by the supplier
thereof or by any other person acting on behalf of such supplier, or (b) collection of the
goods by the recipient thereof or by any other person acting on behalf of such recipient -
section 2(95) of CGST Act.
18.2-3 Meaning of 'supplier'
"Supplier" in relation to any goods or services or both shall mean the person supplying the
said goods or services or both and shall include an agent acting as such on behalf of such
supplier in relation to the goods or services or both supplied - section 2(105) of CGST Act.
18.2-4 Meaning of 'recipient'
As per section 2(93) of CGST Act, "recipient" of supply of goods or services or both means-
(a) where a consideration is payable for the supply of goods or services or both, the
person who is liable to pay that consideration.
(b) where no consideration is payable for the supply of goods, the person to whom the
goods are delivered or made available, or to whom possession or use of the goods is
given or made available, and
(c) where no consideration is payable for the supply of a service, the person to whom
the service is rendered.
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Any reference to a person to whom a supply is made shall be construed as a reference to

the recipient of the supply and shall include an agent acting as such on behalf of the recipient
in relation to the goods or services or both supplied.
18.3 Time of supply when GST on goods payable on reverse charge basis
As per section 12(3) of CGST Act. In case of supplies in respect of which tax is paid or liable
to be paid on reverse charge basis, the time of supply shall be the earliest of the following
dates —
(a) the date of the receipt of goods, or
(b) the date of payment as entered in the books of account of the recipient or the date
on which the payment is debited in his bank account, whichever is earlier, or
(c) the date immediately following thirty days from the date of issue of invoice or any
other document, by whatever name called, by the supplier.

Where it is not possible to determine the time of supply under clause (a), (b) or (c), the time
of supply shall be the date of entry in the books of account of the recipient of supply.
18.4 Time of supply in case of supply of vouchers for goods
In case of supply of vouchers by a supplier, the time of supply shall be - (a) the date of issue
of voucher, if the supply is identifiable at that point; or (b) the date of redemption of
voucher, in all other cases - section 12(4) of CGST Act.
"Voucher" means an instrument where there is an obligation to accept it as consideration
or part consideration for a supply of goods or services or both and where the goods or
services or both to be supplied or the identities of their potential suppliers are either
indicated on the instrument itself or in related documentation, including the terms and
conditions of use of such instrument - section 2(118) of CGST Act.
18.5 Time of supply in other situations
In case it is not possible to determine the time of supply under any of aforesaid provisions,
the time of supply shall - (a) in a case where a periodical return has to be filed, be the date
on which such return is to be filed, or (b) in any other case, be the date on which the
CGST/SGST is paid - section 12(5) of CGST Act.
18.5-1 Time of supply when interest, late fee or penalty for late payment is received
The time of supply to the extent it relates to an addition in the value of supply by way of
interest, late fee or penalty for delayed payment of any consideration shall be the date on
which the supplier receives such addition in value - section 12(6) of CGST Act.
This is small mercy. Otherwise, they would have asked taxable person to pay GST as soon as
demand of interest, late fee or penalty is issued to recipient.
18.6 Time of supply of services
The liability to pay CGST/SGST on services shall arise at the time of supply as determined in
terms of the provisions of section 13 - section 13(1) of CGST Act.
As per section 13(2) of CGST Act, the time of supply of services shall be the earliest of the
following dates, namely:-
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(a) the date of issue of invoice by the supplier, if the invoice is issued within the period
prescribed under section 31 of CGST Act or the date of receipt of payment, whichever
is earlier [The words were 'section 31(2)'. These have been changed to section 31
vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019. The amendment is because time
limit for issue of invoice for supply of services has been specified in section 31(5) and
section 31(6) also]; or
(b) the date of provision of service, if the invoice is not issued within the period
prescribed under section 31(2) or the date of receipt of payment, whichever is earlier
or
(c) the date on which the recipient shows the receipt of services in his books of account,
in a case where the provisions of clause (a) or clause (b) do not apply. [How the
supplier of service would know that date?]

Explanation.—For the purposes of clauses (a) and (b)(i) the supply shall be deemed to have
been made to the extent it is covered by the invoice or, as the case may be, the payment (ii)
"the date of receipt of payment" shall be the date on which the payment is entered in the
books of account of the supplier or the date on which the payment is credited to his bank
account, whichever is earlier.
GST if advance upto Rs 1,000 received can be paid at the time of issue of invoice - Where
the supplier of taxable services receives an amount up to one thousand rupees in excess of
the amount indicated in the tax invoice, the time of supply to the extent of such excess shall,
at the option of the said supplier, be the date of issue of invoice relating to such excess
payment - proviso to section 13(2) of CGST Act.
Thus, if advance upto Rs 1,000 is received, GST is not payable at that stage. In that case, GST
will be payable when invoice is raised.
18.7 Time of supply of service when GST on services is payable on basis of reverse charge
As per section 13(3) of CGST Act, in case of supplies in respect of which tax is paid or liable
to be paid on reverse charge basis, the time of supply shall be the earliest of the following
dates -
(a) the date of payment as entered in the books of account of the recipient or the date
on which the payment is debited in his bank account, whichever is earlier; or
(b) the date immediately following sixty days from the date of issue of invoice or any
other document, by whatever name called, in lieu thereof by the supplier.

Where it is not possible to determine the time of supply under clause (a) or (b), the time of
supply shall be the date of entry in the books of account of the recipient of supply - first
proviso to section 13(3) of CGST Act.
18.8 Time of supply in reverse charge when service received from Associated Enterprise
outside India
In case of supply by 'associated enterprises', where the supplier of service is located outside
India, the time of supply shall be the date of entry in the books of account of the recipient
 330

of supply or the date of payment, whichever is earlier - second proviso to section 13(3) of
CGST Act.
"Associated enterprise" shall have the meaning assigned to it in section 92A of the Income
Tax Act, 1961.
In case the associated enterprise is situated in India, no separate provision has been made
as normal provisions of time of supply apply.
18.8-1 Meaning of 'Associated Enterprises'
Associated Enterprise has the meaning assigned to it in section 92A of Income Tax Act, 1961.
The definition is so broad that generally, group companies will fall in at least one of the 13
clauses specified in section 92A(2) of Income Tax Act.
As per section 92A(1) of Income Tax Act, an enterprise would be regarded as an associated
enterprise of another enterprise, if (a) it participates, directly or indirectly, or through one
or more intermediaries, in the management or control or capital of the other enterprise; or
(b) in respect of it, one or more persons who participate, directly or indirectly, or through
one or more intermediaries, in its management or control or capital, are the same persons
who participate, directly or indirectly, or through one or more intermediaries, in the
management or control or capital of the other enterprise.
Section 92A(1)(a) of Income Tax Act applies when there is participation by one enterprise
into other enterprise.
Section 92A(1)(b) of Income Tax Act applies when there is participation by a third enterprise
into both the enterprises.
Section 92A(2) of Income Tax Act provides that two enterprises shall be deemed to be
associated enterprises if for the purpose of section 92A(1), the two enterprises satisfy, at
any time during the previous year, any of the following conditions -
one enterprise holds (directly or indirectly) shares carrying not less than twenty-six
per cent of the voting power in the other enterprise [section 92A(2)(a)]
any person or enterprise holds (directly or indirectly) shares carrying not less than
twenty-six per cent of the voting power in each of such enterprises [section
92A(2)(b)]; or
a loan advanced by one enterprise to the other enterprise constitutes not less than
fifty-one per cent of the book value of the total assets of the other enterprise [section
92A(2)(c)]; or
one enterprise guarantees not less than ten per cent of the total borrowings of the
other enterprise [section 92A(2)(d)]; or
more than half of the board of directors or members of the governing board, or one
or more executive directors or executive members of the governing board of one
enterprise, are appointed by the other enterprise [section 92A(2)(e)]; or
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more than half of the directors or members of the governing board, or one or more
of the executive directors or members of the governing board, of each of the two
enterprises are appointed by the same person or persons [section 92A(2)(f)]; or
the manufacture or processing of goods or articles or business carried out by one
enterprise is wholly dependent on the use of know-how, patents, copyrights, trade-
marks, licences, franchises or any other business or commercial rights of similar
nature, or any data, documentation, drawing or specification relating to any patent,
invention, model, design, secret formula or process, of which the other enterprise is
the owner or in respect of which the other enterprise has exclusive rights [section
92A(2)(g)]; or
ninety per cent or more of the raw materials and consumables required for the
manufacture or processing of goods or articles carried out by one enterprise, are
supplied by the other enterprise, or by persons specified by the other enterprise, and
the prices and other conditions relating to the supply are influenced by such other
enterprise [section 92A(2)(h)]; or
the goods or articles manufactured or processed by one enterprise, are sold to the
other enterprise or to persons specified by the other enterprise, and the prices and
other conditions relating thereto are influenced by such other enterprise [section
92A(2)(i)]; or
where one enterprise is controlled by an individual, the other enterprise is also
controlled by such individual or his relative or jointly by such individual and relative
of such individual [section 92A(2)(j)]; or
where one enterprise is controlled by a Hindu undivided family, the other enterprise
is controlled by a member of such Hindu undivided family, or by a relative of a
member of such Hindu undivided family, or jointly by such member and his relative
[section 92A(2)(k)]; or

where one enterprise is a firm, association of persons or body of individuals, the

other enterprise holds not less than ten per cent interest in such firm, association of
persons or body of individuals [section 92A(2)(l)]; or
there exists between the two enterprises, any relationship of mutual interest, as may
be prescribed [section 92A(2)(m)]

18.9 Supply of voucher for services

In case of supply of vouchers by a supplier, the time of supply shall be- (a) the date of issue
of voucher, if the supply is identifiable at that point; or (b) the date of redemption of
voucher, in all other cases - section 13(4) of CGST Act.
18.10 Time of supply of service in other cases
Where it is not possible to determine the time of supply of services in any of the above
manner, the time of supply shall (a) in a case where a periodical return has to be filed, be
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the date on which such return is to be filed; or (b) in any other case, be the date on which
the CGST/SGST is paid - section 13(5) of CGST Act.
18.11 Time of supply when interest, late fee or penalty for late payment is received
The time of supply to the extent it relates to an addition in the value of supply by way of
interest, late fee or penalty for delayed payment of any consideration shall be the date on
which the supplier receives such addition in value - section 13(6) of CGST Act.
This is small mercy. Otherwise, they would have asked taxable person to pay GST as soon as
demand of interest, late fee or penalty is issued to recipient.
18.12 Time of supply in case of change in rate of tax in respect of supply of goods or
services or both
In cases where there is a change in the rate of tax in respect of goods or services or both,
time of supply shall be determined in the following manner, as per section 14 of CGST Act.
Goods or services supplied before change in rate - In case goods or services or both have
been supplied before the change in rate of tax, time of supply will be as follows—
(i) Where the invoice for the same has been issued and the payment is also received
after the change in rate of tax, the time of supply shall be the date of receipt of
payment or the date of issue of invoice, whichever is earlier; or
(ii) Where the invoice has been issued prior to change in rate of tax but the payment is
received after the change in rate of tax, the time of supply shall be the date of issue
of invoice; or
(iii) Where the payment is received before the change in rate of tax, but the invoice for
the same has been issued after the change in rate of tax, the time of supply shall be
the date of receipt of payment - section 14(a) of CGST Act.

Goods or services supplied after change in rate - In case the goods or services or both have
been provided after the change in rate of tax—
(i) Where the payment is received after the change in rate of tax but the invoice has
been issued prior to the change in rate of tax, the time of supply shall be the date of
receipt of payment; [How invoice can be issued before supply?] or
(ii) Where the invoice has been issued and the payment is received before the change
in rate of tax, the time of supply shall be the date of receipt of payment or date of
issue of invoice, whichever is earlier; [How invoice can be issued before supply?] or
(iii) where the invoice has been issued after the change in rate of tax but the payment is
received before the change in rate of tax, the time of supply shall be the date of issue
of invoice - section 14(b) of CGST Act.

18.12-1 Meaning of date of receipt of payment

In case of change in rate of GST, the earlier rate applies if payment is received prior to change
of rate of GST. Hence, taxable person may make book entry even if actually payment was
received later. To avoid such practice, following provision has been made.
 333

For purpose of section 14 of CGST Act, "the date of receipt of payment" shall be the date on
which the payment is entered in the books of account of the supplier or the date on which
the payment is credited to his bank account, whichever is earlier - explanation to section 14
of CGST Act.
However, the date of receipt of payment shall be the date of credit in the bank account when
such credit in the bank account is after four working days from the date of change in the rate
of tax - proviso to section 14 of CGST Act.
This provision is made to avoid practice of showing early receipt of payment by cheque,
though actually the cheque may be deposited in Bank and credited in account much later.
18.13 Time of Supply at a glance
'Time of supply' determines when liability to pay GST arises. The provisions are summarised
below.
Nature of Event A Event B Event C Time of supply
transaction

Supply of goods Issue of tax Not applicable [Till Issue of Invoice - as

invoice 15-11-2017, the effective from 15-
event was as 11-2017- section
follows - Receipt of 12(2)(a)
payment i.e. when
advance payment
received. This
provision not
applicable w.e.f.
15-11-2017 as per
Notification No.
66/2017-CT dated
15-11-2017]

Tax on receipt of Receipt of goods Date of payment to 30 days from Whichever is earlier
goods payable on recipient i.e. date of invoice - section 12(3)
reverse charge basis advance payment of supplier
made
Supply of vouchers for Issue of voucher Redemption of Date of issue of
goods when supply is voucher voucher [section
identifiable at that 12(4)(a)]
point
Supply of vouchers for Issue of voucher Redemption of Date of Redemption
goods when supply is voucher of voucher [section
not identifiable at 12(4)(b)]
that point
 334

Supply of service Date of invoice, if Date of receipt of Date on which Whichever is earlier
Invoice if issued payment from recipient shows [section 13(2)]
within prescribed recipient (even the recipient of
time or date of advance payment services in his
provision of received) books of
service, if Invoice account [How
not issued within the supplier of
prescribed time service will
know that
date?]
Tax on receipt of Date of payment Date 60 days from Whichever is earlier
service payable under to supplier of date of invoice of [section 13(3)]
reverse charge when service (even supplier
service provider is not advance payment
associated enterprise made)
out of India

Tax on receipt of Date of payment Date of entry in Whichever is earlier

service payable under to associate books of account of [second proviso to
reverse charge when enterprise (even recipient of supply section 13(3)]
service supplier is advance payment
associated enterprise made)
out of India
Supply of vouchers for Issue of voucher Redemption of Date of issue of
services when supply voucher voucher [section
is identifiable at that 13(4)(a)]
point
Supply of vouchers for Issue of voucher Redemption of Redemption of
services when supply voucher voucher [section
is not identifiable at 13(4)(b)]
that point

Change in rate of tax Receipt of Issue of Invoice Whichever is earlier

on supply of goods or payment [section 14(a)(i)]
services, when goods
or services supplied
before change in rate,
invoice and payment
after change of rate
Change in rate of tax Date of Invoice
on supply of goods or [section 14(a)(ii)]
services, when goods
or services supplied
 335

before change in rate,

invoice issued prior to
change but payment
after change of rate
Change in rate of tax Date of receipt of
on supply of goods or payment [section
services, when goods 14(a)(iii)]
or services supplied
before change in rate,
invoice issued after
change but payment
before change of rate

Change in rate of tax Date of payment

on supply of goods or [How invoice can
services, when goods be issued before
or services supplied supply?] [section
after change in rate, 14(b)(i)]
invoice issued prior
to change and
payment received
after change
Change in rate of tax Date of receipt of Date of issue of Whichever is earlier
on supply of goods or payment invoice [How invoice can be
services, when goods issued before
or services supplied supply? [section
after 14(b)(ii)]

change in rate,
invoice issued prior to
change and payment
received prior to
change
Change in rate of tax Date of invoice
on supply of goods or [section 14(b)(iii)]
services, when goods
or services supplied
after change in rate,
invoice issued after
the change and
payment received
prior to change
 336

Receipt of interest, Issue of demand Receipt of payment Receipt of payment

late fee or penalty for or debit note from recipient of from recipient of
late payment recipient of goods goods or services goods or services
[common provision or services [sections 12(6) and
for goods and 13(6)]
services]

Where no other (a) Due date of (b) Date of Both situations

provision applies in filing of return payment of tax independent of
respect of supply of each other [section
goods or services 12(5) and 13(5)]
 337

Reverse charge
19.1 Meaning of reverse charge
Normally, GST is payable by 'taxable person' who is supplying goods and services.
Taxable person means a person who is registered or liable to be registered under section 22
or 24 of CGST Act - section 2(107) of CGST Act.
Sections 22 and 24 of CGST Act requires every supplier of goods or services or both to
register.
Section 9(1) of CGST Act and section 5(1) of IGST Act provides that GST is payable by 'taxable
person'.
However, in some cases, GST is payable by person who is recipient of the goods or services
or both. This is termed as 'reverse charge'.
"Reverse charge" means the liability to pay tax by the person receiving goods or services or
both instead of the supplier of such goods and/or services under section 9(3) or 9(4) of CGST
Act or section 5(3) or 5(4) of IGST Act - section 2(98) of CGST Act.
19.1-1 Services and persons under reverse charge
There are two provisions under which GST is payable under reverse charge.
Reverse charge under notification - Section 9(3) of CGST and SGST Act and section 5(3) of
IGST Act state that Government can specify categories of supply of goods or services or both,
the tax on which is payable on reverse charge basis. The tax thereon shall be paid by the
recipient of such goods or services or both. All the provisions of this Act shall apply to such
person as if he is the person liable for paying the tax in relation to the supply of such goods
or services or both.
Services like Advocate services, Goods Transport Agency Services (GTA), insurance agent
services. Import of services are notified for reverse charge under these provision. Some
goods are also covered under reverse charge.
Reverse charge when supply is received from unregistered person - In case of receipt of
supply of goods or services or both by a registered person from unregistered supplier,
IGST/CGST will be payable by the recipient, in respect of specified categories of goods or
services as may be notified by Government on recommendation of GST Council, and all
provisions of CGST Act and IGST Act shall apply to such recipient as if he is the person liable
for paying the tax in relation to such supply of goods or services or both - section 9(4) of
CGST and SGST Act and section 5(4) of IGST Act. [The words in italics inserted vide IGST
(Amendment) Act, 2018 and CGST (Amendment) Act, 2018. w.e.f. 1-2-2019.
Prior to this Amendment, such reverse charge was applicable to all supplies received from
unregistered person, though this provision was kept in abeyance for the period 13-10-2017
to 30-9-2019.
Provision as applicable prior to 1-2-2019 - In case of receipt of supply of goods or services
or both by a registered person from unregistered supplier, IGST/CGST was payable by the
recipient - section 9(4) of CGST and SGST Act and section 5(4) of IGST Act, as existing prior
to amendment.
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This provision applied to any kind of taxable goods or services or both supplied by
unregistered person to a registered person.
However, the provision in respect of reverse charge on supplies received from unregistered
persons was suspended for the period 13-10-2017 to 30-9-2019 - Notification No. 8/2017-
CT (Rates) as amended by Notification No. 22/2018-CT (Rate) dated 6-8-2018 and
Notification No. 32/2017-IT (Rate) dated 13-10-2017 as amended vide Notification No.
23/2018-IT (Rate) dated 6-8-2018.
Now, the Notification Nos. 8/2017-CT (Rate) dated 28-6-2017 and 32/2017-IT (Rate) dated
13-10-2017 have been rescinded w.e.f. 1-2-2019, as these notifications have become
redundant due to amendment in section 9(4) of CGST Act w.e.f. 1-2-2019.
Effective date of exemption from reverse charge for supplies received from unregistered
persons - The notification giving exemption from payment of tax under reverse charge was
issued on 13-10-2017. As a general principle, any notification has prospective effect, unless
specified otherwise. Thus, this notification is effective from 13-10-2017.
However, in respect of services, the tax under reverse charge under section 9(4) of CGST and
section 5(4) of IGST Act is payable when payment is made to supplier or 60 days from date
of issue of invoice. Thus, if tax invoice was issued on or after 14-8-2017 and if payment was
not made before 13-10-2017, the time of supply will be on or after 13-10-2017. In that case,
tax will not be payable under reverse charge.
In respect of goods, time of supply is when goods are received. Thus, if goods were received
before 13-10-2017, reverse charge will apply.
There is a view that the original notification uses the words 'This notification shall come into
force with effect from 1-7-2017'. Hence, once proviso is removed on 13-10-2017, the original
notification becomes valid w.e.f. 1-7-2017 and there is no reverse charge w.e.f. 1-7-2017 in
respect of supplies received from unregistered persons.
Apart from the fact that any notification does not have retrospective effect unless specified,
this interpretation would mean that all tax paid under these provisions would become
refundable. Such tax exemption with retrospective effect can be only with approval of
Parliament and State legislatures.
19.1-2 SEZ unit liable to pay GST under reverse charge where applicable?
As per FAQ on GST Chapter 21 Q No. 41 issued by CBI&C on 15-12-2018, SEZ unit will be
liable to pay GST under reverse charge, wherever applicable.
Really, supplies to SEZ unit are zero rated. The supplier is not liable to pay GST. In reverse
charge, only liability of supplier is shifted to recipient. If the supplier is not liable to pay GST,
where is the question of shifting that liability to recipient?
19.2 General provisions applicable where reverse charge applies
Though person receiving the goods or services is liable to pay GST and IGST, he is not supplier
of those goods and services. He is only discharging liability, which is of supplier of goods and
services.
Hence, some specific provisions have been made, which are summarised below. These are
discussed at appropriate places.
 339

Aggregate turnover - 'Aggregate turnover' does not include value of supplies in which tax
is levied under reverse charge - section 2(6) of CGST Act.
Output tax - "Output tax" excludes tax payable by him on reverse charge basis - section
2(82) of CGST Act and section 2(18) of IGST Act.
Time of supply of goods - Section 12(3) of CGST Act makes separate provisions relating to
time of supply of goods where tax is payable on reverse charge basis.
Time of supply of service - Section 13(3) of CGST Act makes separate provisions relating to
time of supply of services where tax is payable on reverse charge basis.
Furnishing details of inward supplies - Every person liable to pay service tax under reverse
charge is required to furnish details of inward supplies - Section 38(2) of CGST Act.
Liability to be registered - Persons who are required to pay tax under reverse charge are
required to be registered, irrespective of the threshold limit specified - section 24(iii) of CGST
Act.
This section overrides section 22 but not section 23 of CGST Act. Section 22 provides for
exemption from registration when aggregate turnover does not exceed Rs 20 lakhs. Section
23 of CGST Act provides for exemption from registration to those who are exclusively
engaged in supply of goods or services or both which are not liable to tax or are wholly
exempt.
Persons who are exempt from registration under section 23 of CGST Act are not required to
register under section 24 of CGST Act.
Firm or partnership firm includes LLP - Firm or partnership firm will include LLP [amendment
w.e.f. 22-8-2017, but practically may be with retrospective effect].
19.2-1 Tax under reverse charge to be paid through electronic cash register only
The recipient of goods or services or both who is liable to pay GST under reverse charge is
required to prepare tax invoice in his own name. He can prepare a single consolidated
monthly invoice second proviso to Rule 46 of CGST and SGST Rules, 2017.
When GST is payable under reverse charge, it should be paid by cash i.e. through Electronic
Cash Ledger only. The GST under reverse charge cannot be paid by utilizing input tax credit
i.e. it cannot be paid by utilizing Electronic Credit Ledger - see section 49(4) of CGST Act read
with section 2(82) of CGST Act.
19.2-2 Input Tax Credit only after payment is made
Supply on which GST paid is actually the input service of recipient. Hence, he can avail its
input tax credit. He can avail the ITC on such services (on which he is liable to pay GST under
reverse charge) only after making payment of that tax in his electronic cash ledger - Rule
36(b) of CGST and SGST Rules, 2017.
19.2-3 When 'payment is made' under reverse charge and when ITC is available
The issue can be explained by an illustration.
Let us assume that for the month of January, 2018, tax of Rs. 1,00,000 was payable under
reverse charge. Now suppose the taxable person pays Rs. 1,00,000 in Electronic Cash Ledger
on (say) on 20-2-2018, can he utilise the credit of Rs. 1,00,000 for paying tax on 20-2-2018
for the month of January, 2018?
 340

There can be different views on the matter. However, as per departmental twit, the credit
can be used for paying tax on 20-2-2018. This can be justified on the ground that paying tax
under reverse charge and taking its credit is a simultaneous process where first step is to
pay GST under reverse charge and second step is to take its credit.
At present, credit can be taken in GSTR-3B on your own. However, let us see later what GSTN
system allows when new system of GST returns is introduced.
19.3 Reverse charge in case of receipt of supply from unregistered person
The Government may, on recommendation of GST Council, by notification, specify a class of
registered persons who shall, in respect of supply of specified categories of goods or services
or both received from an unregistered supplier, pay the tax on reverse charge basis as the
recipient of such supply of goods or services or both, and all the provisions of CGST Act shall
apply to such recipient as if he is the person liable to pay tax in relation to such supply of
goods or services or both - section 9(4) of CGST Act and section 5(4) of IGST Act as amended
w.e.f. 1-2-2019.
Under these provisions, in case of real estate projects, promoters have been made liable to
pay tax under reverse charge in respect supplies received from unregistered persons w.e.f.
1-4-2019 [see discussions under 'Real Estate Projects'].
Provision upto 1-2-2019 in respect of supplies received from unregistered persons - Till 1-
2-2019, the section provided that in case of receipt of supply of goods or services or both by
a registered person from unregistered supplier, IGST/CGST will be payable by the recipient -
section 9(4) of CGST and SGST Act and section 5(4) of IGST Act as existing upto 1-2-2019.
The provision in respect of reverse charge on supplies received from unregistered persons
was suspended for the period 13-10-2017 to 30-9-2019.
This provision was also applicable to registered persons paying GST under composition
scheme.
The provision was applicable even to small value supplies also like tea from tea vendor,
repair services of petty contractors, stationery items, petty purchases etc., if such total
supplies exceed Rs. 5,000 per day.
For a small taxable person under composition scheme, it was practically impossible to ensure
that all procurements are from registered persons only.
Further, in case of suppliers of goods or services which are exempt from GST, the reverse
charge was a cost.
Where the supplier of goods or services was in position to avail Input Tax Credit, payment of
tax under reverse charge was increasing compliance costs though it would have been
ultimately a revenue neutral exercise.
Though issue has been sorted out w.e.f. 13-10-2017, the issue remains in respect of
transactions during 1-7-2017 to 13-10-2017 and audit objections are possible.
19.4 Inter-state transactions - whether IGST payable or CGST and SGST/UTGST payable
under reverse charge
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In case of service of Goods Transport Agency, Advocate, Arbitral Tribunal, Author, Director
etc. reverse charge applies under section 5(3) of IGST Act in case of inter-state transaction
and section 9(3) of CGST Act in case of transactions within the State.
If the supplier of service and the recipient of service are in same State, then obviously
SGST/UTGST and CGST is payable by the recipient under reverse charge.
Question arises when supplier of service and recipient of service are in different States. For
example, recipient of service may be registered in Delhi while the supplier of service may be
located in Haryana.
In case of reverse charge, the service recipient is only discharging the liability of supplier of
service. If the supplier of service was liable to pay tax, obviously he would have paid IGST as
the place of supply is Delhi (location of recipient).
Considering from this angle, IGST will be payable by the service recipient under reverse
charge.
However, it can be argued that when service recipient is paying tax under reverse charge,
he enters into shoes of the supplier of service. He becomes 'deemed supplier'. If so, the
location of service recipient (who is deemed as service supplier under reverse charge) and
place of supply is in same State/Union Territory and hence CGST and SGST/UTGST should
apply.
While uploading the details of tax paid under reverse charge in table 4B of GSTR-1 return,
the service recipient will have to prepare tax invoice in name of self. He will indicate his own
State as place of supply. In that case, mostly, GSTN system may not accept the invoice if IGST
is paid.
Hence, in my view, it is safe to pay CGST and SGST/UTGST, arguing that since self invoice is
prepared, the recipient of service is 'deemed supplier' and hence liable to pay CGST and
SGST/UTGST.
This can also be justified from the fact that GST is destination based consumption tax and
goods or services. Thus, State where goods or services are consumed (i.e. place of supply)
should get the revenue of that transaction.
Really, even if IGST is paid, place of supply indicated in GSTR-1 will be the State where the
taxable person (recipient) is registered and hence there will be no loss of revenue to State
Government.
Either way, different views are possible.
19.4-1 IGST payable in case of import of service
If service provider (Advocate, Director, Author, transporter is from out of India), it will be
'import of service' and IGST will be payable.
IGST is payable under reverse charge on ocean freight in case of CIF Contracts - Chambal
Fertilisers & Chemicals Ltd., In re [2018] 71 GST 147 = 97 taxmann.com 457 (AAR-
RAJASTHAN) * M K Agro Tech P Ltd. In re (2020) 78 GST 251 = 110 taxmann.com 324 (AAR-
Karn).
However, another view is that place of supply is where service provider is located and hence
CGST and SGST/UTGST should apply.
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19.5 Persons supplying services where service recipient is liable to pay GST under reverse
charge need not register under GST
Persons who are making supplies of taxable goods or services or both, where total tax is
payable by recipient of goods or services are exempt from registration under GST Act -
Notification No. 5/2017-CT dated 19-6-2017.
19.5-1 Person who is not liable to register as per section 23 is not required to pay GST
under reverse charge
As per section 23 of CGST Act, following persons are not required to register under GST - (a)
person engaged exclusively in supplying goods or services which are not liable to tax or are
wholly exempted (b) agriculturist.
As per Notification No. 5/2017-CT dated 19-6-2017, person who is making supplies where
recipient is liable to pay entire tax under reverse charge is not required to register.
Person not required to register under GST is not required to pay GST under reverse charge
- It is clear that only a registered person is liable to pay tax. Thus, a person who is not required
to register under GST is not required to pay GST under reverse charge.
19.6 Procedure for reverse charge
A registered person who is liable to pay tax under section 9(3) or 9(4) of CGST Act [reverse
charge] shall issue an invoice in respect of goods or services received by him on the date of
receipt of goods or services from the supplier who is not registered under the Act - Section
31(3)(f) of CGST Act.
When payment is made by recipient of supply to supplier in respect of supplies where tax is
payable under reverse charge, payment voucher is required to be issued - Section 31(3)(g)
of CGST Act.
The person liable to pay tax under GST under reverse charge is required to issue invoice in
name of self.
The invoices are required to be uploaded in GSTR 1. Tax is to be paid in electronic cash
ledger. Input Tax Credit can be availed.
Relaxation in preparing invoices upto 13-10-2017 when tax was payable on all receipts
from unregistered person - Such invoice can be issued on monthly basis in consolidated
form, if reverse charge applies under section 9(4) of CGST Act, where value of such supplies
exceeds Rs 5,000 in a day from any or all suppliers - second proviso to Rule 46 of CGST and
SGST Rules, 2017 [This provision not relevant after 13-10-2017].
This was obviously to reduce compliance costs.
This relaxation was only in respect of invoices where reverse charge is under section 9(4) of
CGST Act. Thus, when tax is payable under reverse charge under section 9(3) of CGST Act
[corresponding section 5(3) of IGST Act]. [Hence not relevant after 13-10-2017].
19.7 Supply of goods where GST payable under reverse charge
In case of supply of goods, following are under reverse charge - (a) cashew nuts, bidi wrapper
leaves, tobacco leaves, silk yarn and raw cotton supplied by agriculturist - registered person
receiving goods will be liable (b) In case of supply of lottery by State Government, lottery
distributor or selling agent is liable (c) In case of Priority Sector Lending Certificate received
 343

by any registered person from another registered person, the recipient is liable to pay tax-
Notification No. 4/2017-CT (Rate) and 4/2017-IT (Rate) both dated 28-6-2017 effective from
1-7-2017 [The words 'raw cotton' have been inserted w.e.f. 15-11-2017. Clause in italics
inserted w.e.f. 28-5-2018].
Used vehicles, seized and confiscated goods, old and used goods, waste and scrap supplied
by Government - In case of used vehicles, seized and confiscated goods, old and used goods,
waste and scrap supplied by Central Government, State Government, Union territory or a
local authority, the registered person receiving the supply is liable to pay tax under reverse
charge - - Notification Nos. 4/2017-CT (Rate) and 4/2017-IT (Rate) both dated 28-6-2017
amended w.e.f. 13-10-2017.
These are summarised below [see FAQ on GST Chapter 2 Q No. 13 and Chapter 4 Q No. 30
issued by CBI&C on 15-12-2018.
Provisions relating to reverse charge on goods are as follows:
Sr. Description of goods Supplier of goods Recipient of goods
No.

1 Cashew nuts (not shelled or agriculturist Any registered

peeled), bidi wrapper leaves person
(tendu), tobacco leaves and raw
cotton
2 Silk yarn Any person who manufactures silk Any registered
yarn from raw silk or silk worm person
cocoons
3 Lottery State Government, Union Territory Lottery distributor
or local authority or selling agent
4 Used vehicles, seized and Central Government, State Any registered
confiscated goods, old and used Government, Union territory or a person
goods, waste and scrap local authority
5 Priority Sector Lending Certificate registered person Recipient who is
registered person

19.8 Supply of services liable for reverse charge

Services which are subject to reverse charge have been specified in Notification No.
13/2017-CT (Rate) and 10/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017. List
in IGST notification has two additional items - (a) Import of Services and (b) Inward Ocean
transport. These are not included in CGST notification as only IGST applies on these two
activities.
Note - The provisions as applicable to Central Government or State Governments shall also
apply to Parliament and State Legislatures - Explanation (h) to Notification No. 13/2017-CT
(Rate) and 10/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-1-2019 [In other words,
they are not liable to reverse charge].
 344

Supplier of service and category of service Recipient of service

1. Supply of Services by a goods transport agency 1. The recipient is liable if he is located in taxable
(GTA) in respect of transportation of goods by territory, except where the GTA (supplier of
road to - (a) any factory registered under or service) is opting to pay tax under forward charge
governed by the Factories Act, or (b) any society @ 12% [6% plus 6%]. [The amendment in italics
registered under the Societies Registration Act, has been inserted w.e.f. 22-8-2017].
1860 or under any other law for the time being in
force in any part of India; or (c) any co-operative
society established by or under any law; or (d)
any person registered under the Central Goods
and Services Tax Act or the Integrated Goods and
Services Tax Act or the State Goods and Services
Tax Act or the Union Territory Goods and Services
Tax Act; or (e) any body corporate established, by
or under any law ("Body Corporate"

If GTA charges GST in his tax invoice and pays IGST

@ 12% [or CGST @ 6% plus SGST/UTGST @ 6%],
the recipient is not liable to pay GST under reverse
charge w.e.f. 22-8-2017.
If GTA is unregistered or does not charge GST in
his invoice, the recipient is liable to pay IGST @ 5%
[or CGST @ 2.5% plus SGST/UTGST @ 2.5%]
has the same meaning as assigned to it in section Note - The person who pays or is liable to pay
2(11) of the Companies Act, 2013) or (f) any freight for the transportation of goods by road in
partnership firm whether registered or not under goods carriage, located in the taxable territory
any law including association of persons; or (g) shall be treated as the person who receives the
any casual taxable person service for the purpose of this notification. Thus,
Nothing contained in this entry shall apply to he will be liable to pay tax under reverse charge.
services provided by a goods transport agency, by
way of transport of goods in a goods carriage by
road, to, - (a) a Department or Establishment of
the Central Government or State Government or
Union territory; or (b) local authority; or (c)
Governmental agencies, which has taken
registration under the Central Goods and Services
Tax Act, 2017 only for the purpose of deducting
tax under section 51 of CGST Act and not for
making a taxable supply of goods or services.
[Note - words in italics inserted w.e.f. 1-1-2019].
Note - In case of services supplied to
unregistered person by GTA, the service is
 345

exempt w.e.f. 13-10-2017. Thus, after 13-10-

2017, the GTA itself is never liable to pay tax,
except where the GTA opts to pay tax under
forward charge @ 12% [6% plus 6%].
2. Services supplied by an individual advocate 2. Any business entity located in the taxable
including a senior advocate by way of territory - -
representational services before any court, Note - the business entity located in the taxable
tribunal or authority, directly or indirectly, to any territory who is litigant, applicant or petitioner, as
business entity located in the taxable territory, the case may be, shall be treated as the person
including where contract for provision of such who receives the legal services.
service has been entered through another [Advocate provided to business entity whose
advocate or a firm of advocates, or by a firm of aggregate turnover is upto Rs 20 lakhs are exempt,
advocates, by way of legal services, to a business vide Sr Nos 45 Notification No. 12/2017-CT (Rate)
entity.
and 9/2017-IT (Rate) both dated 28-6-2017,
effective from 1-7-2017. In such cases, reverse
charge will not apply]
Rate - IGST @ 18% or CGST 9% plus SGST/UTGST -
9%.
3. Services supplied by an arbitral tribunal to a 3. Any business entity located in the taxable
business entity. territory.
Rate - IGST @ 18% or CGST 9% plus SGST/UTGST -
9%.
4. Services provided by any person way of 4. Any body corporate or partnership firm located
sponsorship to any body corporate or in the taxable territory ("Body Corporate" has the
partnership firm same meaning as assigned to it in section 2(11) of
the Companies Act, 2013).
Rate - IGST @ 18% or CGST 9% plus SGST/UTGST -
9%.
5. Services supplied by the Central Government, 5. Any business entity located in the taxable
State Government, Union territory or local territory
authority to a business entity excluding, - (1) [These services provided to business entity whose
renting of immovable property, and (2) services aggregate turnover is up to such amount in the
specified below-(i) services by the Department of preceding financial year as makes it eligible for
Posts by way of speed post, express parcel post, exemption from registration under the CGST Act,
life insurance, and agency services provided to a are exempt from GST. These services are also
person other than Central Government, State exempt if consideration does not exceed Rs. 5,000
Government or Union territory or local authority vide Sr Nos. 7 and 9 Notification No. 12/2017-CT
(ii) services in relation to an aircraft or a vessel, (Rate) and Sr No. 47 of Notification No. 9/2017-IT
inside or outside the precincts of a port or an (Rate) both dated 28-6-2017, effective from 1-7-
airport (iii) transport of goods or passengers. 2017. In such cases, reverse charge will not apply].
 346

Rate (in most of the cases) - IGST @ 18% or CGST

9% plus SGST/UTGST - 9%.
Note - In case of service of renting of immovable
property, reverse charge has been made
applicable in cases where recipient of service is
registered under CGST Act.
5A. Services supplied by the Central Government, 5A. Any person registered under the CGST Act,
State Government, Union territory or local 2017
authority by way of renting of immovable Rate - IGST @ 18% or CGST 9% plus SGST/UTGST -
property to a person registered under the CGST 9%.
Act [w.e.f. 25-1-2018] [this clause inserted w.e.f. 25-1-2018]
5B. Services supplied by any person by way of 5B. Promoter
transfer of development rights or Floor Space Rate - IGST @ 18% or CGST 9% plus SGST/UTGST -
Index (FSI) (including additional FSI) for 9%.
construction of a project by a promoter [inserted [this clause inserted w.e.f. 1-4-2019]
w.e.f. 1-4-2019].
Also provided in Notification Nos. 06/2019-CT
(Rate) and 06/2019-IT (Rate) both dated 29-3-
2019 effective from 1-4-2019.
5C. Long term lease of land (30 years or more) by 5C. Promoter
any person against consideration in the form of Rate - IGST @ 18% or CGST 9% plus SGST/UTGST -
upfront amount (called as premium, salami, cost, 9%.
price, development charges or by any other [this clause inserted w.e.f. 1-4-2019.
name) and/or periodic rent for construction of a
Also provided in Notification Nos. 06/2019-CT
project by a promoter [inserted w.e.f. 1-4-2019].
(Rate) and 06/2019-IT (Rate) both dated 29-3-
2019 effective from 1-4-2019.
6. Services supplied by a director of a company or 6. The company or a body corporate located in the
a body corporate to the said company or the taxable territory ("Body Corporate" has the same
body corporate. meaning as assigned to it in section 2(11) of the
Companies Act, 2013).
Rate - IGST @ 18% or CGST 9% plus SGST/UTGST -
9%.
7. Services supplied by an insurance agent to any 7. Any person carrying on insurance business,
person carrying on insurance business. located in the taxable territory
"Insurance agent" shall have the same meaning Rate - IGST @ 18% or CGST 9% plus SGST/UTGST -
as assigned to it in section 2(10) of the Insurance 9%.
Act, 1938.
8. Services supplied by a recovery agent to a 8. A banking company or a financial institution or
banking company or a financial institution or a a non-banking financial company, located in the
non-banking financial company. taxable territory.
 347

Rate - IGST @ 18% or CGST 9% plus SGST/UTGST -

9%
9. Supply of services by a music composer, 9. Music company, producer or the like, located in
photographer, artist or the like by way of transfer the taxable territory
or permitting the use or enjoyment of a copyright Rate - IGST @ 12% or CGST 6% plus SGST/UTGST -
covered under clause (a) of sub-section (1) of 6% [entry inserted w.e.f. 1-10-2019 by omitting
section 13 of the Copyright Act, 1957 relating to the word 'author'.
original dramatic, musical or artistic works to a Till 1-10-2019, this entry applied to authors also.
music company, producer or the like [entry However, now. w.e.f. 1-10-2019, he has been
inserted w.e.f. 1-10-2019 - word 'author' was given option to pay GST under forward charge as
omitted] explained at Sr No. 9A below]
9A. Supply of services by an author by way of 9A. Publisher located in the taxable territory.
transfer or permitting the use or enjoyment of a However, the author can opt for payment of GST
copyright covered under section 13(1)(a) of the under forward charge. The Author has to make
Copyright Act, 1957 relating to original literary declaration before 31-10-2019 and make required
works to a publisher [entry inserted w.e.f. 1-10- declaration in tax invoice issued by him [entry
2019] inserted w.e.f. 1-10-2019]. Till 1-10-2019, there
was no such option and reverse charge was
applicable in all cases.
[The option may be useful to persons who provide
services other than copyright services and have
substantial input tax credit, which might
otherwise go waste].
Rate - IGST @ 12% or CGST 6% plus SGST/UTGST -
6%.
9. (Old) (as existing upto 30-9-2019). Supply of 9B. Publisher, music company, producer or the
services by an author, music composer, like, located in the taxable territory [entry as
photographer, artist or the like by way of transfer existing upto 1-10-2019].
or permitting the use or enjoyment of a copyright Rate - IGST @ 12% or CGST 6% plus SGST/UTGST -
covered under clause (a) of sub-section (1) of 6%.
section 13 of the Copyright Act, 1957 relating to
original literary, dramatic, musical or artistic
works to a publisher, music company, producer
or the like [entry as existing upto 1-10-2019].
10. Supply of services by the members of 10. Reserve Bank of India. [inserted w.e.f. 13-10-
Overseeing Committee to Reserve Bank of India 2017].
Rate - IGST @ 18% or CGST 9% plus SGST/UTGST -
9%.
 348

11. Supply of services by individual Direct Selling 11. Banking company or NBFC located in the
Agent (DSAs) other than a body corporate, taxable territory [inserted w.e.f. 27-7-2018]
partnership or LLP to bank or NBFC Rate - IGST @ 18% or CGST 9% plus SGST/UTGST -
9%
12. Services provided by business facilitator (BF) 12. Banking company located in the taxable
to a banking company. territory [inserted w.e.f. 1-1-2019]
Rate - IGST @ 18% or CGST 9% plus SGST/UTGST -
9%
13. Services provided by an agent of business 13. Business Correspondent located in the taxable
correspondent (BC) to business correspondent territory [inserted w.e.f. 1-1-2019]
Rate - IGST @ 18% or CGST 9% plus SGST/UTGST -
9%
14. Security services (services provided by way of 14. Registered person located in the taxable
supply of security personnel) provided to a territory [inserted w.e.f. 1-1-2019]
registered person, provided by any person other Rate - IGST @ 18% or CGST 9% plus SGST/UTGST -
than body corporate. This service falls under 9%
service cod 998525.
Nothing contained in this entry shall apply to, -
(i)(a) a Department or Establishment of the
Central Government or State Government or
Union territory; or (b) local authority; or (c)
Governmental agencies; which has taken
registration under the CGST Act only for the
purpose of deducting tax under section 51 of the
said Act and not for making a taxable supply of
goods or services; or (ii) a registered person
paying tax under composition scheme under
section 10 of CGST Act. - noted and order passed
that RCM does not apply if service recipient is
registered under GST only for TDS purposes -
Hemchand Yadav Vishwavidyalaya, In re [2020]
114 taxmann.com 308 (AAR - CHHATTISGARH).
15 (w.e.f. 31-12-2019) Services provided by way 15. Any body corporate located in the taxable
of renting of any motor vehicle designed to carry territory (w.e.f. 31-12-2019)
passengers where the cost of fuel is included in Rate - IGST @ 5% or CGST 2.5% plus SGST/UTGST
the consideration charged from the service - 2.5%
recipient, provided to a body corporate by any
person, other than a body corporate, who
supplies the service to a body corporate and does
not issue an invoice charging central tax at the
rate of 6% CGST (plus 6% SGST/UTGST)
 349

15 (as existing during 1-10-2019 to 30-12-2019) - 15. Any body corporate located in the taxable
Services provided by way of renting of a motor territory [entry inserted w.e.f. 1-10-2019]
vehicle provided to a body corporate by any
person other than a body corporate, paying 2.5%
CGST plus 2.5% SGST/UTGST (or 5% IGST) on

renting of motor vehicles with input tax credit [Really, if the supplier is supplying service with 5%
only of input service in the same line of business GST, where is the question of reverse charge?
[entry inserted w.e.f. 1-10-2019] What is implied is that if a registered person
(other than a body corporate) supplies service of
renting of a motor vehicle to a body corporate, he
(the supplier) should not charge GST in his tax
invoice and the recipient of service (body
corporate) should pay GST @ 5% under reverse
charge. Good that proper amendment has been
made w.e.f. 31-12-2019].
Provision held invalid - In Mohit Minerals (P.) Ltd.
v. Union of India [2020] 113 taxmann.com 436
(Gujarat HC DB), imposition of GST on ocean
freight in case of CIF contract has been held
invalid, as service recipient is out of India.
16. Services of lending of securities under 16. Borrower i.e. a person who borrows the
Securities Lending Scheme, 1997 ("Scheme") of securities under the Scheme through an approved
SEBI. Service is supplied by Lender i.e. a person intermediary of SEBI [entry inserted w.e.f. 1-10-
who deposits the securities registered in his 2019]
name or in the name of any other person duly Rate - IGST @ 18% or CGST 9% plus SGST/UTGST -
authorised on his behalf with an approved 9%
intermediary for the purpose of lending under
the scheme of SEBI [entry inserted w.e.f. 1-10-
2019]
Reverse charge in case of imports under IGST Provisions
(A) Any service supplied by any person who is (A) Any person located in the taxable territory
located in a non-taxable territory to any person (other than non-taxable online recipient).
(other than non-taxable online recipient) (This is Rate (in most of the case) - IGST @ 18% (there
Import of service) [This entry is only under IGST] cannot be SGST or CGST on imports) [This entry is
only under IGST]
(B) A Services supplied by a person located in (B) Importer, as defined in clause (26) of section 2
non- taxable territory by way of transportation of the Customs Act, 1962, located in the taxable
of goods by a vessel from a place outside India territory [This entry is only under IGST].
up to the customs station of clearance in India Rate - IGST @ 5% [there cannot be CGST or IGST or
[This entry is only under IGST] UTGST on imports]
 350

If value of ocean freight is not available, it shall be

taken as 10% of CIF Value - Explanation 4 to
Notification No. 8/2017-IT (Rate) dated 28-6-2017.
IGST payable under reverse charge even if
customs duty and IGST paid on CIF value - IGST is
payable by importer under reverse charge even if
customs duty and IGST paid on CIF value - Bahi
Paper Mills Ltd. In re [2018] 68 GST 553 = 94
taxmann.com 70 (AAR-Uttarakhand) * Chambal
Fertilisers & Chemicals Ltd., In re [2018] 97
taxmann.com 457 (AAR- Rajasthan) *E-DP
Marketing P. Ltd. In re (2019) 74 GST 670 = 107
taxmann.com 3 (AAR-MP).
Provision held invalid - In Mohit Minerals (P.) Ltd.
v. Union of India [2020] 113 taxmann.com 436
(Gujarat HC DB), imposition of GST on ocean
freight in case of CIF contract has been held invalid,
as service recipient is out of India.
 351

Exemption from GST by issue of Notification

20.1 Power to Government to grant exemption
Government needs flexibility in operations of taxing statute. As the circumstances change,
quick adoption to changing situations is required.
Hence, as per section 11(1) of CGST and SGST Act, Central/State Government has been
granted to reduce GST rates as per requirements, by issuing a general exemption
notification. This notification can be issued only on basis of recommendation of GST Council.
The exemption should be in public interest.
The general exemption can be general either absolutely or subject to such conditions as may
be specified in the notification. The exemption can be absolute (unconditional) or subject to
conditions.
The exemption can be in respect of goods or services or both of any specified description.
Exemption can be from the whole or any part of the tax leviable thereon.
There is identical provision in section 6(1) of IGST Act.
There is parallel provision in section 5A(1) of Central Excise Act in respect of excise duty and
section 25(1) of Customs Act in respect of customs duty.
Provision of delegation of powers to Government for granting exemption have been upheld
by Supreme Court - P. J. Irani v. State of Madras - 1962 (2) SCR 169. * State of Bihar v. Bihar
Chamber of Commerce - 1996 (1) SCALE 760 * Orient Weaving Mills v. UOI AIR 1963 SC 98 =
1978 (2) ELT J311 (SC 5 member bench).
20.1-1 Exemption can be withdrawn anytime
Exemption is a concession. It can be withdrawn under the very power in exercise of which
exemption was granted - State of Haryana v. Mahabir Vegetable Oils P Ltd. (2011) 3 SCC 778
= 9 taxmann.com 288 = 5 GST 520 = 38 VST 514 (SC) - same view in respect of rebate in Shree
Sidhbali Steels v. State of Uttar Pradesh (2011) 3 SCC 193 (SC 3 member bench).
However, if exemption has been granted for a specific period, it cannot be withdrawn earlier
without reasons, on the basis of principle of promissory estoppel.
20.1-2 Effective date of a notification
The exemption notification becomes effective on the date as specified in the notification
issued by Central/State Government - section 11(1) of CGST and SGST Act.
In UOI v. G S Chatha Rice Mills [2021] 2 SCC 209 = 374 ELT 289 (SC 3 member bench),
notification enhancing customs duty on imports from Pakistan was enhanced on 16-2-2020.
The notification was uploaded at 20:46:58. The importer had filed bill of entry which was
self assessed at 18:08 hours. It was held that the enhanced customs duty is not applicable.
The gazette notification uploaded at 20:46:58 cannot be said to be effective from 00:00
hours on 16-2-2020.
20.1-3 Exemption can be withdrawn with retrospective effect only by Parliament/State
Legislature
Exemption given by notification can be withdrawn only with prospective effect by another
notification. Parliament can withdraw exemption even with retrospective effect also, but it
should be for valid reasons.
 352

Withdrawal of exemption by notification can be prospective only - Exemption cannot be

withdrawn and duty cannot be enhanced with retrospective effect. - Jitender Roller Flour
Mills v. CTO (2002) 125 STC 383 (AP HC DB) * Ganduri Eswaraiah v. DCTO (2002) 125 STC 406
(AP HC DB) * Honest Corporation v. State of Tamilnadu (1999) 113 STC 26 (Mad HC DB) *
State of Tamilnadu v. Kannapiran Steel (1999) 112 STC 161 (Mad HC DB) * Wipro Ltd. v. State
of Maharashtra (2004) 135 STC 503 (Bom HC DB). Exemption notification cannot be
amended with retrospective effect to curtail exemption - J K Udaipur Udyog v. State of
Rajasthan (2003) 131 STC 176 (Raj HC DB).
Exemption can be withdrawn by Parliament with retrospective effect - Exemption given by
a notification can be withdrawn by Parliament even with retrospective effect if it is against
policy of legislature, as Parliament is supreme- RC Tobacco P Ltd. v. UOI 2005 (188) ELT 129
(SC).
20.1-4 Different exemptions to different categories or classes permissible
It is permissible to grant different exemptions to different classes, as long as all those within
a particular class are treated equally and uniformly. Statute can be declared invalid only
when it is shown that the impugned statute is based on discrimination and that such
discrimination is not referable to any classification which is rational and which has nexus
with the object intended to be achieved by the Statute.
Thus, granting exemption to small scale units, or to units manufacturing goods without aid
of power, or to Government undertakings or to a class of consumers will be permissible.
However, such classification should be in public interest and powers should be used bona
fide.
It is well recognised that State enjoys the widest latitude where measures of economic
regulations are concerned. State can pick and choose districts, objects, persons, methods
and even rate for taxation if it does so reasonably.
20.1-5 Recovery if post clearance conditions of exemption notification not complied with
In Bombay Hospital Trust v. CC 2005 (188) ELT 374 (CESTAT 5 member LB), appellant
imported medical equipment at concessional rate of customs duty, subject to certain
conditions to be fulfilled after their import. It was held that this is a case of continuous
obligation and there is no time limit for raising demand in such case. It was also held that in
such case demand is not u/s 28 of Customs Act (parallel section 11A of CEA), but under
charging section of section 12 of Customs Act (parallel section 3 of CEA) and the relevant
exemption notification, even if no bond was executed at the time of import.
In Sunitidevi Singhania Hospital v. CC (2015) 317 ELT 81 (CESTAT), it was held that non-
fulfilment of post import obligation is continuing obligation. Confiscation, fine and penalty
can be imposed.
20.1-6 Public Interest is essential
The exemption notification can be issued only in public interest. Public interest means
greatest happiness of greatest number. It is not necessary to disclose the exact nature of
public interest of each notification. In India Cement v. State of AP (1988) 69 STC 305 (SC) =
AIR 1988 SC 567, it was observed that exercise of power to tax may be normally presumed
to be in public interest. Court will presume that the notification has been issued in public
 353

interest. Person challenging the tax has the heavy burden to prove that it is not in public
interest.
In UOI v. Jalyan Udyog - AIR 1994 SC 88 = 1993 (68) ELT 9 (SC) = 1994 (1) SCC 319, it has been
held that public interest is guiding factor in the notification. If public interest demands, the
exemption can be given wholly or partly, and with or without any conditions. The condition
specified can relate to a stage subsequent to the date of clearance, if public interest so
demands. The guiding factor is 'public interest'. - quoted with approval in UOI v. Paliwal
Electricals P Ltd. (1996) 83 ELT 241 (SC) = 13 RLT 857 (SC) = AIR 1996 SC 3106 = 1996 AIR SCW
1570. Exemption given for a specific period can also be withdrawn earlier, if public interest
so requires. In State of Rajasthan v. Gopal Oil Mills (1999) 115 STC 25 (SC), it was held that a
benefit cannot be withdrawn unless public interest is shown.
Term 'Public interest' is not vague or uncertain - The phrase 'public interest' is not vague
and indefinite. - * Maneka Gandhi v. UOI - (1978) 1 SCC 248 = AIR 1978 SC 597 = (1978) 2
SCR 621 (SC 7 member bench) * Premium Granites v. State of Tamilnadu (1994) 2 SCC 691 =
1994 AIR SCW 2048 = AIR 1994 SC 2233 * Orissa Textiles v. State of Orissa 2002 AIR SCW 333
(SC 5 member bench).
20.1-7 Exemption to main contractor does not mean sub-contractor is also exempt
In some cases, the service provider is exempted from GST. This does not mean that sub-
contractor providing service to main contractor is also exempt - M.V. Infra Services (P.) Ltd.,
In re [2020] 115 taxmann.com 61 (AAR - KARNATAKA).
However, if the service itself is exempt, then exemption would be available to sub-contractor
also e.g. if service of construction of dam is exempt, that exemption is available to sub-
contractor also who is undertaking contract of construction of dam. However, if service of
construction of dam provided to Government is exempt, the exemption will not be available
to sub-contractor as he is providing service to contractor and not to Government.
20.2 Absolute i.e. unconditional exemption (wholly or partly) is compulsory
Explanation to section 11(3) of CGST and SGST Act states that where an exemption in respect
of any goods or services or both from the whole or part of the tax leviable thereon has been
granted absolutely, the registered person supplying such goods or services or both shall not
collect the tax on such goods or services or both in excess of effective rate, on such supply
of goods or services or both
There is identical provision in Explanation to section 6 of IGST Act.
Thus, if a notification grants unconditional exemption from whole or part of GST to certain
goods or services, the taxable person cannot pay GST on such goods or services in excess of
effective rate of GST or IGST.
20.2-1 When payment of GST could have been beneficial
A taxable person may like to pay GST on his goods or services even if the goods or services
are unconditionally exempt, if he intends to avail input tax credit. If the taxable person does
not pay GST, his customer cannot avail input tax credit, which is ultimately a loss as chain of
input tax credit is broken.
20.2-2 Conditional exemption at option of taxable person
 354

The provision applies only in cases where exemption has been granted 'absolutely' i.e.
unconditionally. It may be wholly or partly.
Some exemptions are subject to some conditions In such cases, the taxable person may or
may not avail of the concession or exemption.
In Remedies (India) Pharmaceuticals v. CCE 1998(101) ELT 344 (CEGAT), it was held that
benefit of a (conditional) exemption cannot be thrust upon an unwilling manufacturer [the
word 'conditional' is not used in the order].
In CCE v. VIP Industries 1998(103) ELT 95 (CEGAT), it was held that a conditional exemption
is at the option of assessee. - same view in Glaxo India Ltd. v. CCE 1999(109) ELT 211 (CEGAT)
* Ashok Organic Industries v. CCE 2000(122) ELT 773 (CEGAT) * Narayan Polyplast v. CCE
2003(153) ELT 160 (CEGAT).
In Steelco Gujarat v. CCE 2000 (122) ELT 381 (CEGAT), the exemption notification was subject
to condition that Cenvat credit should not be availed on inputs. The assessee did avail
Cenvat. It was held that in such case, exemption could be denied, not the credit, i.e. assessee
will be denied exemption, but he cannot be asked to reverse Cenvat credit.
Exemption subject to condition that input tax credit should not be availed is conditional
and hence optional - If exemption is conditional, it is option of assessee. He may not follow
the condition prescribed and hence may pay duty e.g. a notification says : "The goods and
services are exempt from GST, provided that no input tax credit is availed. Hence, if input
tax credit is availed, automatically, the exemption is not available and assessee can (in fact,
has to) pay GST."
20.2-3 Option to taxable person if two exemption notifications available
When there are two provisions under which an assessee (termed as taxable person in GST)
could claim some benefit, it is for the assessee (termed as taxable person in GST)to choose
one. -CIT v. Mahendra Mills 2000 AIR SCW 1016 = AIR 2000 SC 1960 =243 ITR 56 = 109
Taxman 225 (SC).
If assessee (termed as taxable person in GST) has option of either SSI exemption or availment
of Cenvat credit (by paying excise duty on final product), he can choose either - CCE v. Grand
Card Industries (2014) 45 GST 356 = 44 taxmann.com 476 = 305 ELT 19 (Del HC DB).
When two exemption notifications are available, assessee (termed as taxable person in GST)
can choose any one. Department cannot pin down to avail exemption under a particular
notification only - CCE v. Favourite Industries (2012) 7 SCC 153= 278 ELT 145 (SC) - affirming
Favourite Industries v. CCE (2003) 156 ELT 802 (CEGAT).
20.3 Exemption in exceptional circumstances
General exemptions from duty can be granted under section 11(1) of CGST Act and section
6(1) of IGST Act [parallel section 5A(1) of Central Excise and section 25(1) of Customs Act] by
issuing a notification.
However, section 11(2) of CGST Act and section 6(2) of IGST Act [parallel section 5A(2) of
Central Excise Act and section 25(2) of Customs Act] authorises Central Government to grant
exemption, in public interest, in exceptional circumstances by a special order. Such
exemption can be only on recommendation of GST Council.
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It is not necessary to publish the order in Official Gazette.

This is ad hoc exemption and can be granted even retrospectively. - CBE&C circular No.
12/97-Cus dated 12-5-1997. - same view in Khoday Engg Ltd. v. CCE 1999 (105) ELT 326
(CEGAT), where it was held that order issued u/s 5A(2) of CEA has retrospective effect and it
applies to all clearances, even before issue of the order - same view in Indian Leaf Tobacco
Development Co. v. UOI 1984 (16) ELT 234 (Mad HC).
In Aeronautical Development Agency v. CC 2001 (133) ELT 685 (CEGAT), it was held that time
limit u/s 27 of Customs Act for filing refund claim is not applicable to refund claim filed after
receipt of ad hoc order of exemption, when at the time of submitting Bill of Entry, importer
had filed letter that its application for exemption u/s 25(2) is under consideration and he will
file refund claim at appropriate time.
In Jain Exports P Ltd. v. UOI 1998 (98) ELT 581 (SC), it was held that granting exemption to
public sector undertakings giving reasons for such exemption, but not giving similar
exemption to private person importing same goods is permissible. It is not discriminatory.
20.3-1 Retrospective insertion of clarification to exemption notification
An exemption notification cannot be amended with retrospective effect. However,
sometimes it is found that there is some drafting mistake or ambiguity in (a) the general
exemption notification or (b) Special exemption order issued. Sometimes, taxable person
gets unintended benefit while in some cases even intended benefit cannot be obtained due
to drafting error in the exemption notification or exemption order.
To overcome this problem, section 11(3) of CGST Act provides that Central Government, for
the purpose of clarifying the scope or applicability of exemption notification or exemption
order, may insert an explanation to the exemption notification or order within one year of
such notification or order. Such Explanation to an exemption Notification will have
retrospective effect from date of exemption notification. Such Explanation can be inserted
in exemption notification only within one year of date of issue of notification and not
thereafter.
There is identical provision in section 6(3) of IGST Act.
Purpose and meaning of explanation - The section itself clarifies that purpose of
'explanation' is to clarify the scope or applicability of an exemption notification or exemption
order. Thus, the retrospective insertion can be made only to explain or clarify.
As per Concise Oxford dictionary, 'explain' means to make clear or intelligible with detailed
information etc. 'Clarify' means to make clearer, make transparent.
Thus, the clarification to exemption notification/order cannot be added with retrospective
effect to restrict the scope of notification/order or to insert a condition which was not there.
20.4 Burden of proof on party claiming exemption
Burden to prove tax exemption under a notification is on assessee. Exemption notification
must be construed strictly. If there is any ambiguity in exemption notification, benefit of
such ambiguity cannot be claimed by assessee. It must be interpreted in favour of revenue -
CC v. Dilip Kumar & Co. (2018) 95 taxmann.com 327 = 69 GST 239 = 361 ELT 577 (SC 5
member Constitution Bench).
 356

A party claiming exemption has to establish that he is eligible for exemption contained in
the notification, i.e. burden of proof is on him - CCE v. Hari Chand Shri Gopal (2010) 260 ELT
3 = (2011) 1 SCC 236 (SC 5 member bench) * Mysore Metal Industries v. CC, Bombay 1988
(36) ELT 369 (SC) = 1988 (17) ECR 636, followed in Award Packaging v. CCE 1994 (71) ELT 55
(CEGAT) same view in * Motiram Tolaram v. UOI 1999 AIR SCW 3070 = 1999(6) SCC 375 =
AIR 1999 SC 3121 = 1999(6) SCC 375 = 112 ELT 749 (SC 3 member bench) * CIT v.
Ramakrishna Deo - 1959 (35) ITR 312 (SC) * Rajasthan Spinning & Wvg v. CCE - (1996) 102
STC 476 (SC) * Khatema Fibres v. State of Uttar Pradesh 2001 AIR SCW 22 * CC v. Presto
Industries 2001 AIR SCW 828 = 128 ELT 321 = (2001) 3 SCC 6* Hotel Leela Ventures v. CC
(2009) 234 ELT 389 (SC) * CCE v. Parenteral Drugs (2009) 236 ELT 625 (SC) * Natson
Laminates v. CCE 2005 (181) ELT 382 (SC 3 member bench) * Fitpack Textile v. CCE 2001(130)
ELT 759 (CEGAT) * CCE v. Jindal Spinning 2002 (141) ELT 811 (CEGAT).
Liability to tax has to be proved by revenue authorities, but to earn the exemption, assessee
(taxable person under GST) has to establish his eligibility - Nizam's Religious Endowment
Trust v. CIT AIR 1966 SC 1007.
20.4-1 Exemption can be availed later by way of refund claim/appeal
It is not essential that exemption has to be claimed before supply of goods or services. It is
possible to avail exemption by making a refund claim later, even if classification or
assessment is done at higher rate - Bharat Earth Movers Ltd. v. Collector - 1991 (52) ELT 600
(CEGAT) also in CCE v. ITC Ltd. - 1993 (67) ELT 852 (CEGAT).
20.4-2 Exemption if certificate/authorization produced later
Sometimes, exemption or concession is subject to production of a certificate or permission
from some authority. The taxable person can only make application for getting such
certificate or permission. However, actual getting permission is not in his powers. In such
cases, it has been held that exemption/concession is available even if such
certificate/permission is submitted subsequently. This would be so even if the exemption
notification specifies that such permission/certificate is a pre-condition for granting the
exemption/concession.
In this regard, judgment of Supreme Court in Mangalore Chemicals and Fertilisers Ltd. v.
Deputy Commissioner 55 ELT 437 = 83 STC 234 = AIR 1992 SC 152 = 1992 (1) Supp SCC 21 is
one of the best and well reasoned judgment. In this case, new industries set up in Karnataka
were eligible for adjustment of sales tax refund for five years subject to condition that he
should get permission from Deputy Commissioner of Commercial Taxes. Such permission
was to be renewed every year. As per the notification, prior permission was necessary. A
dealer, who was fulfilling all conditions, applied for the permission and in fact, was given
permission for first year. In subsequent years, he applied for renewal for the permission in
time. However, the permission was not granted as there was some dispute between
Department of Sales Tax of Government of Karnataka and Department of Industries of
Government of Karnataka regarding which department should absorb the financial impact
of these concessions. The dealer had obviously nothing to do with the dispute. On the
assumption that the permission will be granted the dealer adjusted the refund. However,
the sales tax department issued demand and penalty was imposed, holding that since 'prior
permission' was not obtained, the adjustment of sales tax refund is not permissible.
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Supreme Court described the attitude of the department as follows : "No doubt you were
eligible and entitled to make adjustments. There was no impediment in law to grant you
such permission. But see language of notification. Since we did not give you the permission,
you cannot be permitted to adjust."
Apex Court said 'Is this the effect of the law?'. Apex Court observed : "Appellant is told 'We
are sorry. We should have given you permission. But now the period is over, nothing can be
done'. The answer to this is in the words of Lord Denning : 'A public authority cannot be
estopped from doing its public duty, but it can be estopped from relying on a technicality'."
Apex Court quoted with approval a passage from Francis Bennion in 'Statutory
Interpretation', which read : "Modern Courts seek to cut down the technicalities attendant
upon a statutory procedure, where these cannot be shown to be necessary to the fulfilment
of purpose of the legislation". Apex Court granted full relief to the dealer.
In ONGC Ltd. v. CC 2006 (201) ELT 321 (SC), appellant had applied for essentiality certificate
but it was issued later. It was held that the certificate is valid till final assessment order is
passed and appellant is entitled to benefit of exemption notification.
In CC v. Tullow India Operations Ltd. 2005 (189) ELT 401 (SC), exemption was subject to
production of essentiality certificate from Director General of Hydrocarbons at the time of
import. The authority did not issue the certificate in time. It was held that exemption cannot
be denied merely because certificates were required to be produced at the time of
importation - followed in Mazgaon Docks v. CC 2006 (202) ELT 706 (CESTAT) * Enar Chemic
v. CCE (2011) 274 ELT 221 (CESTAT)
In CCE v. MPV & Engg Industries (2003) 5 SCC 333 = AIR 2003 SC 4121 = 153 ELT 485 (SC) =
2003 AIR SCW 2108 also, it was held that assessee who is eligible for exemption should not
be deprived of benefit simply because authorities concerned took their own time in
disposing of the application.
20.5 Strict construction of exemption notification
An exemption notification should be construed strictly. There is no scope for any intendment
- Hemraj Gordhandas v. H H Dave, CCE AIR 1970 SC 755 = 1978 (2) ELT (J350) (SC) = 1969 2
SCR 253 (SC 5 member Constitution Bench) - confirmed in Rajasthan Spg. and Wvg. Mills Ltd.
v. CCE 1995 (77) ELT 474 (SC) = 1995 (58) ECR 569 (SC) = AIR 1995 SC 1985 = (1995) 4 SCC
473 =102 STC 476 (SC). In this case, it was reaffirmed that exemption notification has to be
strictly construed and that no extended meaning can be given to exempted item to enlarge
the scope of exemption granted by the notification. It was also held that onus is on assessee
to prove his eligibility for exemption - same view in Grasim Industries Ltd. v. State of Madhya
Pradesh 1999 AIR SCW 4189 = AIR 2000 SC 66 = 1999(8) SCC 547 * Sanghvi Reconditioners v.
UOI (2010) 2 SCC 733 * BPL Ltd. v. CCE (2015) 52 GST 102 = 58 taxmann.com 34 = 319 ELT
556 (SC).
20.6 Purposive interpretation of exemption notification
Wordings in exemption notification have to be construed keeping in view the object and
purpose of the exemption - Oblum Electrical Industries P Ltd. v. CC 94 ELT 449 (SC) = AIR 1997
SC 3467 = 1997 AIR SCW 3557 = 1997(7) SCC 581 - followed in KR Steel Union v. CC 2001 AIR
SCW 1541 = 2001(4) SCC 736 = 129 ELT 273 (SC 3 member bench), where it was held that an
 358

exemption notification cannot be read in a narrow manner so as to defeat the object of the
notification - same view in Commissioner, Trade Tax v. DSM Group of Industries AIR 2005 SC
271 = 139 STC 269 = 2004 AIR SCW 6771 = (2005) 1 SCC 657.
In CCE v. Acer India Ltd. (2004) 172 ELT 289 = (2004) 8 SCC 179 = AIR 2004 SC 4805 = 137 STC
596 = 2004 AIR SCW 5496(SC 3 member bench), following principles were summarised for
interpretation of taxing/fiscal statute - (a) No one can be taxed by implication (b) While
construing a taxing statute, existing market practice may also be taken into consideration (c)
Provision enacted for benefit of assessee should be so construed which enables the assessee
to get its benefit (d) Even in taxation statute, principle of purposive construction will be
adhered to when a literal meaning may lead to absurdity.
In Shriram Vinyl v. CC 2001 (129) ELT 278 (SC 3 member bench), it was held that an
exemption notification is to be construed reasonably and rationally and not in a manner
which deprives the benefit thereof - same view in CC v. Malwa Industries (2009) 12 SCC 735
= 9 taxmann.com 321 = 235 ELT 214 (SC).
20.6-1 Strict interpretation at first stage but not at later stage
In Mangalore Chemicals and Fertilisers Ltd. v. Dy. CCT 83 STC 234= 55 ELT 437 = AIR 1992 SC
152 = 1992 Suppl (1) SCC 21, Hon. Supreme Court has held : "When the question is whether
a subject falls in the notification or in the exemption clauses, the interpretation should be
strict as it is in the nature of an exception. But once the ambiguity about applicability is lifted
and it is held that the subject falls in the notification, then full play should be given to it and
it calls for a wider and liberal construction. It will be erroneous to attach equal importance
to the non-observance of all conditions irrespective of the purposes they were intended to
serve."
Similarly, in Bombay Chemicals (P.) Ltd. v. CCE 1995 (77) ELT 3 = AIR 1995 SC 1469 = 1995
AIR SCW 2175 = (1995) 99 STC 339 = (1995) Supp 2 SCC 646 (SC 3 member bench judgment),
it was held that exemption notification should be construed strictly, but once an article is
found to satisfy the test by which it falls in the notification, then it cannot be excluded from
it by construing such notification narrowly - quoted with approval in Saraswati Sugar Mills
v. CCE (2011) 270 ELT 465 (SC).
Eligibility criteria of exemption notification deserves a strict construction, although
construction of a condition thereof may be given a liberal meaning, if the same is directory
in nature - CCE v. Hari Chand Shri Gopal (2010) 260 ELT 3 = (2011) 1 SCC 236 (SC 5 member
bench).
20.7 Relevance of End Use in exemption notification
Generally, end use is not relevant for interpretation of exemption notification, unless
specified in the exemption notification.
When there is no reference to the use or adaptation of the Article, the basis of end use for
classification is absolutely irrelevant - Dunlop India Ltd. v. UOI AIR 1977 SC 597. = (1976) 2
SCC 241 = 1983 (13) ELT 1566 (SC) = (1976) 2 SCR 98 (SC 3 member bench). The end use is
not relevant unless specified in the exemption notification - Citric India Ltd. v. UOI - 1993
(66) ELT 566 (Bom HC).
 359

End Use not relevant unless specified - When there is no reference to the use or adaptation
of the Article, the basis of end use for classification is absolutely irrelevant - Dunlop India
Ltd. v. UOI AIR 1977 SC 597. = (1976) 2 SCC 241 = 1983 (13) ELT 1566 (SC) = (1976) 2 SCR 98
(SC 3 member bench). The end use is not relevant unless specified in the exemption
notification - Citric India Ltd. v. UOI - 1993 (66) ELT 566 (Bom HC) [see also discussions under
'For use'].
20.8 Reversal of Input Tax Credit means ITC not taken
Some exemption notifications are subject to condition of non-availment of Input Tax Credit.
In such cases, if proportionate ITC is reversed, it means that ITC has not been taken and the
condition of exemption notification gets satisfied.
Explanation 4(iv) of Notification Nos. 13/2017-CT (Rates) and 10/2017-IT (Rates) dated 28-
6-2017, effective from 1-7-2017 reads as follows -
Wherever a rate has been prescribed in this notification subject to the condition that credit
of input tax charged on goods or services used in supplying the service has not been taken,
it shall mean that, - (a) credit of input tax charged on goods or services used exclusively in
supplying such service has not been taken; and (b) credit of input tax charged on goods or
services used partly for supplying such service and partly for effecting other supplies eligible
for input tax credits, is reversed as if supply of such service is an exempt supply and attracts
provisions of section 17(2) of the Central Goods and Services Tax Act, 2017 and the rules
made thereunder.
20.9 Promissory Estoppel in exemption notifications
Power to issue exemption implies power to amend the exemption or withdraw exemption.
Thus, exemption granted by notification can be withdrawn or modified. However, some
notifications grant exemption for a prescribed period e.g. new cement plants may be
granted exemption for prescribed number of years. Some manufacturer may set up a plant
based on such notification. In such cases, can the exemption be withdrawn before the
prescribed period? Such withdrawal can be done only in exceptional circumstances.
Otherwise, Government is bound by the promise, as per theory of 'Promissory estoppel'.
Government cannot resile from its promise simply on the ground of loss of revenue.
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Concessions to small enterprises in GST

21.1 Exemption to very small taxable persons
It is normal to provide threshold limit for imposition of any tax, so that very small taxable
persons are out of tax net. This is also administratively expedient as it is not possible to
exercise control over large number of small taxable persons, where revenue generated is
negligible as compared to costs involved.
The provisions for concession to small enterprises have been made different for goods and
services, w.e.f. 1-4-2019. Till 1-4-2019, the provisions were same.
Provision of exemption in case of exclusive supply of goods - In case of persons engaged
exclusively in supply of goods the exemption is available if their aggregate turnover in the
financial year does not exceed Rs. forty lakhs. This exemption is not applicable to following
- (a) Persons requiring compulsory registration under section 24 of CGST Act (b) Persons
engaged in supply of ice cream, pan masala and tobacco and manufactured tobacco
products (c) persons engaged in making intra-state supplies in Arunachal Pradesh, Manipur,
Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura, Uttarakhand and
(d) persons exercising option under section 25(3) of CGST Act or registered persons who
intend to continue their registration under CGST Act - Notification No. 10/2019-CT dated 7-
3-2019 effective from 1-4-2019.
Very small taxable persons whose aggregate turnover is less than Rs. 40/20/10 lakhs in case
of goods and Rs. 20/10 lakhs in case of services are not required to register under GST [the
limit depends on State].
Exemption limit to be Rs. 20 lakhs in case of some States - In case of following States, the
exemption limit will be Rs. 20 lakhs after 1-4-2019 for both goods and services. These are -
Arunachal Pradesh, Meghalaya, Puducherry, Sikkim, Telangana and Uttarakhand - section
22(1) of CGST Act.
Exemption limit of Rs. 10 lakhs in some States - For following States, the exemption limit
will continue to be Rs. ten lakhs even after 1-4-2019 for both goods and services - Manipur,
Mizoram, Nagaland and Tripura.
Exemption limit for ice-cream, pan masala, tobacco products - Exemption limit for ice-
cream, pan masala and tobacco products will be Rs 20 lakhs after 1-4-2019. However, in
following States, the limit will be Rs 10 lakhs even after 1-4-2019 - Manipur, Mizoram,
Nagaland and Tripura.
Exemption if value of services is less than Rs. 20 lakhs in some States - In States other than
Manipur, Mizoram, Nagaland and Tripura, the exemption limit for services (or those
supplying both goods and services) will be Rs. 20 lakhs, after 1-4-2019.
In respect of following States, the limit for supplier of services has been increased to Rs 20
lakhs vide explanation (iii) to section 22(1) of CGST Act amended w.e.f. 1-2-2019 - Arunachal
Pradesh, Meghalaya, Sikkim, Uttarakhand.
In case of Jammu and Kashmir, the exemption limit for supplier of services was Rs 20 lakhs
upto 31-3-2019 and will be Rs 20 lakhs after 1-4-2019.
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Exemption not applicable to persons making inter-State supply of goods - This exemption
(of 20/10 lakhs) is not available to person who makes inter-State supply of goods. However,
this exemption is available to a person making inter-State supply of services - Notification
No. 10/2017-IT dated 13-10-2017.
Exemption does not apply where reverse charge is applicable - The exemption is not
available to a person liable to pay tax under reverse charge as per section 9(3) of CGST Act
or section 5(3) of CGST Act.
Exemption not applicable if total turnover including exempted turnover exceeds threshold
limit -Exemption from GST us not applicable if total turnover including value of exempted
turnover exceeds threshold limit (10/20/40 lakhs as applicable) as 'aggregate turnover'
includes exempt supply also - Rajiv Gandhi Centre for Aquaculture In re (2019) 73 GST 143 =
104 taxmann.com 381 (AAR-Tamil Nadu).
Once registered, GST payable even if turnover less than Rs. 20/10 lakhs per annum -
However, once a person obtains registration, he is liable to pay GST, even if his turnover is
below Rs 20/10 lakhs. He will be also liable to pay GST under reverse charge, wherever
applicable.
Exemption not applicable if total turnover including exempted turnover exceeds threshold
limit -Exemption from GST is not applicable if total turnover including value of exempted
turnover exceeds threshold limit (10/20/40 lakhs as applicable) as 'aggregate turnover'
includes exempt supply also - Rajiv Gandhi Centre for Aquaculture, In re (2019) 73 GST 143
= 104 taxmann.com 381 (AAR-Tamil Nadu).
Interest will be considered in 'aggregate turnover' for purpose of 10/20/40 lakh exemption
limit - Interest on loans is exempt supply and hence will be considered in 'aggregate
turnover' for purpose of exemption of 10/20/40 lakh limit.
However, it will not be considered as part of 'aggregate turnover' for composition scheme
under section 10 of CGST Act.
21.1-1 Meaning of 'aggregate turnover'
"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 a person having the
same Income Tax PAN, to be computed on all India basis and excludes taxes [CGST, SGST,
UTGST and IGST] - section 2(6) of CGST Act.
Since the term used is 'value', it should be without taxes.
"Exempt supply" means supply of any goods or services or both which attracts Nil rate of tax
or which may be wholly exempt from tax under section 11 of CGST Act or under section 6 of
IGST Act, and includes non-taxable supply- section 2(47) of CGST Act.
'Non-taxable supply' means a supply of goods or services or both which is not leviable to tax
under CGST Act or IGST Act - section 2(78) of CGST Act.
"Zero-rated supply" means a supply of any goods or services or both in terms of section 16
of IGST Act - section 2(23) of IGST Act.
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Activities or transactions specified in Schedule III of CGST Act are to be treated as neither
goods nor services. Hence, turnover of these will not be includible in 'aggregate turnover'.
In Anil Kumar Agrawal, In re [2020] 116 taxmann.com 428 (AAR - Karn), it was held as follows
- While calculating aggregate turnover (a) interest income (b) income from renting of
residential property and (c) remuneration as non-executive director (where reverse charge
applies and company is liable to pay GST) is required to be added. However following is not
required to be considered - (i) dividend income (ii) capital gain/loss on sale of shares (iii)
amount received after maturity of LIC policy.
'Aggregate turnover' will not include interest on loans, deposits and advances for
composition scheme under section 10 - For the purposes of computing aggregate turnover
of a person for determining his eligibility to pay tax under section 10 of CGST Act, the
expression "aggregate turnover" shall include the value of supplies made by such person
from the 1st day of April of a financial year upto the date when he becomes liable for
registration under this Act, but shall not include the value of exempt supply of services
provided by way of extending deposits, loans or advances in so far as the consideration is
represented by way of interest or discount - explanation 1 to section 10 of CGST Act, inserted
vide Finance (No. 2) Act, 2019 with effect from 1-1-2020.
Interest will be considered in 'aggregate turnover' for purpose of 10/20/40 lakh exemption
limit - The aforesaid exclusion from 'aggregate turnover' is only for purpose of composition
scheme under section 10 of CGST Act. Otherwise, interest on loans is exempt supply and
hence will be considered in 'aggregate turnover' for purpose of exemption of 10/20/40 lakh
limit - same view in Anil Kumar Agrawal, In re[2020] 81 GST 465 = 116 taxmann.com 428
(AAR - Karn).
Interest on deposits in PPF, bank accounts, loans and advances will be considered for
calculating 'aggregate turnover' for exemption of 10/20/40 lakhs (as interest is exempt
supply)- Shree Sawai Manoharlal Rathi In re (2020) 81 GST 32 = 117 taxmann.com 497 (AAR-
Gujarat).
Interest or discounts received on deposits, loans etc. will not be includible in 'aggregate
turnover' for calculating turnover of Rs 1.50 crores and will not be considered for 10% limit
of providing services by traders - Till 1-2-2019, a trader under composition scheme was not
allowed to provide any service. Receipt of Interest of loans or deposits is also provision of
'service' though exempt. Hence, they were unable to opt for composition scheme. To get
over this difficulty, Removal of Difficulties Order No. 1/2017-CT dated 13-10-2017 was
issued, providing that interest or discount received by taxable person under composition
scheme on deposits, loans or advances will not be considered for calculating 'aggregate
turnover' of Rs one crore [now Rs 1.50 crores w.e.f. 1-4-2019] [though interest is exempted
service].
Now, w.e.f. 1-2-2019, a taxable person opting for composition scheme is allowed to supply
services upto 10% of his turnover of previous financial year or Rs five lakhs whichever is
higher. Hence, the earlier order dated 13-10-2017 has been superseded vide Removal of
Difficulties Order No. 1/2019-CT dated 1-2-2019 to provide that such interest on discount
on loans, deposits etc. will not be considered for - (i) determining the eligibility for
composition scheme under second proviso to section 10(1) of CGST Act [which allows for
 363

provision of services upto 10% of turnover] and (ii) in computing aggregate turnover in order
to determine eligibility for composition scheme.
Aggregate turnover of previous financial year can be seen on portal, whether it is upto 5
crores or more - Aggregate turnover of previous financial year can be seen on portal. The
portal is not showing the exact figures of annual aggregate turnover but it is only showing
the status whether it is up to 5 crores or more than 5 crore. The aggregate turnover
appearing on the website would be used for certain validations in the GSTN system such as
determining the due date of returns, computing the late fees, etc. In case of any
discrepancies in aggregate turnover, the taxpayer may report the same to the grievance
redressal system of the GST portal - Message dated 11-11-2020 from GSTN.
21.1-2 Meaning of turnover in State or turnover Union Territory

Tax at fixed rate is payable under section 10(1) or 10(2A) of CGST Act (composition
scheme) on 'turnover in a State or turnover Union Territory'.
'Turnover in State' or 'turnover in Union territory' 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) and exempt supplies made within a State or Union
territory by a taxable person, exports of goods or services or both and inter-State supplies
of goods or services or both made from the State or Union territory by the said taxable
person but excludes Central tax, State tax, Union territory tax, integrated tax and cess -
section 2(112) of CGST Act.
Thus, tax at fixed rate is payable on 'exempt supplies also'.

Turnover in State or Union Territory will not include (i) turnover till taxable person crosses
exemption limit [of Rs. 10/20/40 lakhs] (ii) interest on loans/deposits - For the purposes
of determining the tax payable by a person under section 10 of CGST Act, the expression
"turnover in State or turnover in Union territory" shall not include the value of following
supplies, namely:-- (i) supplies from the first day of April of a financial year upto the date
when such person becomes liable for registration under this Act; and (ii) exempt supply of
services provided by way of extending deposits, loans or advances in so far as the
consideration is represented by way of interest or discount - explanation 2 to section 10 of
CGST Act, inserted vide Finance (No. 2) Act, 2019 w.e.f. 1-1-2020.
Thus, turnover in State or Union Territory will not include (i) turnover till taxable person
crosses exemption limit [of Rs. 10/20/40 lakhs] (ii) interest on loans/deposits.
21.1-3 Property jointly owned given on rent - each co-owner eligible for exemption of
20/10 lakhs
A building co-owned by two or more people is given on rental basis, with individual share of
rent less than Rs. 10/20 lakhs per annum. Issue is whether the exemption available to all of
them separately or the GST is payable as AOP by clubbing turnover ?
In my view, each person is separate service supplier and can claim separate exemption, if
property is inherited. If property is specifically purchased jointly for supplying renting
services or for business purposes, the turnover will be clubbed for purpose of exemption
available to small service provider, as they will be considered as AOP or BOI.
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In Elambrancheri Khaldoon In re (2018) 98 taxmann.com 159 (AAR-Ker), it has been held that
small business exemption under GST is available to co-owners separately, if rent is collected
together and divided among co-owners. - same view in Rabi Sankar Tah, In re [2019] 76 GST
840 = 110 taxmann.com 404 (AAR - West Bengal).
There were similar decisions under service tax also, as stated below.
In Dinesh K Patwa v. CST (2012) 37 STT 375 = 25 taxmann.com 515 (CESTAT), a prima facie
view has been held that each co-owner is eligible for separate exemption available to small
service providers - similar order in Smt. K D Chaudhary v. CST (2012) 37 STT 425 = 26
taxmann.com 339 (CESTAT) * Manju Champaklal Bafna v. CST (2014) 43 GST 691 = 42
taxmann.com 320 (CESTAT) * Dilip Parikh v. CST (2014) 43 GST 447 = 41 taxmann.com 311
(CESTAT) * Sanjay K Motwani v. CST (2014) 46 GST 183 = 46 taxmann.com 98 (CESTAT) *
Anita Singh v. CGST, CC&CE, Dehradun [2018] 95 taxmann.com 184 (CESTAT).
Section 26 of Income Tax Act recognizes that where a property consisting of land and
buildings is owned by two or more persons and their shares are definite and ascertainable,
these persons shall not be assessed as AOP.
In case of income tax, it has been clarified vide CBDT circular No. 715 dated 8-8-1995 that if
there are number of payees, each having definite and ascertainable share in property, the
limit of TDS (Rs. 1,20,000), will apply to each of the payee/co-owner separately. Thus,
indirectly, it is held that each co-owner is a separate service provider.
It is true that in Jaswant Singh Mann v. UOI (2016) 53 GST 108 = 64 taxmann.com 204 = 88
VST 77 (P&H HC DB), it has been held that an un-incorporated AOP can be a 'person' and
that definition in section 65B(37)(vii) of Finance Act, 1994 is valid. However, in this judgment,
there is no specific decision that for purpose of renting, joint owners will be considered as
AOP. Hence, this decision cannot be taken as authority that renting income of joint owners
can be clubbed for purpose of service tax on renting of immovable property.
21.2 Composition scheme for small and medium size taxable persons
GST requires heavy compliance cost due to detailed accounting and paper work involved.
Small taxable persons do not have sufficient knowledge and expertise to comply with the
requirements relating to records and accounts.
Hence, for them, a simplified composition scheme has been provided, vide section 10 of
CGST Act.
Changes in composition scheme from 1-4-2019 in GST - The charges in composition scheme
w.e.f. 1-4-2019 are as follows [Notification No. 14/2019-CT dated 7-3-2019] -
Traders in specified goods having turnover upto Rs. 1.50 crores per annum can opt
for composition scheme of payment of tax @ 1% (CGST - 0.5% plus SGST/UTGST -
0.5%) [The limit upto 31-3-2019 was Rs. one crore].
The turnover limit for Composition Levy for CGST and SGST purposes shall be Rs.75
lakh in previous financial year, in respect of the following States - (1) Arunachal
Pradesh (2) Manipur (3) Meghalaya (4) Mizoram (5) Nagaland (6) Sikkim (7) Tripura,
and (8) Himachal Pradesh.
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Manufacturers of Ice Cream, Pan Masala and Tobacco products are not eligible for
the composition scheme.

No composition scheme for manufacturer of aerated water w.e.f. 1-10-2019 - Composition

scheme is not available to manufacturer of aerated water w.e.f. 1-10-2019.
21.2-1 Who is eligible for the composition scheme
The limit of composition scheme can be extended upto Rs. 1.50 crores by issuing notification,
on recommendation of GST Council - first proviso to section 10(1) of CGST Act.
The scheme is available to those whose aggregate turnover of supply of goods in the
previous financial year did not exceed Rs. 150 lakhs. The limit applies w.e.f. 1-4-2019 [The
limit was Rs. 100 lakhs upto 31-3-2019] - Notification No. 14/2019-CT dated 7-3-2019.
The turnover limit for Composition Levy for CGST and SGST purposes shall be Rs. 75 lakh in
previous financial year, in respect of the following States - (1) Arunachal Pradesh (2) Manipur
(3) Meghalaya (4) Mizoram (5) Nagaland (6) Sikkim (7) Tripura and (8) Uttarakhand - proviso
to Notification No. 14/2019-CT dated 7-3-2019 effective from 1-4-2019.
Provision upto 31-3-2019 in respect of specified States - The turnover limit for Composition
Levy for CGST and SGST purposes shall be Rs. 75 lakh in previous financial year, in respect of
the following States - (1) Arunachal Pradesh (2) Assam (3) Manipur (4) Meghalaya (5)
Mizoram (6) Nagaland (7) Sikkim (8) Tripura, and (9) Himachal Pradesh - Notification No.
8/2017-CT dated 27-6-2017 existing upto 31-3-2019.
The scheme is optional.
Option lapses when turnover exceeds specified limit in current financial year - The option
to pay tax under composition scheme under section 10(1) or 10(2A) of CGST Act lapses on
the day the aggregate turnover exceeds the specified limit section 10(1) or 10(2A) of CGST
Act - section 10(3) of CGST Act, as amended vide Finance (No. 2) Act, 2019 with effect from
1-1-2020.
All registered taxable persons having same PAN number should opt for the composition
scheme.
Composition scheme if person supplying services in addition to supply of goods - The
composition scheme is not available to supplier of services, except supply of food for human
consumption [This has been defined as 'service' in para 6(b) of Schedule II of CGST Act] -
section 10(2)(a) of CGST Act.
However, there are many small taxable persons who provide some services in addition to
supply of good e.g. repairs, fitting and commissioning etc. in addition to supply of goods.
Hence, following clause has been added to section 10(1) of CGST Act which reads as follows
:
Provided further that a person who opts to pay tax under clause (a) or clause (b) or clause
(c) may supply services (other than those referred to in clause (b) of paragraph 6 of Schedule
II), of value not exceeding ten per cent, of turnover in a State or Union territory in the
preceding financial year or five lakh rupees, whichever is higher - second proviso to section
10(1) of CGST Act vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019.
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Effect of this proviso is that a taxable person under composition scheme can supply services
upto 10% of his turnover in preceding financial year or upto Rs. five lakhs whichever is
higher.
For the purposes of second proviso, the value of exempt supply of services provided by way
of extending deposits, loans or advances in so far as the consideration is represented by way
of interest or discount shall not be taken into account for determining the value of turnover
in a State or Union territory - explanation to second proviso to section 10(1) of CGST Act vide
Finance (No. 2) Act, 2019 with effect from 1-1-2020.
Effect of explanation to second proviso to section 10(1) of CGST Act vide Finance (No. 2) Act,
2019 inserted with effect from 1-1-2020 is that interest or discount will not be considered
as 'exempt supply'. Hence, it will not be considered for calculating 'turnover in a State or
Union Territory' for calculating limit of 10% of turnover in a State
21.2-2 Rates under composition scheme
The taxable person opting for composition scheme will have to pay a fixed percentage of
gross turnover as tax.
The CGST rates of composition scheme are as follows w.e.f. 1-1-2018 [section 10(1) of CGST
Act and rule 7 of CGST Rules, 2017] -
Tax payable by manufacturer, other than manufacturers as may be notified by
Government - (a) 0.5% CGST plus 0.5% SGST/UTGST (total 1%) of turnover in State or Union
territory in case of a manufacturer [The rate was 1% plus 1% upto 31-12-2017. It is 0.5% plus
0.5% w.e.f. 1-1-2018]. [The words 'other than manufacturers as may be notified by
Government' have been inserted w.e.f. 1-4-2020].
Tax on food in restaurant - 2.5% CGST plus 2.5% of SGST/UTGST (total 5%) of turnover in
State or Union territory in case of persons engaged in making supplies referred to in para
6(b) of Schedule II of CGST Act [service of supply of food for human consumption].
The suppliers of food will be eligible for composition scheme even if they supply exempted
service of extending deposits or loans and receiving interest on such deposits or loans -
Removal of Difficulties Order No. 1/2019-CT dated 1-2-2019 [earlier Removal of Difficulties
Order No. 1/2017-CT dated 13-10-2017].
Thus, the composition scheme is available even if the taxable person receives interest, which
is an exempted service.
Now this scheme has become redundant as general rate on supply of food itself in 5% (2.5%
CGST plus 2.5% SGST) without input tax credit.
Tax payable by traders supplying services upto 10% of turnover - 0.5% CGST plus 0.5%
SGST/UTGST (total 1%) of turnover of taxable supplies of goods and services in State or Union
Territory in case of other suppliers [i.e. traders] [The words 'and services' have been inserted
w.e.f. 1-2-2019] (The traders can supply services upto 10% of turnover or Rs five lakhs in
year whichever is higher and still are eligible for composition scheme w.e.f. 1-2-2019).
As per Removal of Difficulties Order No. 1/2019-CT dated 1-2-2019, interest on discount on
loans, deposits etc. received by the trader will not be considered for (i) determining the
eligibility for composition scheme under second proviso to section 10(1) of CGST Act [which
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allows for provision of services upto 10% of turnover] and (ii) in computing aggregate
turnover in order to determine eligibility for composition scheme.
Tax rate 6% under composition scheme for services w.e.f. 1-4-2020 - Tax rate is 6% (3%
CGST and 3% SGST/UTGST) of turnover under composition scheme for services w.e.f. 1-4-
2020.
Tax of 1% (in case of trader) is on 'turnover of taxable supplies' w.e.f. 1-1-2018 - In case of
traders, tax @ 0.5% is payable on 'turnover of taxable supplies' w.e.f. 1-1-2018 [Till 31-12-
2017, the traders were liable to pay tax on 'turnover within the State' which included
exempted goods also].
Tax of 1% (in case of manufacturer), 5% (in case of restaurant) and 6% (in case of suppliers
of services) is payable even on exempted goods and services also - The tax is payable on
'turnover in a State or Union Territory'. Thus, tax is payable even on goods and services which
are otherwise exempt from GST. This should be kept in mind [Provisions in respect of
services added w.e.f. 1-4-2020].
If a taxable person is supplying both taxable and exempt goods, it may be advisable to deal
in exempted goods under a separate partnership firm.
If a person is making non-taxable supply (petrol, diesel, alcoholic liquor), he is not eligible
for composition scheme at all and hence issue of GST on such supplies does not arise.
21.2-3 Who is 'manufacturer'
"Manufacture" means processing of raw material or inputs in any manner that results in
emergence of a new product having a distinct name, character and use and the term
"manufacturer" shall be construed accordingly - section 2(72) of CGST Act.
Thus, simple activities like packing, re-packing, labelling, testing, repairs, mixing etc. will not
qualify as 'manufacture'.
21.2-4 Who is eligible for composition scheme
As per section 10(2) of CGST Act, following taxable persons will be eligible for composition
scheme—
(a) Save as provided in section 10(1) of CGST Act, he is not engaged in the supply of
services other than supplies referred to in para 6(b) of Schedule II of CGST Act [service
of supply of food for human consumption] [Suppliers of services (other than food
service) are not eligible for this scheme. However, supplier of goods can supply
services upto 10% of turnover of previous financial year or Rs five lakhs whichever is
higher] [The words in italics inserted vide CGST (Amendment) Act, 2018 w.e.f. 1-2-
2019.]
(b) he is not engaged in making any supply of goods or services which are not leviable to
tax under this Act [This should cover petroleum products and alcoholic liquor. If in
addition to these products, he is making another supply, the composition scheme is
not available] [The words 'or services' added w.e.f. 1-1-2021].
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(c) he is not engaged in making any inter-State outward supplies of goods or services
[Thus he can make inter-state purchases from registered persons but not inter-state
supplies] [The words 'or services' added w.e.f. 1-1-2021].
(d) he is not engaged in making any supply of goods or services through an electronic
commerce operator who is required to collect tax at source under section 52 of CGST
Act [The words 'or services' added w.e.f. 1-1-2021].
(e) he is not manufacturer of such goods as may be notified on the recommendation of
the Council and
(f) he is neither a casual taxable person nor a non-resident taxable person

Clause (f) inserted vide Finance (No. 2) Act, 2019 with effect from 1-1-2020.
The words 'or services' has been added vide Finance Act, 2020 in clauses (b), (c) and (d) w.e.f.
1-1-2021.
All registered persons having same income tax PAN must opt for composition scheme - All
the registered taxable persons, having the same PAN must opt to pay tax under the
provisions of this composition scheme - proviso to section 10(2) of CGST Act.
The aggregate turnover will be total of all registered persons having same income tax PAN.
Thus, if taxable turnover has different businesses in different States, turnover of all such
units in aggregate will be considered for eligibility of composition scheme.
Manufacturers who are not eligible for composition scheme - Following manufacturers of
goods will not be eligible for Composition Levy [Notification No. 8/2017-CT dated 27-6-
2017]. [see also FAQ on GST Chapter 2 Q No. 20 issued by CBI&C on 15-12-2018.
Sr No. Classification of goods Description
1 Customs Tariff item 2105 00 00 Ice cream and other edible ice, whether or not containing
cocoa.
2 Customs Tariff item 2106 90 20 Pan masala
2A Customs Tariff item 2202 10 10 Aerated Water (inserted w.e.f. 1-10-2019)
3 Customs Chapter 24 Tobacco and manufactured tobacco substitutes.

21.2-5 Composition Scheme for small service providers having turnover upto Rs 50 lakhs
A simplified scheme was introduced w.e.f. 1-4-2019 for small service providers (and those
who are supplier of goods as well as services exceeding 10% of turnover within State/UT)
whose aggregate turnover during previous financial year did not exceed Rs 50 lakhs. The
scheme was introduced vide Notification No. 2/2019-CT(Rate) dated 7-3-2019.
The scheme is not composition scheme as per section 10(1) and 10(2) of CGST Act. The
scheme is introduced under section 9(1) of CGST Act, which empowers Government to
determine GST Rates.
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Regular composition scheme will be introduced for service providers also w.e.f. 1-4-2021,
vide section 10(2A) of CGST Act, introduced vide Finance (No. 2) Act, 2019 with effect from
1-1-2020.
Till the new scheme is implemented, the scheme notified under Notification No. 2/2019-CT
(Rate) dated 7-3-2019 continues.
The amended section effective from 1-1-2020 provides as follows -
Notwithstanding anything to the contrary contained in this Act, but subject to the provisions
of section 9(3) and 9(4) [which provide for reverse charge], a registered person, not eligible
to opt to pay tax under section 10(1) and 10(2) of CGST Act, whose aggregate turnover in
the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the
tax payable by him under section 9(1) of CGST Act, an amount of tax calculated at such rate
as may be prescribed, but not exceeding 3% of the turnover in State or turnover in Union
territory, if he is not--
(a) engaged in making any supply of goods or services which are not leviable to tax under
this Act;
(b) engaged in making any inter-State outward supplies of goods or services;
(c) engaged in making any supply of goods or services through an electronic commerce
operator who is required to collect tax at source under section 52;
(d) a manufacturer of such goods or supplier of such services as may be notified by the
Government on the recommendations of the Council; and
(e) a casual taxable person or a non-resident taxable person.

All registered persons with same PAN should opt for composition scheme - Where more
than one registered person are having the same Permanent Account Number issued under
the Income-tax Act, 1961, the registered person shall not be eligible to opt for the scheme
under section 10(2A) of CGST Act unless all such registered persons opt to pay tax under this
sub-section - proviso to section 10(2A) of CGST Act, introduced vide Finance (No. 2) Act, 2019
with effect from 1-1-2020.
21.3 Conditions and restrictions for composition levy as specified in rules
Taxable persons whose all outward supplies of goods and services are within the State only
will be eligible for the simplified scheme. He should not be engaged in making any inter-state
outward supplies of goods.
He can make inter state purchases from registered taxable person. However, the supplier of
goods outside the State will have to upload the invoice with the GSTN of the recipient.
Otherwise, it will be treated as purchases from unregistered persons and then he will have
to pay GST on those goods under reverse charge.
Taxable persons who opt for composition scheme under section 10(1) or 10(2A) of CGST Act
will not be allowed to charge GST in their invoice. They cannot show GST in their invoice.
They are not entitled to any input tax credit. [section 10(4) of CGST Act, as amended vide
Finance (No. 2) Act, 2019 with effect from 1-1-2020]
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The person exercising the option to pay tax under section 10 shall comply with the following
further conditions [rule 5(1) of CGST Rules, 2017] :
(a) he is neither a casual taxable person nor a non-resident taxable person,
(b) the goods held in stock by him on the appointed day (1-7-2017) have not been
purchased in the course of inter-State trade or commerce or imported from a place
outside India or received from his branch situated outside the State or from his agent
or principal outside the State, where the option is exercised under rule 3(1) of CGST
Rules [i.e. option to avail composition scheme is indicated by filing declaration],
(c) the goods held in stock by him have not been purchased from an unregistered person
and where purchased, he pays the tax under section 9(4) [i.e. reverse charge]
[Section 9(4) of CGST Act was kept in abeyance from 13-10-2017 to 30-9-2019.
Further, section 9(4) has been modified w.e.f. 1-2-2019. Hence, this condition will
not be applicable
(d) he shall pay tax under section 9(3) or section 9(4) on inward supply of goods or
services or both received from unregistered persons [reverse charge]. [Section 9(4)
of CGST Act was kept in abeyance from 13-10-2017 to 30-9-2019. Further, section
9(4) has been modified w.e.f. 1-2-2019. Hence, this condition will not be applicable.
(e) he was not engaged in the manufacture of goods as notified under section 10(2)(e)
of CGST Act, during the preceding financial year [ice cream, pan masala and tobacco
products have been notified under these provisions as not eligible for composition
scheme],
(f) he shall mention the words "composition taxable person, not eligible to collect tax
on supplies" at the top of the bill of supply issued by him; and
(g) he shall mention the words "composition taxable person" on every notice or
signboard displayed at a prominent place at his principal place of business and at
every additional place or places of business.

Is it required to pay tax on goods in stock on which State Vat credit was availed and utilized
before 30-6-2017? - Taxable persons under State Vat may shift to composition scheme w.e.f.
1-7-2017. They have stock on which State Vat was paid. They had taken its Input Tax Credit
and had utilized it for payment of State Vat. One issue is whether they are required to pay
tax on goods in stock on which State Vat credit was availed and utilized before 30-6-2017?
Really, the relevant section and rules do not say so. It is not possible to impose a condition
which is not specified. Further, the intention is clear that GST is payable only on goods on
which State Vat was not paid. Hence, in my view, payment of such tax is not required.
The FAQ released by Government on 5-7-2017 (answer to Q No. 33) merely state that if there
is Vat credit available with taxable person on 30-6-2017, it will not be allowed to be carried
forward.
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No fresh declaration every year - The registered person paying tax under section 10 may
not file a fresh intimation every year. He may continue to pay tax under the said section
subject to the provisions of the Act and these rules - rule 5(2) of CGST Rules, 2017.
21.3-1 Reverse charge if procurement of supply from unregistered persons upto 13-10-
2017
One drawback of the scheme upto 13-10-2017 was that the registered person was required
to procure supply of goods or services or both from registered persons. Otherwise, he
himself was liable to pay GST at applicable rates [Nil, 5%, 12%, 18%, 28% or 40% as
applicable] under section 9(4) of CGST Act. [Section 9(4) of CGST Act was kept in abeyance
from 13-10-2017 to 30-9-2019. Further, section 9(4) has been modified w.e.f. 1-2-2019.
Hence, this drawback is not applicable].
21.3-2 Tax payable at fixed rate on exempted goods also in case of manufacturer or service
provider
If a taxable person (who is manufacturer or supplier of services) deals in both taxable as well
as exempted service, tax at fixed rate is payable even on supply of exempted goods also.
This condition is not applicable to traders w.e.f. 1-1-2018.
21.4 Bill of Supply to be issued and not tax invoice
A registered person supplying exempted goods or services or both or paying tax under the
provisions of section 10 shall issue, instead of a tax invoice, a bill of supply containing such
particulars and in such manner as may be prescribed - section 31(3)(c) of CGST Act.
Thus, taxable person paying GST under composition scheme should issue Bill of Supply and
not tax invoice.
21.5 Procedure for exercising option to avail composition scheme
Any person who has been granted registration on a provisional basis under rule 24(1) of
CGST Rules [i.e. who was earlier registered under central excise, service tax or Vat and has
migrated to GST] and who opts to pay tax under composition scheme under section 10, shall
electronically file an intimation in form GST CMP-01, duly signed or verified, on the Common
Portal, on or before 16-8-2017, or such further period as may be extended by the
Commissioner [The time limit was 21-7-2017, which has been extended to 16-8-2017, vide
order No. 01/2017-GST dated 21-7-2017].
Where the intimation in form GST CMP-01 is filed after 1-7-2017, the registered person shall
not collect any tax from 1-7-2017 but shall issue bill of supply for supplies made after the
said day - proviso to rule 3(1) of CGST Rules, 2017.
Intimation in form GST REG 1 sufficient for fresh applicants - If a person is applying for fresh
registration, he can indicate the option in the application for registration in Part B of GST
REG 1. Then any further intimation will not be required - rule 3(2) of CGST Rules, 2017.
No fresh declaration every year - The registered person paying tax under section 10 may
not file a fresh intimation every year. He may continue to pay tax under the said section
subject to the provisions of the Act and these rules - rule 5(2) of CGST Rules, 2017.
21.5-1 Submission of stock statement by persons opting for scheme on 1-7-2017
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Any person who files an intimation under rule 3(1) [i.e. from 1-7-2017] to pay tax under
section 10 from 1-7-2017 shall furnish the details of stock, including the inward supply of
goods received from unregistered persons, held by him on the day preceding the date from
which he opts to pay tax under the said section, i.e. on 30-6-2017, electronically, in form GST
CMP-03, on the Common Portal. The statement should be submitted within ninety days i.e.
before 28-9-2017, or within such further period as may be extended by the Commissioner
in this behalf.- rule 4(4) of CGST Rules, 2017.
This time limit for filing CMP-03 has been extended to 31-1-2018 - CBE&C Order No.
11/2017-GST, dated 21-12-2017 [earlier Order No. 05/2017-GST, dated 28-10-2017].
21.5-2 Intimation while applying for registration is sufficient from fresh registrations
Any person who applies for registration under rule Registration may give an option to pay
tax under section 10 in Part B of form GST REG-01, which shall be considered as an intimation
to pay tax under the said section. Then further intimation is not required - rule 3(2) of CGST
Rules, 2017.
21.5-3 Intimation prior to commencement of financial year if person intends to switch to
composition scheme
It is possible that a person who was paying tax under normal scheme may like to switch to
composition scheme. This can be done only at the time of commencement of financial year.
Any registered person who opts to pay tax under section 10 shall electronically file an
intimation in form GST CMP-02, duly signed or verified, on the Common Portal, prior to the
commencement of the financial year for which the option to pay tax under composition
scheme is exercised. He shall furnish the statement in form GST ITC-3 in accordance with the
provisions of rule 44(4) of CGST Rules, within sixty days from the commencement of the
relevant financial year - rule 3(3) of CGST Rules, 2017.
The statement under GST ITC-3 is required as the registered person will have to reverse the
input tax credit of stock with him as on 31st March.
Relaxation in giving intimation for financial year 2020-21, due to COVID-19 (Corona Virus)
for filing CMP-02 and ITC-03 - Any registered person who opts to pay tax under section 10
for the financial year 2020-21 (composition scheme) shall electronically file an intimation in
form GST CMP-02, duly signed or verified through electronic verification code, on the
common portal on or before 30th day of June, 2020. He shall furnish the statement in form
GST ITC-03 in accordance with the provisions rule 44(4) of CGST Rules upto the 31st day of
July, 2020 - proviso to rule 3(3) of CGST Rules, inserted on 3-4-2020 but w.e.f. 31-3-2020.
Relaxation in first year of GST in respect of filing intimation - In the first year of GST, the
taxable person can opt for composition scheme any time upto 31-3-2018 by filing intimation
in form GST-ITC-2 and statement in form GST-ITC-03. However, after filing GSTR-ITC-3, form
GST TRAN-1 cannot be filed - rule 3(3A) of CGST Rules as amended w.e.f. 13-10-2017.
If he opts for composition scheme in middle of a quarter, he should file return in form GSTR-
4 for that period for quarter for which he was paying tax under composition scheme - proviso
to rule 62(1) of CGST Rules inserted w.e.f. 13-10-2017.
21.5-4 Transition to composition scheme w.e.f. 1-10-2017 and upto 31-3-2018
 373

Many persons could not opt for composition scheme due to problems in GSTN. For them, an
opportunity is being given to shift to composition scheme w.e.f. 1-10-2017 or even upto 31-
3-2018.
Persons who had obtained provisional registration after migration under rule 24 of CGST
Rules or who had obtained fresh registration under rule 8(1) of CGST Rules can apply to shift
to composition scheme by filing intimation under form GST CMP-02. They can file
declaration anytime upto 31-3-2018.
If they had migrated from earlier registration, they should first fill GST TRAN 1 to get
transitory credit as on 1-7-2017.
After that they are required to file statement in form GST ITC-03 as per rule 44(4) of CGST
Rules, within 180 days (enhanced from 90 days). Once they file GST ITC-03, they will not be
allowed to file GST TRAN 1 - Rule 3(3A) of CGST Rules, inserted w.e.f. 15-9-2017 [Time limit
of 90 days was increased to 180 days vide amendment dated 23-1-2018].
21.5-5 Composition Scheme for small service providers having turnover upto Rs. 50 lakhs
A simplified scheme was introduced w.e.f. 1-4-2019 for small service providers (and those
who are supplier of goods as well as services exceeding 10% of turnover within State/UT)
whose aggregate turnover during previous financial year did not exceed Rs. 50 lakhs. The
scheme was introduced vide Notification No. 2/2019-CT(Rate) dated 7-3-2019.
The scheme is not composition scheme as per section 10(1) and 10(2) of CGST Act. The
scheme is introduced under section 9(1) of CGST Act, which empowers Government to
determine GST Rates.
Regular composition scheme is proposed to be introduced for service providers also, vide
section 10(2A) of CGST Act, introduced vide Finance (No. 2) Act, 2019 with effect from 1-1-
2020.
Till the new scheme is implemented, the scheme notified under Notification No. 2/2019-CT
(Rate) dated 7-3-2019 continues.
The amended section effective from 1-1-2020 provides as follows -
Notwithstanding anything to the contrary contained in this Act, but subject to the provisions
of section 9(3) and 9(4) [which provide for reverse charge], a registered person, not eligible
to opt to pay tax under section 10(1) and 10(2) of CGST Act, whose aggregate turnover in
the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the
tax payable by him under section 9(1) of CGST Act, an amount of tax calculated at such rate
as may be prescribed, but not exceeding 3% of the turnover in State or turnover in Union
territory, if he is not--
(a) engaged in making any supply of goods or services which are not leviable to tax under
this Act;
(b) engaged in making any inter-State outward supplies of goods or services;
(c) engaged in making any supply of goods or services through an electronic commerce
operator who is required to collect tax at source under section 52;
 374

(d) a manufacturer of such goods or supplier of such services as may be notified by the
Government on the recommendations of the Council; and
(e) a casual taxable person or a non-resident taxable person.

All registered persons with same PAN should opt for composition scheme - Where more
than one registered person are having the same Permanent Account Number issued under
the Income-tax Act, 1961, the registered person shall not be eligible to opt for the scheme
under section 10(2A) of CGST Act unless all such registered persons opt to pay tax under this
sub-section - proviso to section 10(2A) of CGST Act, introduced vide Finance (No. 2) Act, 2019
with effect from 1-1-2020.
Present simplified scheme for services - Present simplified scheme for services is almost
same as composition scheme. See para 21.13 for details of the simplified scheme for
suppliers of service.
21.6 Effective date for composition levy
The option to pay tax under section 10 shall be effective from the beginning of the financial
year, where the intimation is filed under rule 3(3). It will be appointed date (i.e. 1-7-2017)
where intimation is filed under rule 3(1) i.e. before 30-7-2017 - rule 4(2) of CGST Rules, 2017.
The intimation under rule 3(2) (i.e. while applying for fresh GST Registration) shall be
considered only after grant of registration to the applicant. His option to pay tax under
section 10 shall be effective from the date fixed under rule 10(2) or 10(3) of CGST Rules -
rule 4(2) of CGST Rules, 2017.
Thus, in case of fresh registration, the intimation will be effective from date when he
becomes liable to registration, if application filed within 30 days from the day he becomes
liable to register i.e. retrospective effect.
If application for fresh registration is filed beyond 30 days after he become liable for
registration, the registration will be effective only on the date registration is granted i.e.
prospective.
This is provided in rule 10 of CGST Rules, 2017.
21.7 Validity of composition levy opted by registered person
The option exercised by a registered person to pay tax under section 10 (composition
scheme) shall remain valid so long as he satisfies all the conditions mentioned in the section
and the rules - rule 6(1) of CGST Rules, 2017.
Pay GST in normal scheme from the day the conditions are not satisfied - The person shall
be liable to pay tax under section 9(1) [i.e. normal scheme] from the day he ceases to satisfy
any of the conditions mentioned in section 10 or these rules. From that date, he shall issue
tax invoice for every taxable supply made thereafter. He shall also file an intimation for
withdrawal from the scheme in form GST CMP-04 within seven days of occurrence of such
event - rule 6(2) of CGST Rules, 2017.
21.8 Withdrawal from scheme of composition levy
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The registered person who intends to withdraw from the composition scheme shall, before
the date of such withdrawal, file an application in form GST CMP-04, duly signed or verified,
electronically on the Common Portal - rule 6(3) of CGST Rules, 2017.
21.8-1 Proper Officer can cancel option to registered person
If the proper officer has reasons to believe that (a) the registered person was not eligible to
pay tax under section 10 or (b) has contravened the provisions of the Act or these rules, he
may issue a notice to such person in form GST CMP-05 to show cause within fifteen days of
the receipt of such notice as to why option to pay tax under section 10 should not be denied
- rule 6(4) of CGST Rules, 2017.
The registered person shall reply within prescribed period in form GST CMP-06. Upon receipt
of reply to the show cause notice, the proper officer shall issue an order in form GST CMP-
07 within thirty days of receipt of such reply.
He may either accept the reply or deny the option to pay tax under section 10 [composition
scheme]. Such denial can be from the date of option or from the date of the event
concerning such contravention, as applicable - rule 6(5) of CGST Rules, 2017.
Assistant/Deputy Commissioner/Director of Central Tax has been specified as 'proper
officer' for this purpose - CBE&C circular No. 1/1/2017 dated 26-6-2017.
Such withdrawal can be retrospective but shall not be prior to date of contravention of CGST
Act. In such cases, proceedings for recovery of tax, interest and penalty shall be initiated
under sections 73 and 74 of CGST Act - CBI&C circular No. 77/51/2018-GST dated 31-12-
2018.
21.8-2 Penalty if tax paid under composition scheme though not eligible
If a taxable person pays tax under section 10(1) or 10(2A) of CGST Act (composition scheme),
though not eligible, proper officer can issue notice to him demanding tax. In addition,
penalty can be imposed as per provisions of sections 73 and 74 of CGST and SGST Act -
section 10(5) of CGST Act, amended vide Finance (No. 2) Act, 2019 with effect from 1-1-2020
Assistant/Deputy Commissioner/Director of Central Tax has been specified as 'proper
officer' for this purpose - CBE&C circular No. 1/1/2017 dated 26-6-2017.
21.9 Switching from composition scheme to normal scheme of payment of tax
Section 18(1)(c) of CGST Act states that if taxable person switches over from composition
scheme to normal scheme, he is entitled to take credit of input tax in respect of inputs held
in stock, inputs contained in semi-finished or finished goods held in stock and on capital
goods on the day immediately preceding the date from which he becomes liable to pay tax
under section 9 of CGST Act.
Following persons will shift from composition scheme to normal scheme - (a) who has
furnished an intimation under rule 6(2) or (b) filed an application for withdrawal under rule
6(3) or (c) a person in respect of whom an order of withdrawal of option has been passed in
form GST CMP-07 under rule 6(5) rule of CGST Rules, 2017.
The applicant should indicate the date from which he intends to withdraw from the scheme
- CBI&C circular No. 77/51/2018-GST dated 31-12-2018.
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A person switching to normal scheme will have to file a statement in form GST ITC-01,
containing details of the stock of inputs and inputs contained in semi-finished or finished
goods held in stock by him on the date on which the option is withdrawn or denied. The
statement should be filed within 30 days from the date from which the option is withdrawn
or from the date of order passed in form GST CMP-07, as applicable - rule 6(6) of CGST Rules,
2017.
Relaxation in filing ITC-01 for period July to November 2017 - Though taxable persons who
have become eligible to file declaration under composition scheme during July 2017 to
November 2017 can file declaration in form ITC-01 that they are eligible to avail ITC under
section 18(1) of CGST Act, before 31-1-2018 - Notification No. 67/2017-CT, dated 21-12-
2017.
Time limit for filing GST ITC 01 by persons opting out of composition scheme in March 2018
extended to 3-10-2018 - Rule 40(1)(b) of the CGST Rules, 2017 provides for making
declaration in form GST ITC-01 when a person switches over from composition scheme to
normal scheme of payment of taxes.
The time limit for making the declaration in form GST ITC-01 as per rule 40(1)(b) of CGST
Rules, by registered persons who have filed the application in form GST-CMP-04 of the said
rules between the 2nd day of March, 2018 and the 31st day of March, 2018 has been
extended upto 3-10-2018 - - Notification No. 42/2018-CT dated 4-9-2018.
Withdrawal means withdrawal from all places of business of the registered person -
Withdrawal under any of aforesaid provisions in respect of any place of business in any State
or Union territory, shall be deemed to be withdrawal in respect of all other places of business
registered on the same PAN - rule 6(7) of CGST Rules, 2017.
21.10 Switch over from normal scheme to composition scheme and vice versa
Switch over from normal scheme to composition scheme is permissible and specific
provisions have been made in CGST Act for this purpose.
Section 18(4) of CGST Act states that if any registered person who has availed of input tax
credit opts to pay tax under section 10 of CGST Act (normal scheme) he shall pay an amount
equivalent to the credit of input tax in respect of inputs held in stock and inputs contained
in semi-finished or finished goods held in stock, on the day immediately preceding the date
of exercising of such option, He shall also pay amount on capital goods, reduced by
prescribed percentage points. He should pay the amount, by way of debit in the electronic
credit ledger or electronic cash ledger.
The mode of calculation has been specified in rule 44 of CGST and SGST Rules, 2017.
If the taxable person switches from normal scheme to composition scheme at the beginning
of financial year and if he was paying tax under normal scheme upto 31st March, he will have
to file details of outward and inward supplies upto return of following September or
furnishing of Annual return, whichever is earlier - Rule 62(4) of CGST and SGST Rules, 2017.
However, he will not be eligible to take Input Tax Credit of invoices or debit notes from
supplier prior to his opting for composition scheme or opting to pay tax on services under
Notification No. 2/2019-CT (Rate) dated 7-3-2019 - Explanation to Rule 62(4) of CGST and
SGST Rules, 2017 amended on 7-3-2019.
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21.11 Annual return GSTR-4 and quarterly payment of tax by taxable person paying tax
under composition scheme
A registered person paying tax under the provisions of section 10 of CGST Act [composition
scheme], shall, for each financial year or part thereof, furnish a return, electronically, of
turnover in the State or Union territory, inward supplies of goods or services or both, tax
payable, tax paid and such other particulars in such form and manner, and within such time,
as may be prescribed. - section 39(2) of CGST Act, 2017 as substituted w.e.f. 1-1-2021.
Nil return is required even if there is no transaction in a financial year.
Commissioner can extend date of filing return by issuing notification - section 39(6) of CGST
Act.
Registered persons availing composition scheme do not have to file monthly returns of
receipt and supplies of goods/services under sections 37 and 38 of CGST Act.
The taxable person paying GST under composition scheme was required to file quarterly
return, within 18 days after end of each quarter upto FY 2018-19 - section 39(2) of CGST Act.
21.11-1 Payment of taxes by registered person under composition scheme under form GST
CMP-08
Registered person under composition scheme is required to pay tax quarterly and file return
annually. While paying quarterly tax, a statement in form GST CMP-08 is required to be
submitted.
Every registered person furnishing return under section 39(2) of CGST Act [composition
scheme] shall pay to the Government, the tax due taking into account turnover in the State
or Union territory, inward supplies of goods or services or both, tax payable, and such other
particulars during a quarter, in such form and manner, and within such time, as may be
prescribed - second proviso to section 39(7) of CGST Act, 2017 as substituted w.e.f. 1-1-2021.
Every registered person paying tax under section 10 of CGST Act (composition scheme) shall
furnish a statement, every quarter or, as the case may be, part thereof, containing the details
of payment of self-assessed tax in form GST CMP-08, till the 18 day of the month succeeding
such quarter - Rule 62(1)(i) of CGST Rules, amended w.e.f. 1-1-2021.
Every registered person furnishing the statement under rule 62(1) shall discharge his liability
towards tax or interest payable under the Act or the provisions of this Chapter by debiting
the electronic cash ledger - Rule 62(2) of CGST Rules amended w.e.f. 1-1-2021.
Thus, tax is required to be paid in cash and not by utilisation of Input Tax Credit.
GST CMP-08 can be filed through SMS - rule 67A amended w.e.f. 15-10-2020.
21.11-2 Annual Return GSTR-4 under Composition Scheme
Every registered person paying tax under section 10 of CGST Act (composition scheme) shall
furnish a return for every financial year or, as the case may be, part thereof in form GSTR-4,
till the thirtieth day of April following the end of such financial year, electronically through
the common portal, either directly or through a Facilitation Centre notified by the
Commissioner - Rule 62(1)(ii) of CGST Rules amended w.e.f. 1-1-2021.
The return furnished under rule 62(1) shall include the- (a) invoice-wise inter-State and intra-
State inward supplies received from registered and unregistered persons; and (b)
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consolidated details of outward supplies made - Rule 62(3) of CGST Rules amended w.e.f. 1-
1-2021.
Details of inward supplies are not to be furnished in GSTR-4 - Taxable persons under
composition scheme are not required to furnish details of inward supplies in Sr. No. 4A of
table 4 of form GSTR-4 - CBI&C press release No. 61/2018 dated 17-10-2018.
21.11-3 Registered person shifting from normal scheme to composition scheme at
beginning of financial year
A registered person who has opted to pay tax under section 10 of CGST Act (composition
scheme) from the beginning of a financial year shall, where required, furnish the details of
outward and inward supplies and return under rules 59, 60 and 61 relating to the period
during which the person was liable to furnish such details and returns till the due date of
furnishing the return for the month of September of the succeeding financial year or
furnishing of annual return of the preceding financial year, whichever is earlier - Rule 62(4)
of CGST Rules amended w.e.f. 1-1-2021.
For the purposes of rule 62(4), it is hereby declared that the person shall not be eligible to
avail input tax credit on receipt of invoices or debit notes from the supplier for the period
prior to his opting for the composition scheme - Explanation to Rule 62(1) of CGST Rules
amended w.e.f. 1-1-2021.
21.11-4 Switching from composition scheme to normal scheme
A registered person opting to withdraw from the composition scheme at his own motion or
where option is withdrawn at the instance of the proper officer shall, where required,
furnish a statement in form GST CMP-08 for the period for which he has paid tax under the
composition scheme till the 18th day of the month succeeding the quarter in which the date
of withdrawal falls and furnish a return in form GSTR-4 for the said period till the thirtieth
day of April following the end of the financial year during which such withdrawal falls - Rule
62(5) of CGST Rules amended w.e.f. 1-1-2021
Annual return not required for 2017-18 and 2018-19 - A person paying tax under section
10 of CGST Act (composition scheme) was required to file the annual return in form GSTR-
9A - proviso to rule 80(1) of CGST and SGST Rules, 2017. However, this requirement has been
waived for FY 2017-18 and 2018-19 as per recommendation of GST Council in its meeting at
Goa on 20-9-2019 [hopefully this return will be eliminated permanently as the GSTR-4 return
itself is yearly return].
21.12 Disadvantages of composition scheme
The composition scheme is simple. Small taxable persons are not required to maintain
elaborate records of receipt of supplies of goods and services. This results in cost saving to
them.
For GST department also, assessment is easy. However, the taxable person under
composition scheme cannot avail any input tax credit. He cannot charge GST in his invoice.
Hence, customer of such taxable person cannot avail the input tax credit. Thus, the Vat chain
is lost and input credit is lost.
 379

Hence, the scheme is mainly useful to taxable persons who are making direct supplies to
consumers who cannot avail any input credit, or to those cannot maintain detailed records
required for input tax credit purposes.
21.13 Simplified Scheme for small service providers and those who are supplier of goods
as well as services
A simplified scheme has been introduced w.e.f. 1-4-2019 for small service providers (and
those who are supplier of goods as well as services) whose aggregate turnover during
previous financial year did not exceed Rs. 50 lakhs. The scheme has been introduced vide
Notification No. 2/2019-CT(Rate) dated 7-3-2019.
This scheme is not 'composition scheme' as envisaged under section 10 of CGST Act. This
scheme is also not 'exemption from tax' as envisaged under section 11 of CGST Act.
The GST rates under this scheme are notified under section 9(1) of CGST Act, which
empowers Central Government (and State Government under SGST Act of each State) to
notify GST Rates.
However, effect of the simplified scheme is similar to composition scheme. In fact, para 3(iii)
of Notification No. 02/2019-CT (Rate) dated 7-3-2019 specifically provides that CGST Rules,
as applicable to person paying tax under section 10 of CGST Act (composition scheme) shall
apply to pay person paying tax under this simplified scheme.
This route was followed as section 10 of CGST Act did not provide for composition scheme
for suppliers of service. Now, section 10 of CGST Act has been amended vide Finance (No. 2)
Act, 2019, w.e.f. 1-1-2020. The regular composition scheme will be extended to suppliers of
services w.e.f. 1-4-2021.
The taxable person opting for this scheme is required to pay CGST @ 3% plus SGST/UTGST
@ 3% on first supplies of goods or services upto Rs. fifty lakhs, made on or after 1-4-2019.
The conditions are as follows -
The aggregate turnover in previous financial year should not exceed Rs. 50 lakhs.
The registered person should not be eligible for composition scheme under section
10(1) of CGST Act.
He should not be engaged in making any supply which is not leviable to tax under
CGST Act (petroleum products).

He should not be engaged in making inter-state supplies.

He is neither a casual taxable person nor a non-resident taxable person.
He should not be making supplies through e-commerce operator who is required to
collect tax at source under section 52 of CGST Act.
He should not be engaged in supply of ice cream, pan masala and tobacco products.
The turnover of 50 lakhs will be of all taxable persons having same Income Tax PAN.
He should not collect GST from customers.
 380

He shall issue Bill of Supply (and not tax invoice), as provision of section 31(3)(c) of
CGST Act have been made applicable to taxable persons paying GST on services under
simplified scheme - Removal of Difficulty Order No. 3/2019-CT dated 8-3-2019 [Thus,
small taxable persons paying GST @ 6% on services shall issue 'Bill of Supply' and not
'tax invoice'].

At top of Bill of Supply, following shall be mentioned - 'Taxable person paying tax in
terms of Notification No. 2/2019-CT (Rate) dated 7-3-2019, not eligible to collect tax
on supplies'. [add also State notification].

In case of inward supplies where reverse charge is applicable under section 9(3) or
9(4) of CGST Act, he should pay 3% CGST plus 3% SGST/UTGST.

If taxable person who has availed ITC intends to switch over to the simplified scheme
of tax, he is required to reverse ITC in respect of inputs held in stock, inputs contained
in semi-finished goods held in stock and on capital goods, as if supply is made attracts
provisions of section 18(4) of CGST Act and Rules made thereunder. Thus, person
who intends to shift to the new simplified scheme w.e.f. 1-4-2019 is required to pay
an amount equal to ITC on stocks of inputs, WIP and capital goods in stock as on 31-
3-2019. After payment of such amount, if there is balance of ITC in electronic credit
ledger, it will lapse.
CGST Rules, as applicable to person paying tax under section 10 of CGST Act
(composition scheme) shall apply to pay person paying tax under this simplified
scheme.
In case of persons commencing fresh supply in financial year, they will be eligible for
exemption upto first 40/20 lakhs. After that, they will be liable to pay tax @ 3% CGST
plus 3% SGST/UTGST on subsequent supplied [but not earlier supplies where they
were not registered].

The taxable person paying tax under the scheme is required to file quarterly
statement of payment of tax in form GST CMP-08 within 18 days from end of quarter.
He is also required to file annual return in form GSTR-04 within 30 days from close of
financial year - rule 62(1) of CGST Rules amended w.e.f. 23-4-2019 and Notification
No. 21/2019-CT dated 23-4-2019.
Some registered persons who were under composition scheme filed returns in form
GSTR-3B during 2019-20, instead of in form GST CMP-08. They are not required to
file statement of outward supply in GSTR-1 for tax period 2019-20. They are also not
required to file GST CMP-08 for tax period 2019-20 - proviso to para 2 of Notification
No. 21/2019-CT dated 23-4-2019 inserted w.e.f. 21-3-2020.
If a person ceases to avail benefit of Notification No. 2/2019-CT(R) dated 7-3-2019,
the taxable person has to submit statement of tax paid in GST CMP-08 within 18 days
after end of quarter. He is also required to file return in form GSTR-04 within 30 days
from end of financial year - rule 62(6) of CGST Rules inserted w.e.f. 23-4-2019.
 381

Annual return in form GSTR-9A is required [This requirement has been waived for
2017-18 and 2018-19].

Procedure to be followed and option to be indicated- The procedure to be followed has

been clarified in CBI&C circular No. 97/16/2019-GST dated 5-4-2019. The person already
registered should file option to avail new scheme in form GST CMP-02 by 30-9-2019
(corrected from 30-4-2019 vide corrigendum dated 1-7-2019 and dated 29-7-2019), by
selecting category 'Any other supplier eligible for composition levy'. He should furnish a
statement in form GST ITC-03. Any person applying for fresh registration in form GST REG-
01 should indicate option at Sr. Nos. 5 and 6.1(iii). Option will be available from beginning of
financial year or date of registration. Provisions in CGST Rules applicable to composition
scheme apply mutatis mutandis to the scheme for services also.
21.14 General Principles applicable to composition schemes
In State of Kerala v. Builders Association of India 104 STC 134 = AIR 1997 SC 3640 = (1997) 2
SCC 183 = 1997 AIR SCW 977, it was held that Government can evolve a convenient, hassle-
free and simple method, which is 'rough and ready method', at the option of assessee
(termed as 'taxable person' under GST). It was held that legislature can evolve such
alternate, simplified and hassle-free methods of assessment, making it optional to assessee
(termed as 'taxable person' under GST). -. - In the field of taxation, legislation must be
allowed greater 'play in joints'. Allowance must be made for 'trial and error' by the
legislature. - - - Contractor who has opted to the alternate method of taxation cannot
complain. Having voluntarily, and with the full knowledge of the alternate method of
taxation, opted to be governed by it, a contractor cannot be heard to question the validity
of relevant sub-sections or the rules - followed in Mycon Construction Ltd. v. State of
Karnataka 2002 AIR SCW 2156 = 127 STC 105 (SC) * Karnataka State Construction
Corporation v. State of Karnataka (2004) 138 STC 75 (Kar HC DB) - same view in Punjab
Bearings Industries v. UOI 2006 (203) ELT 187 (P&H HC DB) * T Shivkumar v. CCT (2010) 31
VST 261 (Karn HC DB).
Once a dealer (termed as 'taxable person' under GST) opts for composition of tax, he is not
entitled to claim any other exemption - T H Venkate Gowda v. CCT (2007) 5 VST 553 (Karn
HC DB) * Bhadauria Gram Sewa Sansthan v. ACST (2006) 148 STC 356 (All HC FB) * DCCT v.
B V Subba Reddy (2010) 31 VST 530 (Karn HC DB).
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Construction and Works Contract Services

22.1 Tax on construction activity
Service Accounting Code Heading for services is 9954. Services covered under this heading
are construction of building (99541), general construction of civil engineering works (99542),
Site preparation services (99543), assembly and erection of pre-fabricated construction
(99544), Special trade construction services (99545), Installation Service (99546) and
Building completion and finishing services (99547).
Though Service Accounting Code is 9954 - Construction Services, practically, these services
come under umbrella of 'works contract service'. In fact, GST Act defines 'works contract'
but does not define 'construction service'. Hence, it is necessary to understand what is
'works contract'.
22.2 Works Contract service
Works Contract Service is a specie of construction service. However, this activity has special
relevance as it was defined as 'deemed sale' in Constitution of India. Since then, works
contract has been a very litigation prone issue. Later, after introduction of service tax on
services, complexities of 'works contract' increased as issue of valuation, TDS and reverse
charge made this issue complex.
After introduction of GST and abolition of distinction between goods and services, really the
concept of 'works contract' has become redundant. However, this term is continuing in GST
also.
22.2-1 What is 'works contract'
"Works contract" means a contract for building, construction, fabrication, completion,
erection, installation, fitting out, improvement, modification, repair, maintenance,
renovation, alteration or commissioning of any immovable property wherein transfer of
property in goods (whether as goods or in some other form) is involved in the execution of
such contract- section 2(119) of CGST Act.
Works contract as defined in section 2(119) of CGST Act is 'supply of service' - para 6(a) of
Schedule II of CGST Act.
A tax on the transfer of property in goods (whether as goods or in some other form) involved
in the execution of a works contract is deemed sale of goods under Article 366(29A) of
Constitution of India. [As inserted by 46th Amendment to Constitution in 1982]. Note that
this Article in the Constitution of India is continuing even after Constitutional amendment.
Thus, the Constitution states that 'works contract' is deemed sale of goods, while GST Law
states that it is 'supply of service'.
[In any case, GST is payable, but issues relating to rate, place of supply or time of provision
of service can arise]
22.2-2 What is 'works contract'
Works contract is essentially and inherently a contract of service, irrespective of legal fiction
created by Article 366(29A) of Constitution of India - Larsen and Toubro Ltd. v. CST (2015)
318 ELT 633 (CESTAT LB 3 v. 2 decision)
 383

Basically, works contract is a contract for work, where supply of material is incidental to the
contract for work.
When you purchase a flat for residential purpose, you proudly inform your relatives and
friends that you have purchased a flat. You never say that you have purchased steel, cement,
bricks, tiles or bathroom fittings [though you become owner of all those goods]. This is
because your intention was never to purchase those goods as 'goods' ['chattel' as 'chattel'].
When you take Xerox copy of your document from the vendor, you do not 'purchase' paper.
When you take your photograph from photographer, you do not purchase the photographic
paper, as that was not intention at all. If you give cloth to the tailor for stitching shirt or pant
for you, the tailor uses some of his own material (like buttons, some inner cloth for pockets,
thread etc.) while stitching your shirt or pant. Ownership of that material passes on to you
though it cannot be said that your intention was to purchase those buttons, cloth or thread.
While repairing a machine, the mechanic may use some parts.
These are examples of 'works contract'.
Contract of building is one, entire and indivisible. There is no sale of movables (building
materials) and hence in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. 9 STC 353
= AIR 1958 SC 560 = 1959 SCR 379, it was held that the contract for building is not a contract
for 'sale of goods'.
In Gannon Dunkerley and Co. v. State of Rajasthan 66 Taxman 229 = 1993 AIR SCW 2621 =
(1993) 1 SCC 364 = 88 STC 204 (SC - 5 member Constitution Bench), it was held that taxable
event in works contract is the transfer of property in goods involved in execution of a works
contract.
In works contract, property in goods should pass on the principle of accretion, accession or
blending when the works contract is getting executed. If property in goods pass after
execution of works contract, it is 'sale' and not 'transfer of property in goods involved in
execution of works contract'.
Accretion - movable goods are imbedded in immovable property (e.g. construction contract)
Accession - Movable goods attached to movable property (e.g. spare parts fixed in car or
machinery)
Blending - Movable goods mixing with goods of contractee (e.g. printing, dyeing work).
If property in goods pass after execution of works contract, or as 'goods' as 'goods' (chattel
as chattel), it is 'supply of goods' and not 'transfer of property in goods involved in execution
of works contract'.
22.2-3 Distinction between contract of supply of goods and a 'works contract'
Some contracts are for contracts for labour, work or service and not for sale of goods, though
goods are used in executing the contract for labour, work or service e.g. when a contractor
constructs a building, the buyer pays for cost of building which includes cost of building
material, labour and other services offered by the Contractor. Property in building is passed
on to buyer and there is no contract for supply of building material as such.
An air conditioner manufacturer may undertake a 'works contract' for designing, fitting and
commissioning of air conditioning equipment. This is contract for sale of labour and material
 384

and not contract of sale. Property in air conditioning equipment passes as an incidental to
the works contract. Here, there is no sale of 'goods'. It is a 'works contract' and not liable to
CST - State of Madras v. Voltas Ltd. (1963) 14 STC 446 and 861 (Mad HC) - also indirectly
approved in Batliboi v. STO (2000) 119 STC 583 (Guj HC DB).
Laying of pipeline is yet another example of works contract, where passing of property in
the pipe is incidental to works contract.
Contract on turnkey basis for laying of Pipes is a works contract - National Organic Chemicals
Industries Ltd. v. State of Maharashtra (2012) 54 VST 271 (Bom HC DB).
It is difficult to establish whether a particular contract is 'contract for work' or 'contract of
sale' and rigid and inflexible fast tests cannot be laid down. It depends on main object of the
parties, circumstances and custom of trade. Generally, a contract of sale is a contract whose
main object is the transfer of the property in, and delivery and possession of, a chattel as a
chattel to the buyer. Where the main object of work undertaken by the payee of the price is
not the transfer of a chattel qua chattel, the contract is one for labour and work. The aspects
like ownership of material, value of skill and labour compared to value of material can be
considered, but these are not conclusive. - Halsbury's Laws of England - quoted with
approval in State of Gujarat v. Variety Body Builders - AIR 1976 SC 2108 = (1976) 38 STC 176
(SC). - same view in State of Himachal Pradesh v. Associated Hotels - (1972) 29 STC 474 (SC)
= AIR 1972 SC 1131 = 1972(2) SCR 937 = (1972) 1 SCC 472 * Hindustan Aeronautics Ltd. v.
State of Karnataka - 55 STC 314 = (1984) 1 SCC 706 = AIR 1984 SC 744 (SC 3 member bench)
* Ram Singh v. CST AIR 1979 SC 545 = 43 STC 195 (SC).
In Bharat Sanchar Nigam Ltd. v. UOI (2006) 3 SCC 1 = 152 Taxman 135 = 3 STT 245 = 3 VST
95 = 145 STC 91 = 282 ITR 273 = AIR 2006 SC 1383 (SC 3 member bench), it was held that a
contract has to be characterized according to dominant nature (i.e. whether sale or service).
The whole contract must be treated as a sale where the dominant intention of the contract
is a sale even if some incidental or ancillary services were provided and vice versa. However,
dominant nature test would be irrelevant in case of deemed sale of goods under works
contract [Though dominant nature is not relevant, the fact remains that contract has to be
a works contract i.e. contract for work].
In Vanguard Rolling Shutters v. CST - (1977) 39 STC 372 (SC) = AIR 1977 SC 1505, it was
observed that it is difficult to lay down any rule of universal application to decide whether a
contract is a works contract or contract for sale of goods. If the contract is primarily for
supply of materials at prices agreed and the work or service is incidental to the execution of
contract, it will be contract for sale. On the other hand, where contract is primarily a contract
of work and labour and materials are supplied in execution of such contract, it is a works
contract.
In Hindustan Aeronautics Ltd. v. State of Orissa 55 STC 327 (SC) = (1984) 1 SCC 706 = AIR
1984 SC 744 (SC 3 members), HAL imported materials and components on behalf of
Government of India and manufactured aircrafts on behalf of Government of India. The
goods belonged to Government of India but were entrusted to HAL for manufacture of
aircraft to be delivered to Air Force. It was held that it is a works contract. It was observed
that in contract for work, person producing has no 'property' in the thing produced as a
whole, even if part or even whole of material used by him may have been his property. In
 385

contract of sale, the thing produced as a whole has individual existence as sole property of
the party who produces it sometime before delivery and the property therein passes only
under the contract relating thereto to the other party for a price.
Erection of towers and testing and commissioning of transmission lines and setting up sub-
station is a works contract - EMC Ltd. In re (2018) 67 GST 580 = 93 taxmann.com 200 (AAR -
West Bengal).
In Skipper Ltd., In re [2018] 100 taxmann.com 90 (AAR-West Bengal), it was held that
contract for manufacture, supply, erection and commissioning of transmission towers is
works contract. It cannot be split into contract of supply of material, transportation,
insurance and supply of services [The applicant was trying to split the contract to claim
exemption from goods transport charges].
In Eiffel Hills & Dales Developers (P.) Ltd., In re [2018] 100 taxmann.com 314 (AAR -
Maharashtra) also, it was held that when all activities to be undertaken by applicant
pursuant to agreement are integral parts of performance of contractual obligation by
applicant, the Acts to be undertaken by applicant cannot be divided into two parts, namely
supply of goods and services which are in fact inseparable - same view in Skilltech Engineers
& Contractors (P.) Ltd., In re [2018] 94 taxmann.com 20 = 69 GST 59 (AAR - Karnataka) * EMC
Ltd. In re (2018) 67 GST 580 = 93 taxmann.com 200 (AAR - West Bengal) * IAC Electricals (P.)
Ltd., In re [2018] 93 taxmann.com 476 = 68 GST 392 (AAR-West Bengal).
Erection of towers - Erection of towers and testing and commissioning of transmission lines
and setting up sub-station is a works contract - EMC Ltd. In re (2018) 67 GST 580 = 93
taxmann.com 200 (AAR - West Bengal).
In Skipper Ltd., In re [2018] 71 GST 430 = 100 taxmann.com 90 (AAR-WEST BENGAL), it was
held that contract for manufacture, supply, erection and commissioning of transmission
towers is works contract. It cannot be split into contract of supply of material,
transportation, insurance and supply of services [The applicant was trying to split the
contract to claim exemption from goods transport charges].
Erection, fitting and commissioning of data center - Erection, fitting and commissioning of
data center is works contract and taxable @ 18% - Hewlett Packard Enterprise India P Ltd
(2020) 77 GST 453 = 111 taxmann.com 456 (AAR-Karn).
CCTV based surveillance project - Comprehensive CCTV based City Surveillance Project is a
composite supply of works contract - Allied Digital Services Ltd. In re (2019) 72 GST 755 =
103 taxmann.com 123 (AAR-Maharashtra).
Turnkey project of wind tunnel for Vikram Sarabhai Space Centre - Turnkey project of wind
tunnel for Vikram Sarabhai Space Centre is works contract. It is eligible for concessional rate
of 12% under Sl No. 3(vi) of notification No. 8/2017-CT (Rate) dated 28-6-2017 [as service is
provided to Central Government] - Tata Projects Ltd. In re (2020) 77 GST 504 = 110
taxmann.com 512 (AAR-Ker).
22.2-4 No transfer of property in goods if material gets exhausted/evaporated in execution
of works contract
In Shekhawat Explosives v. State of Rajasthan (2004) 137 STC 326 (Raj HC DB), the dealer
had undertaken job of blasting, for which he was using explosives. The explosives got
 386

exhausted in the process of execution of works contract. It was held that there is no sale of
explosives and sales tax cannot be levied on explosives used in works contract.
In Micro control Sterilisation Services v. State of Kerala (2009) 26 VST 213 (Ker HC DB), the
assessee was sterilising goods by exposure to ethylene oxide in packaged form and then the
gas was released after neutralising. It was held that sales tax is only on value of goods that
get transferred from contractor is execution of works contract. Consumables are used up in
the process of executing the work. They get used up and there is no transfer of such goods
to the customer. Value of such consumables is not taxable under sales tax provisions.
22.2-5 Dominant nature not relevant?
In some decisions, it was held that dominant nature of contract is not relevant.
However, under GST, though works contract has been specifically defined as 'supply of
service', that is a 'deeming provision' for limited purposes to determine taxability of supply.
In my view, the principles of 'composite supply' and 'mixed supply' are relevant to determine
whether works contract is supply of goods or supply of services.
In Bharat Heavy Electricals Ltd. v. State of Maharashtra (2018) 65 GST 343 = 89 taxmann.com
207 (Bom HC DB), the contract was essentially a contract for supply of equipment involving
small amount of work. It was held that this is not works contract, but sale of material liable
to sales tax.
In following decisions, it was held that dominant nature of contract is not relevant.
However, under GST, it has been specifically defined as 'supply of service'. Hence, validity of
following decisions is doubtful under GST.
In Associated Cement Companies Ltd. v. CC 124 STC 59 = (2001) 4 SCC 593 = AIR 2001 SC 862
= 2001 AIR SCW 559 (SC 3 member bench), it was held that even if the dominant intention
of the contract is rendering of service, it will amount to a works contract. After forty-sixth
amendment to Constitution, the State would now be empowered to levy sales tax on
material used in such contract.
The aforesaid view has been confirmed in Bharat Sanchar Nigam Ltd. v. UOI (2006) 3 SCC 1
= 152 Taxman 135 = 3 STT 245 = 145 STC 91 = 282 ITR 273 = 3 VST 95 = AIR 2006 SC 1383 =
2 STR 161 (SC 3 member bench), where it has been clearly held that after forty-sixth
amendment, sale element of contracts covered under six sub-clauses of Article 366(29A) are
separable and may be subjected to sales tax by the States. There is no question of the
dominant nature test applying.
Dominant nature test is not relevant for 'works contract'. Even of dominant intention of
contract is not to transfer the property in goods and rather it is rendering of service, then
also sales tax can be imposed on material used in such contract if such contract otherwise
has elements of works contract [para 101(vi)] (i.e. even if minor material is transferred, it
can be works contract - Larsen and Toubro v. State of Karnataka (2014) 1 SCC 708 = 41 STT
113 = 38 taxmann.com 98 = 303 ELT 3 (SC 3 member bench) - view confirmed in Kone
Elevator India P Ltd. v. State of Tamil Nadu (2014) 7 SCC 1 = 45 GST 494 = 45 taxmann.com
150 = 304 ELT 161 = 71 VST 1 (SC 5 member constitution bench) * State of Karnataka v. PRO
Lab (2015) 8 SCC 557 = 49 GST 635 = 53 taxmann.com 530 = 78 VST 451 = 321 ELT 366 (SC 3
member bench).
 387

22.2-6 There is no supply when hospital uses some goods during operation
In International Hospital P Ltd. v. State of Uttar Pradesh (2014) 47 GST 335 = 48 taxmann.com
159 = 71 VST 139 (All HC DB), hospital was using stents and valves during heart operation.
The amount for such stent and valve was shown separately in invoice, It was held that it is
intrinsic and integral element in performance of heart procedure. It is not 'works contract'.
The substance of contract is not contract for sale of stent or valve.
However, if hospital sales medicines, sales tax will be payable - reported in Sanjos Parish
Hospital v. CTO (2012) 55 VST 208 (Ker HC) and Malankara Orthodox Syrian Church v. STO
(2014) 135 STC 224 (Ker HC).
In exactly contrary decision, in MIOT Hospitals Ltd. v. State of Tamil Nadu [2020] 117
taxmann.com 46 (Madras HC), it was held that fitting out or implanting prosthetics such as
stents, valves, etc. into body of patients and taking x-ray, scan, MRI/CT Scan while treating
in house patients, being 'works contract', private hospitals are liable to tax; however, no tax
can be demanded on value of medicines dispensed.
22.2-7 Plant & machinery assembled at site is works contract and hence 'supply of service'
Plant and Machinery or structure assembled and erected at site is 'works contract'.
The word 'goods' applies to those which can be brought to market for being bought and sold,
and it is implied that it applies to such goods as are movable. Goods erected and installed in
the premises and embedded to earth cease to be goods and cannot be held to be excisable
goods. - Quality Steel Tubes (P.) Ltd. v. CCE 75 ELT 17 = (1995) 2 SCC 372 = 1995 AIR SCW 11
- in this case, it was held that tube mill and welding head erected and installed in the
premises and embedded in the earth for manufacture of steel tubes and pipes are not
'goods'.
In Municipal Corporation of Greater Bombay v. Indian Oil Corporation AIR 1991 SC 686 =
1991 Supp (2) SCC 18, it was held that if the chattel is movable to another place in the same
position (condition?), it is movable property. If it has to be dismantled and re-erected at later
place, it is attached to earth and is immovable property - followed in Triveni Engineering v.
CCE 2000 AIR SCW 3144 = 40 RLT 1 = 120 ELT 273 (SC), where it was observed, 'The
marketability test requires that the goods as such should be in a position to be taken to
market and sold. If they have to be separated, the test is not satisfied'.
In Precision Automation and Robotics India Ltd. In re (2018) 69 GST 713 = 97 taxmann.com
319 (AAR-Maharashtra), it has been held that supply and installation of 'car parking system'
qualifies as immovable property and hence is works contract, as the car parking system, once
erected, cannot be removed without dismantling.
22.2-8 Decision of Supreme Court in case of works contract
The large bench of SC, in Larsen and Toubro v. State of Karnataka (2014) 1 SCC 708 = 41 STT
113 = 38 taxmann.com 98 = 303 ELT 3 (SC 3 member bench), has passed important judgment
in respect of works contract.
The summary of main issues decided is as follows -
Indivisible contracts can be segregated into (i) contract for sale of goods involved in
works contract and (ii) for supply of labour and service [para 63 and 101(viii)].
 388

A contract may involve both a contract for work and labour and a contract for sale.
In such composite contract, the distinction between contract for sale of goods and
contract for work (or service) is virtually diminished [para 101(v)]
The term 'Works contract' is broad and includes all obligations and all types of
contracts. Even if some obligations are imposed in addition to supply of goods and
materials and performance of services, such contract is still a 'works contract'.
'Works contract' is a contract for undertaking or bringing into existence some 'works'
[para 76]
Dominant nature test is not relevant for 'works contract'. Even of dominant intention
of contract is not to transfer the property in goods and rather it is rendering of
service, then also sales tax can be imposed on material used in such contract if such
contract otherwise has elements of works contract [para 101(vi)] (i.e. even if minor
material is transferred, it can be works contract.

Development agreements/tripartite agreements between owner of land, developer

and purchaser of flat is a 'works contract. [para 111]

Taxable value is the value of goods at the time of transfer, not the 'cost' to contractor.
'Value' at the time of incorporation of goods in the works is relevant, even though
property in goods passes later. [paras 68 and 101(xi)]

Building contract is a species of works contract [para 101(iv)].

If agreement is entered into after flat or unit is already constructed, then there would
be no 'works contract', as there was no purchaser when the building was under
construction [para 117]
Works contract would be from stage of entering into agreement. The value addition
made to the goods transferred after the agreement is entered into with flat
purchaser can only be made chargeable to tax by State Government [para 115]

22.2-9 Vivisection i.e. splitting of works contract

A works contract can be vivisected i.e. whether it can be treated as a divisible contract.
In Indian Hume Pipe Co. Ltd. v. State of Rajasthan (2017) 63 GST 468 = 84 taxmann.com 274
(SC), the works contract for laying of pipeline was divided in two parts. Assessing Authority
held that this was a divisible contract. This view was upheld by Supreme Court. It was held
that by forty sixth amendment in Constitution, a single and indivisible contract is at par with
a contract containing two separate agreements.
In CCE v. BSBK Pvt. Ltd. (2010) 26 STT 263 (CESTAT 3 member LB) also, it was held that Article
366(29A) of Constitution of India provides for 'deemed sale of goods' which envisages and
allows vivisection of indivisible contracts. Hence, a turnkey contract can be vivisected and
discernible service elements involved therein can be segregated and classifiable as well as
valued for levy of service tax under Finance Act, 1994.
 389

In National Organic Chemicals Industries Ltd. v. State of Maharashtra (2012) 54 VST 271
(Bom HC DB), it was observed as follows - Distinction between a divisible contract and an
indivisible contract came to an end after forty sixth Amendment to Constitution'.
In Builders' Association of India v. UOI - (1989) 2 SCR 320 = 73 STC 370 = (1989) 2 SCC 645 =
AIR 1989 SC 1371 (SC 5 member constitution bench), it has been observed : 'After the 46th
amendment, the works contract which was indivisible one, is by a legal fiction altered into
one for sale of goods and the other for supply of labour and services. After 46th amendment,
it has become possible for States to levy tax on value of goods involved in a works contract
in the same way in which the sales tax was leviable on the price of goods and materials
supplied in a building contract which had been entered into two distinct and separate parts.'
Contrary rulings by AAR
In Skipper Ltd., In re [2018] 100 taxmann.com 90 (AAR - West Bengal), it was held that
contract for manufacture, supply, erection and commissioning of transmission towers is
works contract. It cannot be split into contract of supply of material, transportation,
insurance and supply of services [The applicant was trying to split the contract to claim
exemption from goods transport charges].
In Cable Corporation of India Ltd., In re [2018] 100 taxmann.com 210 (AAR - Maharashtra),
there was contract for supply, laying and terminating of 220 KV under ground cables
package. There were two separate agreements with respect to supply of goods and services,
which included transportation and delivery at site. Both contracts consisted of cross fall
breach provisions. It was held that these are in nature of 'Composite supply of Works
Contract' which is a service and would be taxable @ 18% in terms of Sr. No. 3(11) of
Notification No. 11/2017-CT (Rate), dated 28-6-2017. Supply of transportation services,
rendered by applicant, will not be exempt from levy of GST.
Works contract of solar power system cannot be split into supply of goods and supply of
services - Fermi Solar Farms (P.) Ltd., In re [2018] 97 taxmann.com 425 (AAAR-Maharashtra).
22.2-10 Inter-State Works Contract
In State of Kerala v. Metso Minerals India (P.) Ltd. [2020] 118 taxmann.com 53 (Kerala HC
DB), assessee entered into a contract with a company named KMC for delivery and erection
of a Plant at Kerala and entire materials for plant were sourced from out of Kerala. It was
held that the works contract executed by assessee was an inter-State works contract. State
Government cannot levy tax on transfer of goods [relying on Siemens Ltd. v. State of Kerala
(2001) 122 STC 1 (Ker HC DB)].
22.3 Tax Rate of works contract as composite supply
Legislature can prescribe uniform rate of tax for all goods involved in works contract, even
though different rates are prescribed for sale of such goods - State of Karnataka v. Durga
Projects Inc. (2018) 4 SCC 633 (SC 3 member bench).
Sr No. 3(ii) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-
2017, effective from 1-7-2017 prescribes rate of 18% (9% CGST and 9% SGST) or 18% IGST
on composite supply of works contract as defined in section 2(119) of CGST Act.
However, in my view, works contract is a composite supply and rate cannot be 18% in all
cases. Since it is a composite supply, GST rate should depend on the principal supply.
 390

General GST Rate on construction services - The general rate of GST on construction
services other than (i), (ia), (ib), (ic), (id), (ie), (if), (iii), (iv), (v), (va), (vi), (vii), (viii), (ix), (x) and
(xi) of Sr No. 3 is 18% (9% CGST and 9% SGST) or 18% IGST - Sr No. 3(xii) of Notification No.
11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017
amended w.e.f. 1-4-2019.
For the removal of doubt, it is hereby clarified that, supply by way of services specified at
items (i), (ia), (ib), (ic), (id), (ie) and (if) in column (3) shall attract central tax prescribed
against them in column (4) subject to conditions specified against them in column (5) and
shall not be levied at the rate as specified under this entry - Explanation to Sr No 3(xii) of
Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 inserted
w.e.f. 1-4-2019.
Thus, in respect of construction of residential and commercial apartments in REP and RREP,
the specific rates as specified prevail and not the general rate of 18%.
22.3-1 Works Contract is composition supply for rate of tax under GST
Issue of tax rate on works contract has become an intricate issue in GST. The issue has
become complicated as Para 6(a) of Schedule II of CGST Act states that composite supply of
'works contract' shall be treated as 'supply of services'. General rate of GST on composite
supply of works contract services is 18%. If the plant or machinery or equipment or other
material used in execution of works contract carries GST rate of 18%, the question of tax
rate does not arise. However, if the plant or machinery or equipment or other material used
in execution of works contract (where goods is principal supply) has GST rate of less than
18% (Nil, 5%, 12%) or more than 18% (28%), issue of rate of tax on works contract for GST
becomes critical.
In my view, works contract is a composite supply and tax rate will be on basis of principal
supply. [Other view is that works contract has been defined as 'deemed supply of service'
and tax rate should be 18% in all the cases].
Works contract is composite supply and deemed supply of service - Works contract as
defined in section 2(119) of CGST Act is a composite supply and shall be treated as 'supply
of service' - para 6(a) of Schedule II of CGST Act.
Since the provision clearly states that it is 'composite supply', this deeming provision has to
be read with definition of 'composite supply'.
Works Contract is deemed sale of goods as per Constitution - A tax on the transfer of
property in goods (whether as goods or in some other form) involved in the execution of a
works contract is deemed sale of goods under Article 366(29A) of Constitution of India. [Note
that this Article in the Constitution of India is continuing even after Constitutional
amendment].
Works contract is not limited to construction - The term 'works contract' is not limited to
construction services. It covers all activities relating to plant, machinery or equipment which
are immovable.
22.3-2 Is the deeming provision in CGST Act valid?
The Constitution of India states that 'works contract' is deemed sale of goods, while CGST
Act states that it is 'deemed supply of service'.
 391

The deeming provision in GST law is clearly against provision in Constitution. A deeming
provision can be against another law, but can a deeming provision be against Constitutional
provision? Can it be argued that the deeming provision is void?
Why works contract is stated as deemed supply of service? - It is not very clear why the
works contract has been defined as 'deemed supply of service', contrary to provision of
Article 366(29A) of Constitution. It is indeed anybody's guess.
Since goods involved in works contract may fall under different tariff heads, these cannot be
classified in a particular HSN Code. That may be one of the reasons that it is defined as
deemed service. Another possible reason is that definition of 'services' is much wider than
definition of goods and hence it is easier to fit works contract in definition of services.
22.3-3 Absurd results if GST rate is determined treating each works contract as supply of
service
If works contract is treated as supply of services in all cases, strange results will follow.
For example, erection and commissioning of air conditioner is 'works contract'. Tax rate of
an air conditioner is 28%. However, if erection and commissioning is treated as service, the
tax rate on entire works contract (including value of air conditioner) would be 18%.
In fact, in Nikhil Comforts, In re (2019) 75 GST 305 = 107 taxmann.com 233 (AAR-
Maharashtra), it has been held that supply, erection, installation and assembly of air
conditioning plant is a composite supply liable to tax @ 28% (as applicable to air
conditioner), as principal supply is air conditioner. It is not 'works contract' service and hence
not eligible for 18% GST.
In United Engineering Works In re (2019) 75 GST 756 = 108 taxmann.com 104 (AAR-
Karnataka), it was held that supply of submersible pump sets and installation, electrification
and energisation of same to Government bodies is composite supply. Principal supply is
supply of goods. It is not a works contract as not related to immovable property and is not a
works contract.
Though tax rate on agricultural machinery or dairy machinery is 12%, if erected, tax rate on
entire amount would be 18%, if the works contract is treated as supply of service.
Thus, intention of legislation in giving tax relief to certain specified plant, machinery and
equipment and levying higher rate of luxury goods will be lost.
22.3-4 Value of free material supplied by customer is not to be added
The provision of adding value of free supplied material to contractor (service provider) has
been held invalid in Bhayana Builders v. CST (2013) 42 GST 76 = 38 taxmann.com 221
(CESTAT LB). This decision has been upheld in CST v. Bhayana Builders P. Ltd. (2018) 3 SCC
782 = 66 GST 320 = 91 taxmann.com 109 (SC).
Thus, it is now settled that value of free material supplied by customer is not required to be
added for purpose of payment of tax by contractor who is supplier of services.
22.3-5 Works contract service of renewable energy plant and equipment
Renewable energy devises and parts for their manufacture falling under chapter 84, 85 or
94 are subject to GST @ 5% [IGST 5% or CGST 2.5% + SGST/UTGST 2.5%] as per Sr. No. 234
 392

of Schedule I of Notification Nos. 1/2017-CT (Rate) and 1/2017-IT (Rate) both dated 28-7-
2017.
However, if composite contract of supply of goods plus service of construction, installation,
commissioning is executed, it becomes works contract and GST rate becomes 18% on whole
contract. Thus, basic purpose of promoting renewable energy sources gets defeated.
Hence, it is now provided w.e.f. 1-1-2019 that in case of such composite contract, value of
goods will be taken as 70% (attracting 5% GST) and value of services 30% (attracting 18%
GST).
The details are explained below.
Specific provisions have been made w.e.f. 1-1-2019 for GST on service by way of construction
or engineering or installation or other technical services, provided in relation of setting up
of following, —
(a) Bio-gas plant
(b) Solar power based devices
(c) Solar power generating system
(d) Wind mills, Wind Operated Electricity Generator (WOEG)
(e) Waste to energy plants/devices
(f) Ocean waves/tidal waves energy devices/plants.

In aforesaid cases, the IGST rate is 18% [or 9% CGST plus 9% SGST/UTGST] - Sr. No. 38 of
Notification Nos. 11/2017-CT (Rates) and 8/2017-IT (Rates) dated 28-6-2017 inserted w.e.f.
1-1-2019.
As per explanation to this entry, this entry shall be read in conjunction with serial number
234 of Schedule I of the notification No. 1/2017-CT (Rate) as amended w.e.f. 1-1-2019.
As per explanation to Sr. No. 234 of Schedule I of the notification No. 1/2017-CT (Rate) as
amended w.e.f. 1-1-2019, if the aforesaid goods are supplied with other goods and services,
the value of goods will be taken as 70% and value of services will be 30% of gross
consideration charged.
Thus, in case of composite works contract of aforesaid goods and services (i.e. supply of
goods plus construction, engineering or installation or other technical services), the value of
service will be taken as 30% of gross consideration charged.
22.3-6 GST on parts for manufacture of solar based devises including water heaters
CBI&C circular No. 113/32/2019-GST dated 11-10-2019 clarifies as follows -
GST on parts used in manufacture of solar based devises are subject to GST @ 5% under S
No. 234 of Notification No. 1/2017-CT(R) dated 28-6-2017.
Solar water heater and system attracts 5% GST under S No. 232 of Notification No. 1/2017-
CT(R) dated 28-6-2017.
 393

Solar evacuated tubes and other parts of solar water heater and system are also subject to
GST @ 5% under S No. 234 of Notification No. 1/2017-CT(R) dated 28-6-2017 as part of solar
power based devises.
If parts of solar power plant are supplied by sub-contractor on stand alone basis (even
without PV module), GST rate of 5% applies. Simple service contract (without material) will
be subject to GST @ 18% - Solarys Non-Conventional Energy P Ltd. In re (2020) 77 GST 357 =
111 taxmann.com 369 (AAR-Karnataka).
22.3-7 Earlier controversy in case of renewable energy sources, particularly solar plants
Solar water heater system is taxed at 5%, but if it is supplied with erection and
commissioning, and if the supply is treated as service, the tax rate on entire works contract
(including value of solar water heater system) would be 18%, as has been held in Fermi Solar
Farms (P.) Ltd. In re [2018] 67 GST 599 = 93 taxmann.com 96 (AAR- Maharashtra) - confirmed
in Fermi Solar Farms (P.) Ltd., In re [2018] 97 taxmann.com 425 (AAAR - Maharashtra) * Swati
Dubey, In re [2018] 68 GST 689 = 96 taxmann.com 50 (AAR - Madhya Pradesh) * Frizo India
(P) Ltd. In re (2018) 70 GST 587 = 98 taxmann.com 324 (AAR - Rajasthan).
The service would fall under 9954, as held in Frizo India (P) Ltd. In re (2018) 70 GST 587 = 98
taxmann.com 324 (AAR - Rajasthan) and Solairedirect India LLP, In re [2018] 70 GST 824 = 98
taxmann.com 336 (AAR - Rajasthan).
The total activity is 'works contract' even if split into two separate contracts of material and
service - Fermi Solar Farms (P.) Ltd., In re [2018] 97 taxmann.com 425 (AAAR - Maharashtra).
In Giriraj Renewables P Ltd., In re [2018] 69 GST 64 = 94 taxmann.com 286 (AAR - Karnataka),
the major component of solar plant constituting about 70% of entire plant (PV Module) was
supplied by owner and about 30% supply was of applicant. It was held that the supply of
solar power generation system is works contract and not composite supply of solar plant.
Since transaction is works contract and not a composite contract, there is no question of
determining what is principal supply in the transaction. As regards whether rate of 5%
applies, it was stated that no documents were provided and hence this question was not
dealt with [really, except God, no one knows what documents applicant could have
produced but did not produce. In any case, where was the bar in asking applicant for further
details?]
It was also held that sub-contractors are not eligible for any concessional rate as applicable
to solar plant.
In appeal, in Giriraj Renewables P Ltd. In re [2018] 70 GST 246 = 97 taxmann.com 510 (AAAR
- Karnataka), the original order was more or less confirmed. The order was modified as
follows - (a) Supply by owner of PV Module which is major component of solar power plant
(constituting about 70% of value) is not naturally bundled with supply of remaining
components and services of erection and commissioning (b) The PV Module is imported by
owner and supplied to appellant as free supply for use in setting up of solar plant (c) Supply
of remaining components and services of erection, installation and commissioning is a
composite contract.
 394

In case of sub-contractors, supplies made by sub-contractor to appellant are independent

supplies. If such supply is 'part' of solar power generating system, rate applicable will be 5%.
Otherwise, it will be on basis of principal supply.
It was also held that the contract is both works contract and composite supply. However,
since works contract has been defined as 'supply of services', there is no question to go into
issue of principal supply [In other words, the contract is supply of 'services']. As regards
whether rate of 5% applies, it was stated that no documents were provided and hence this
question was not dealt with [In simple terms, rate of 18% applies, though the order of AAAR
does not specifically say so].
Installation of solar water pumping systems is works contract and taxable @ 18% -Tag Solar
System, In re [2018] 97 taxmann.com 455 (AAR - Rajasthan).
Erection, procurement and commissioning contract for 'solar power plant' is a works
contract and attracts 18% IGST (or 9% CGST plus 9% SGST) - RFE Solar P. Ltd. In re (2018) 70
GST 74 = 97 taxmann.com 198 (AAR - Rajasthan) - confirmed in RFE Solar P. Ltd. In re (2019)
74 GST 618 = 103 taxmann.com 226 (AAAR - Rajasthan).
In Dinesh Kumar Agrawal In re [2018] 68 GST 537 = 94 taxmann.com 85 (AAR-AP), it was held
that turnkey EPC (Engineering, Procurement and Construction) Project of supply of solar
power generating system is not 'supply of goods'. It is a service contract with GST rate of
18%. If goods are supplied by one person and services by other person, rate for goods can
be 5% and rate for services 18%. If both goods and services are supplied by same person in
split contract, if such splitting is artificial and colourable devise to avoid legitimate tax, it will
be treated as contract of service i.e. 18%.
22.3-8 What can be done in respect of solar plants supplied during 1-7-2017 to 31-12-2018
On the basis of aforesaid case law, show cause notices are being issued to many taxable
persons. For the past period from 1-7-2017 to 31-12-2018, it can be argued that in case of
works contract, valuation should be on basis of principal supply and contest the issue. Of
course, final result is uncertain.
22.4 Transactions relating to Real Estate
The definition of 'service' is very wide at it covers anything other than 'goods'. Thus,
technically, any transaction in real estate can be subject to GST. However, sale of land and
sale of apartments or buildings or civil structure after completion is neither supply of goods
nor supply of services.
Para 5 of Schedule III of CGST Act states that activity of sale of land and subject to para 5(b)
of Schedule II, sale of buildings is neither supply of goods nor supply of services.
Para 5(b) of Schedule II covers sale of complex (now termed as 'apartment' after 1-4-2019),
building or civil structure or a part thereof, before its completion.
As per Entry No. 49 of List II of Seventh Schedule to Constitution, 'taxes on lands and
buildings' is a State subject.
Though Constitution grants concurrent powers to Union and State to levy GST, these are
subject to recommendation of GST Council. Thus, GST on transactions relating to land and
buildings can be imposed only to the extent recommended by GST Council.
 395

In respect of land and buildings, the CGST Act and SGST Act make some 'deeming provisions'
in Schedule II of CGST Act.
Thus, excluding those 'deemed supply' provisions, GST cannot be imposed on other
transactions relating to land and buildings.
22.4-1 Coverage of Real Estate transactions under GST
As per deeming provisions contained in Schedule II of CGST Act and SGST Act, GST can be
levied on following transactions relating to real estate.
Any lease, tenancy, easement, licence to occupy land [The lease of tenancy of land
can be of any period - even 99 or 999 years].
Any lease or letting out of the building including a commercial, industrial or
residential complex for business or commerce, either wholly or partly [This covers
renting or leasing of building. Even renting of part of residential complex for business
or commerce will be subject to GST].
Renting of immovable property [Since lease of building and land is already covered
in aforesaid clauses, this can cover other immovable property like plant and
machinery].
Construction of a complex, building, civil structure or a part thereof, including a
complex or building intended for sale to a buyer, wholly or partly, except where the
entire consideration has been received after issuance of completion certificate,
where required, by the competent authority or after its first occupation, whichever
is earlier. [This covers sale of apartments before it is occupied.].

Works contract as defined in section 2(119) of CGST Act [The definition covers only
works contracts relating to immovable property]

Matters excluded from definition of supply of goods or services - As per Schedule III of CGST
Act read with section 7(2)(a) of CGST Act, following matters will not be treated as supply of
goods or services - Sale of land and, subject to para 5(b) of Schedule II, sale of building [Para
5(b) of Schedule II covers sale of complex (now termed as 'apartment' after 1-4-2019),
building or civil structure or a part thereof, before its completion]
Thus, sale of apartment, building or civil structure or part thereof, after its completion or
first occupation will not be subject to GST.
22.4-2 No separate tax for supply of land or undivided share of land as part of composite
supply of apartments
When a promoter sales apartment (residential or commercial) to buyer, he also transfers to
him undivided share of land by way of lease or sub-lease, the service falls under heading
9972.
In such cases, the value of service for GST is Nil, if the amount charged for such lease or sub-
lease is one-third of total amount charged for composite supply or less than one-third of
total amount charged. This applies to construction of apartments (residential or commercial)
in real estate Projects (REP) or Residential Real Estate Projects (RREP). The project may be
 396

new after 1-4-2019 or ongoing as on 31-3-2019 -Sr No. 16(ii) of Notification No. 11/2017-CT
(Rates) and 8/2017-IT (Rates) dated 28-6-2017 inserted w.e.f. 25-1-2018 and amended w.e.f.
1-4-2019.
22.4-3 Surrender of tenancy rights
Surrender of tenancy rights is subject to GST. However, surrender of tenancy rights of
residential property is not subject to tax - CBI&C Circular No. 44/18/2018-CGST dated 2-5-
2018 [This issue arises in States where statutory protection is available to tenants].
This is really 'tolerating an act or situation' though CBI&C circular does not specifically say
so.
22.4-4 GST on Real Estate Projects and Development Rights w.e.f. 1-4-2019
Major changes have been made w.e.f. 1-4-2019 in respect of GST on real estate projects,
Transfer of development rights, sale of FSI and long term lease of land for construction of
apartments. These are discussed in subsequent chapters at appropriate places.
22.5 GST on Construction of residential, commercial or industrial complex upto 31-3-2019
Provisions in respect of GST on construction of residential or commercial complex were
contained in Sr No. 3(i) of Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both
dated 28-6-2017 as existing upto 31-3-2019. This Sr No. has been completely altered w.e.f.
1-4-2019.
The tax rate was 12% upto 31-3-2019 assuming the land value as one-third of total amount
charged for supply of such service. Input Tax Credit was available.
The general rate of GST on construction and works contract service was 18% (9% CGST plus
9% SGST) or 18% IGST. However, in case of construction of complex, the builder charges a
amount which is inclusive of land or undivided share of land. In that case, the land value will
be taken as one third (33.33%) of total amount (i.e. value including land value) and GST is
payable on balance amount. Thus, effectively GST rate was 12% (6% CGST plus 6% SGST) or
12% IGST, upto 31-3-2019:
The statutory wording was as follows -
In case of supply of service specified in column (3), in item (i); sub-item (b), sub-item (c), sub-
item (d), sub-item (da) and sub-item (db) of item (iv); sub-item (b), sub-item (c), sub-item (d)
and sub-item (da) of item (v); and sub-item (c) of item (vi), against serial number 3 of the
Table above, involving transfer of land or undivided share of land, as the case may be, the
value of such supply shall be equivalent to the total amount charged for such supply less the
value of transfer of land or undivided share of land, as the case may be, and the value of
such transfer of land or undivided share of land, as the case may be, in such supply shall be
deemed to be one third of the total amount charged for such supply - para 2 of Notification
No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 as existing upto 31-
3-2019.
Total Amount - 'Total amount' means the sum total of,- (a) consideration charged for
aforesaid service (construction of complex) and (b) amount charged for transfer of land or
undivided share of land, as the case may be, including by way of lease or sub-lease -
 397

Explanation to para 2 of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both
dated 28-6-2017, effective from 1-7-2017. Words in italics inserted w.e.f. 25-1-2018.
Provision changed w.e.f. 1-4-2019 - The provisions in respect of GST on construction of
residential or commercial complex have been completely altered w.e.f. 1-4-2019. Even
ongoing projects are expected to shift to new regime of tax on residential and commercial
apartments.
This issue has been discussed in next chapter.
22.5-1 No separate tax for supply of land or undivided share of land as part of composite
supply of flats
When a builder sales flat to buyer, he also transfers to him undivided share of land by way
of lease or sub-lease the service falls under heading 9972.
In such cases, the value of service for GST is Nil, if the amount charged for such lease or sub-
lease is one-third of total amount charged for composite supply or less than one-third of
total amount charged - Sr No. 16(ii) of Notification Nos. 11/2017-CT (Rates) and 8/2017-IT
(Rates) dated 28-6-2017 inserted w.e.f. 25-1-2018.
The detailed wording is quite clumsy, but its essence is that such supply of land by way of
leasing may be during (a) construction of complex (b) low cost housing under specified
scheme or (c) Construction of residential or commercial apartments [amendment w.e.f. 1-
4-2019].
Even otherwise, since supply of flat is a composite contract, there should not be any separate
tax on lease of land.
22.5-2 Sub-contractor liable to pay tax @ 18%
The sub-contractor providing works contract service is liable to pay tax @ 18% as the amount
charged by him to main contractor does not include value of land.
22.5-3 Reversal of ITC on flats remaining unsold at time of completion certificate
There will be some unsold flats at the time of receipt of building completion
certificate/occupancy certificate. GST will not apply when such ready possession flats are
sold at a later date. The Input Tax Credit which was availed will have to be proportionately
reversed.
Formula for such reversal has been specified in rule 42 of CGST Rules. However, this rule is
not at all suitable to calculate reversal. However, if you go strictly by that rule, reversal will
apply as and when the flats are sold as the formula is rule 42 talks of 'tax period' which is a
financial year. ITC, turnover and value of exempt supply has to be considered for 'tax period'.
Thus, legally, it was not required to reverse ITC as soon as completion certificate was
obtained.
Now the provisions are completely changed w.e.f. 1-4-2019, as discussed in next chapter
22A.
22.5-4 No refund of ITC even if input tax credit more than GST payable on outward supply
in case of construction of complex
In case of inverted duty rates (i.e. input tax credit more than tax payable on outward supply),
there is provision of refund of excess credit under section 54(3) of CGST and SGST Act.
 398

However, in case of services of construction of complex [specified in Item 5(b) of Schedule II

of CGST Act], refund of unutilized ITC will not be available - Notification No. 15/2017-CT
(Rate), dated 28-6-2017.
This provision is not relevant after 1-4-2019 where the promoter opts for payment of GST
@ 1%/5%.
22.6 Distinction between construction service and works contract service
There is no doubt that construction contract is also a 'works contract'. However, under GST,
distinction has been made between 'works contract service' and 'construction of complex'.
The distinction is that in case of works contract, a customer (recipient of supply of service)
approaches the supplier of service (contractor) to undertake construction as per his
requirements. In almost all the cases, the land is owned by or taken on lease by customer.
The contractor enters into contract with customer and then undertakes construction with
his own material. If the material is supplied by recipient himself (customer), then it is not
works contract. It is simple contract for work.
In construction of complex, the builder or developer normally does not have any identified
customer. Even if he has some identified customers before commencement of construction,
he is undertaking construction activity on his own and not on basis of contract with
customer. The land never belongs to the customer.
As an illustration, a society awards a contract to a contractor to construct residential
complex in premises owned by society, it will be a 'works contract' and not 'construction of
complex'.
22.7 GST @ 12% in case of certain infrastructure related works contract
In respect of following works contract services provided in relation to infrastructural
projects, the tax rate is 12% from date as specified - - Notification No. 11/2017-CT (Rate) and
No. 8/2017-IT (Rate) both dated 28-6-2017 as amended from time to time.
22.7-1 Works contract services relating to historical monuments, canal, water supply to
Government or local authority or Governmental Authority
As per Sr No. 3(iii) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated
28-6-2017, the tax rate is 12% IGST [or 6% CGST plus 6% SGST/UTGST] on composite supply
of works contract as defined in section 2(119) of the CGST Act, supplied to the Government,
a local authority, a Governmental authority or a Government entity by way of construction,
erection, commissioning, installation, completion, fitting out, repair, maintenance,
renovation, or alteration of,—
(a) a historical monument, archaeological site or remains of national importance,
archaeological excavation, or antiquity specified under the Ancient Monuments and
Archaeological Sites and Remains Act, 1958 [w.e.f. 22-8-2017]
(b) canal, dam or other irrigation works [w.e.f. 22-8-2017]
(c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage
treatment or disposal [w.e.f. 22-8-2017]
 399

Where the services are supplied to a Government Entity, they should have been procured
by the said entity in relation to a work entrusted to it by the Central Government, State
Government, Union territory or local authority, as the case may be.
Sub-contractor also eligible for concessional rate of 12% w.e.f. 25-1-2018 - Sub-contractor
providing service to main contractor who is providing any of aforesaid service is also eligible
for concessional rate of 12% [IGST - 12%, CGST and SGST/UTGST - 6% each] w.e.f. 25-1-2018
- Sr No. 3(ix) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-
6-2017 inserted w.e.f. 25-1-2018.—noted in Tata Projects Ltd. In re (2018) 68 GST 420 = 94
taxmann.com 86 (AAR-Rajasthan).
However, in case of service supplied by main contractor to a Government entity, the
concessional rate is available only if the service has been procured by Government Entity in
relation to work entrusted to it by the Central Government, State Government, Union
Territory or Local Authority as the case may be.
The concession is only to sub-contractor and not to sub-sub-contractor.
22.7-2 Works contract relating to roads, bridges, certain housing projects, pollution control
plant, structure for funeral or burial
As per Sr No. 3(iv) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated
28-6-2017, the tax rate is 12% IGST [or 6% CGST plus 6% SGST/UTGST] on composite supply
of works contract as defined in section 2(119) of CGST Act, other than that covered by items
(i), (ia), (ib), (ic), (id), (ie) and (if) above, is as follows. [The words in italics inserted w.e.f. 1-
4-2019. Thus, the rates specified in Sr No. 3(iv) do not apply to real estate projects of
residential apartments and commercial apartments].
The GST rate is respect of works contract services supplied by way of construction, erection,
commissioning, installation, completion, fitting out, repair, maintenance, renovation, or
alteration of,-
(a) a road, bridge, tunnel, or terminal for road transportation for use by general public
[w.e.f. 22-8-2017]
(b) a civil structure or any other original works pertaining to a scheme under Jawaharlal
Nehru National Urban Renewal Mission or Rajiv Awas Yojana [w.e.f. 22-8-2017]
(c) a civil structure or any other original works pertaining to the "In-situ" redevelopment
of existing slums using land as a resource, under the Housing for All (Urban)
Mission/Pradhan Mantri Awas Yojana (Urban) [w.e.f. 25-1-2018]
[The wording during 22-8-2017 to 25-1-2018 was as follows - a civil structure or any
other original works pertaining to the In-situ rehabilitation of existing slum dwellers
using land as a resource through private participation under the Housing for All
(Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers].
(d) a civil structure or any other original works pertaining to the "Beneficiary led
individual house construction/enhancement" under the Housing for All (Urban)
Mission/Pradhan Mantri Awas Yojana [w.e.f. 22-8-2017]
 400

(da) a civil structure or any other original works pertaining to the "Economically Weaker
Section (EWS) houses" constructed under the Affordable Housing in partnership by
State or Union territory or local authority or urban development authority under the
Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban) [this clause
inserted w.e.f. 25-1-2018]
(db) a civil structure or any other original works pertaining to the "houses constructed or
acquired under the Credit Linked Subsidy Scheme for Economically Weaker Section
(EWS)/Lower Income Group (LIG)/Middle Income Group-1 (MIG-1)/Middle Income
Group-2 (MIG-2)" under the Housing for All (Urban) Mission/Pradhan Mantri Awas
Yojana (Urban) [this clause inserted w.e.f. 25-1-2018]
(e) a pollution control or effluent treatment plant, except located as a part of a factory
[w.e.f. 22-8-2017]
(f) a structure meant for funeral, burial or cremation of deceased [w.e.f. 22-8-2017]
(g) a building owned by an entity registered under section 12AA of the Income-tax Act,
1961 (43 of 1961), which is used for carrying out the activities of providing,
centralised cooking or distribution, for mid-day meals under the mid-day meal
scheme sponsored by the Central Government, State Government, Union territory or
local authorities [this clause inserted w.e.f. 25-1-2018].

Effective rate on lost cost housing schemes is 8% - Since the amount charged to customer
includes value of land, the effective tax rate is 8%, though specified rate is 12%.
The concessional rate applies to sub-contractor or sub-sub-contractor also - The
concessional rate of 12% is applicable to sub-contractor or even sub-sub-contractor if he is
providing works contract service of construction, as the service is exempt, irrespective of
person to whom it is provided. However, in case of construction of low cost housing, since
his charges do not include value of land, he has to charge tax @ 12% on his total invoice.-
view confirmed in Shimsha Infrastructures In re (2019) 76 GST 742 = 110 taxmann.com 347
(AAR - Karnataka).
Contract of DBOT (design, build, operate and transfer) of road is taxable - Contract of DBOT
(design, build, operate and transfer) of road is taxable under 9954. The supplier of service is
entitled to avail entire input tax credit of goods and services received by him - Nagaur
Mukangarh Highways P Ltd. In re (2018) 70 GST 721 = 98 taxmann.com 338 (AAR -
Rajasthan).
22.7-3 Works contract relating to railways, low cost housing, single residential units, post
harvest storage infrastructure
As per Sr No. 3(v) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated
28-6-2017, the tax rate is 12% IGST [or 6% CGST plus 6% SGST/UTGST] on composite supply
of works contract as defined in section 2(119) of CGST Act, other than that covered by items
(i), (ia), (ib), (ic), (id), (ie) and (if) above, is as follows. [The words in italics inserted w.e.f. 1-
4-2019. Thus, the rates specified in Sr No. 3(iv) do not apply to real estate projects of
residential apartments and commercial apartments].
 401

The GST rate is respect of works contract services supplied by way of construction, erection,
commissioning, or installation of original works pertaining to,-
(a) railways, including monorail and metro [w.e.f. 25-1-2018. During the period 22-8-
2017 to 25-1-2018, the word was 'excluding'. Thus, w.e.f. 25-1-2018, works contract
of monorail and metro will also be eligible for concessional rate of 12% GST]
(b) a single residential unit otherwise than as a part of a residential complex. "Single
residential unit" means a self-contained residential unit which is designed for use,
wholly or principally, for residential purposes for one family [para 2 of Notification
No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from
1-7-2017].
(c) low-cost houses up to a carpet area of 60 square metres per house in a housing
project approved by competent authority empowered under the 'Scheme of
Affordable Housing in Partnership' framed by the Ministry of Housing and Urban
Poverty Alleviation, Government of India [w.e.f. 22-8-2017].
(d) low cost houses up to a carpet area of 60 square metres per house in a housing
project approved by the competent authority under- (1) the "Affordable Housing in
Partnership" component of the Housing for All (Urban) Mission/Pradhan Mantri
Awas Yojana (2) any housing scheme of a State Government [w.e.f. 22-8-2017].
(da) low-cost houses up to a carpet area of 60 square metres per house in an affordable
housing project which has been given infrastructure status vide notification of
Government of India, in Ministry of Finance, Department of Economic Affairs vide F.
No. 13/6/2009-INF, dated the 30th March, 2017 [This clause inserted w.e.f. 25-1-
2018].
It has been clarified that as per the definition, at least 50% of FAR (Floor Area
Ration)/FSI (Floor Space Index) should be used for dwelling units with carpet area not
exceeding 60 Sq M. The concessional rate is available if specified conditions are
satisfied. No certificate from any authority is not required - TRU(MF DR) letter F No.
354/52/2018-TRU dated 7-5-2018 - noted and followed in Prajapati Developers In re
(2018) 69 GST 851 = 97 taxmann.com 21 (AAR - Maharashtra). It was observed that
this concession applies only to dwelling units with carpet area not exceeding 60 Sq
M and not to all units in the project.
This was also followed in Ideal Construction In re (2018) 70 GST 233 = 97
taxmann.com 316 (AAR - Maharashtra).
(e) post-harvest storage infrastructure for agricultural produce including a cold storage
for such purposes; or mechanised food grain handling system, machinery or
equipment for units processing agricultural produce as food stuff excluding alcoholic
beverages [w.e.f. 22-8-2017].

Effective rate on lost cost housing schemes is 8% - Since the amount charged to customer
includes value of land, the effective tax rate is 8%, though specified rate is 12%.
 402

Pertaining to railways includes establishments other than railways - In Quartro Rail Tech
Solutions Ltd. In re (2020) 78 GST 261 = 110 taxmann.com 356 (AAR-Kar.), it was observed
that 'pertaining to railways' is more expansive and includes establishments other than
Railways.
The concessional rate applies to sub-contractor or sub-sub-contractor also - The
concessional rate of 12% is applicable to sub-contractor or even sub-contractor if he is
providing works contract service of construction, as the service is exempt, irrespective of
person to whom it is provided - view confirmed in Shree Construction, In re (2018) 69 GST
866 = 97 taxmann.com 317 (AAR-Maharashtra) in respect of railway work - view confirmed
in Shree Construction, In re (2019) 73 GST 456 = 103 taxmann.com 448 (AAAR) * Quartro Rail
Tech Solutions Ltd. In re (2020) 78 GST 261 = 110 taxmann.com 356 (AAR-Kar.).
The principle applies to all services covered in this clause.
However, in case of construction of low cost housing, since his charges do not include value
of land, he has to charge tax @ 12% on his total invoice.
The concessional rate applies to sub-contractor or sub-sub-contractor also - The
concessional rate of 12% is applicable to sub-contractor or even sub-contractor if he is
providing works contract service of construction, as the service is exempt, irrespective of
person to whom it is provided - same view in Shree Construction In re (2018) 69 GST 866 =
97 taxmann.com 317 (AAR-Maharashtra) in respect of railway work - view confirmed in
Shree Construction, In re (2019) 73 GST 456 = 103 taxmann.com 448 (AAAR) * Quartro Rail
Tech Solutions Ltd. In re (2020) 78 GST 261 = 110 taxmann.com 356 (AAR-Karn) * St
Engineering Electronics Ltd., In re [2020] 120 taxmann.com 418 (AAR - Tamil Nadu).
The principle applies to all services covered in this clause.
However, in case of construction of low cost housing, since his charges do not include value
of land, he has to charge tax @ 12% on his total invoice.
Railways include private railway siding also and concessional rate applies - Term 'Railways'
include private railway siding also. Construction of a private railway siding for carriage of
coal and oil fuel to a thermal power station is a composite supply of works contract taxable
@ 12% under Serial No 3(v)(a) of Notification no 11/2017-CT(Rate) dated 28.06.2017 - Rites
Ltd., In re [2018] 100 taxmann.com 452 (AAR - West Bengal).
Contract for of Integral Coach Factory turnkey basis - Contract for of Integral Coach Factory
turnkey basis is works contract and taxable @ 12% [6% + 6%] - HYT Sam India In re (2019)
103 taxmann.com 262 (AAR-Tamil Nadu).
22.7-4 Works contract services relating to oil and gas exploration and production
In case of composite supply of works contract as defined in section 2(119) of CGST Act and
associated services, in respect of offshore works contract relating to oil and gas exploration
and production (E&P) in the offshore area beyond 12 nautical miles of appropriate base line,
the tax rate is - IGST-12% or CGST 6% plus SGST/UTGST 6% w.e.f. 13-10-2017. - Sr No. 3(vii)
Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 as
amended on 13-10-2017. This is effective from 13-10-2017.
22.7-5 Services supplied for construction, erection or installation of infrastructure for
extending electricity to tube well of farmer are exempt
 403

Services supplied by electricity distribution utilities by way of construction, erection,

commissioning, or installation of infrastructure for extending electricity distribution network
upto the tube well of the farmer or agriculturalist for agricultural use are exempt from GST
- Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 as
inserted w.e.f. 27-7-2018.
These fall under service heading 9954.
22.7-6 Pure labour services for construction of single dwelling unit exempt
Services by way of pure labour contracts of construction, erection, commissioning, or
installation of original works pertaining to a single residential unit otherwise than as a part
of a residential complex are exempt from GST - Sr. No. 11 of Notification No. 12/2017-CT
(Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
22.7-7 Pure labour services in relation to Housing for All (Urban) mission or Pradhan Mantri
Awas Yojana
Services provided by way of pure labour contracts of construction, erection, commissioning,
installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil
structure or any other original works pertaining to the beneficiary-led individual house
construction or enhancement under the Housing for All (Urban) Mission or Pradhan Mantri
Awas Yojana are exempt from GST - Sr. No. 10 of Notification No. 12/2017-CT (Rate) and No.
9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Note that this exemption is not applicable to works contract services or supplies of goods.
22.8 Exemptions in respect of services supplied to Government
Some construction services provided to Government are exempt from GST. These are
discussed in later chapter under 'Services to and by Government' and hence not reproduced
here.
22.9 Main contractor is entitled to partial or full exemption does not mean sub-contractor
is also exempt or entitled to concessional rate
Main contractor is entitled to partial or full exemption does not mean sub-contractor is also
exempt or entitled to concessional rate -Giriraj Renewables P Ltd. In re [2018] 69 GST 64 =
94 taxmann.com 286 (AAR - Karnataka).
 404

Real Estate Services relating to residential and commercial apartments

23.1 Background
Taxation of real estate sector has always been problematic issue. The major reason is that
the sector is still unorganized. The complications started after introduction of State tax on
works contract. The problem aggravated after introduction of service tax on works contract.
The State tax and Service tax was merged on introduction of GST w.e.f. 1-7-2017. However,
many issues were still unresolved.
Hence, the GST structure on real estate services relating to residential and commercial
apartments has been thoroughly altered w.e.f. 1-4-2019.
This service falls under service code 9954.
The highlights of revised scheme are as follows -
The revised scheme applies to residential and commercial apartments which are
covered under RERA [Real Estate (Regulation and Development) Act, 2016].
The provisions do not apply to construction of single houses or works contracts not
covered under RERA.
The new scheme is compulsory for projects commenced on or after 1-4-2019. In
respect of ongoing projects as on 31-3-2019, the promoter has option to shift to new
scheme w.e.f. 1-4-2019 (without ITC) or continue under earlier scheme (with ITC)
Under new scheme, the GST rates for residential apartments are as follows - (a) CGST
0.5% plus SGST/UTGST 0.5% (total 1%) or IGST 1% (without ITC) for affordable
residential apartments (b) CGST 2.5% plus SGST/UTGST 2.5% (total 5%) or IGST 5%
(without ITC) for other residential apartments.
In respect of commercial apartments (shops, offices, godowns etc.) in RREP, the GST
rate is CGST 2.5% plus SGST/UTGST 2.5% (total 5%) or IGST 5% (without ITC). In
respect of construction of commercial apartments (other than RREP), the GST rate is
CGST 6% plus SGST/UTGST 6% (total 12%) or IGST 12% (with ITC).
In case of ongoing projects, if the promoter intends to shift to new scheme (of 1%/5%)
w.e.f. 1-4-2019, he is required to refund excess ITC availed as on 31-3-2019 or get
credit of ITC less claimed as on 31-3-2019.
RREP (Residential Real Estate Project) means Real Estate Project (REP) of residential
apartments with commercial apartments not more than 15% of total carpet area of
REP.
Affordable Residential Apartment means apartment having carpet area not exceeding
60 square meter in metropolitan cities or 90 square meter in cities or towns other
than metropolitan cities and for which the gross amount charged is not more than Rs.
45 lakhs.

These rates apply where supply of services involves transfer of land or undivided share
of land and its charges are included in the amount charged to customer.
 405

In respect of new projects, the tax (CGST, SGST/UTGST or IGST as applicable) shall be
paid in cash by debiting the electronic cash ledger only [without utilising Input Tax
Credit].
In case of ongoing projects as on 1-4-2019, the promoter has option to opt for earlier
provisions of tax i.e. with utilization of ITC. If promoter intends to continue under old
scheme, he has to submit declaration in specified form to jurisdictional Commissioner
before 20-5-2019.
If the promoter does not submit such declaration, he is deemed to have opted for the
new scheme.
If landowner- promoter transfers development right or FSI (including additional FSI)
to a promoter (developer- promoter) against consideration, wholly or partly, in the
form of construction of apartments, the developer- promoter shall pay tax on supply
of construction of apartments to the landowner-promoter. The landowner - promoter
can take credit of taxes charged from him by the developer promoter, if the
landowner-promoter further supplies such apartments to his buyers.
No GST is payable where the entire consideration has been received after issuance of
completion certificate, where required, by the competent authority or after its first
occupation, whichever is earlier.
All cement for the project must be purchased from registered supplier only. If not so
received, the promoter is required to pay GST @ 28% under reverse charge by
promoter (even if total value of supplies received from unregistered suppliers is less
than 80%).
After considering payment of GST on cement under reverse charge, at least 80% of
the procurement of inputs and input services [other than services by way of grant of
development rights, long term lease of land (against upfront payment in the form of
premium, salami, development charges etc.) or FSI (including additional FSI),
electricity, high speed diesel, motor spirit, natural gas], used in supplying the real
estate project service shall be received from registered supplier only. [In case of
interest received, it can be considered as received from registered supplier, if
Bank/FI/company giving loan are registered under GST].
If there is shortfall in procurement from registered suppliers, i.e. if still requirement
of procurement of 80% from registered suppliers is not achieved, GST @18% is
payable on value to the extent of shortfall. This adjustment is to be done financial
year wise and not project wise.
In case of capital goods procured from unregistered person, the promoter is liable to
pay GST under reverse charge.
In respect of development rights or FSI transferred or payment of upfront amount for
long term lease of land on or after 1-4-2019 proposed to be used for residential
apartments, GST is not payable on TDR, FSI or payment of upfront amount for long
 406

term lease of land if residential apartment is sold before completion. However, if

some residential apartments remain unsold on date of completion, proportionate GST
is payable on TDR, FSI or long term lease of land by promoter under reverse charge.
In case of commercial apartments, GST is payable on development rights or FSI
transferred or payment of upfront amount for long term lease of land after 1-4-2019,
whether or not commercial apartments are sold before obtaining completion
certificate. The tax is payable by promoter under reverse charge.
Where promoter opts to pay tax at full rate (8%/12%) after availing ITC, proportionate
reversal of Input Tax Credit is required in respect of apartments remaining unsold as
on date of completion or first occupation, whichever is earlier.

The reversal is required to be made on date of completion of project. Reversal should

be as per rule 42 of CGST Rules in respect of inputs and input services and rule 43 of
CGST Rules in respect of capital goods.

Such reversal will be on basis of carpet area and not on basis of value.
In many projects containing more than one buildings, partial completion
certificate/occupancy certificate is often obtained for each building. As per FAQ (Part
I) No. 29 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019, if
partial completion/occupancy certificate has been obtained before 31-3-2019, the
first occupation shall not be considered to have taken place. It will be considered as
ongoing project as on 1-4-2019. Promoter can opt to pay tax @ 1%/5% on such
project.
All accounts are to be maintained project-wise. Each project can be treated differently
e.g. for some projects, promoter may opt for 1%/5% scheme and for some projects
8%/12% scheme - FAQ (Part I) No. 24 issued by CBI&C vide circular F No. 354/32/2019-
TRU dated 7-5-2019.
If project is big, it is advisable to have separate GST registration for each project and
even sub-project.
As per FAQ (Part I) No. 30 issued by CBI&C vide circular F No. 354/32/2019-TRU dated
7-5-2019, even within same building, two separate projects can be registered e.g. 1st
to 10th floor for one project and 11th to 20th for another project. These will be
considered as distinct projects.
If apartment was partially completed as on 1-4-2019, and if promoter opts for 1%/5%
scheme, the customer will be liable to pay GST @ 1%/5% on remaining portion. For
example, if 40% amount was paid before 1-4-2019, GST at earlier rate [8% or 12% as
applicable] will be payable. On balance 60%, 1%/5% as applicable will be payable -
FAQ (Part I) No. 17 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-
2019.
 407

FAQs on real estate sector issued by CBI&C - CBI&C has issued two FAQs - (a) 41 FAQs (Part
I) vide circular F No. 354/32/2019-TRU dated 7-5-2019 (b) 27 FAQs (part II) vide circular F
No. 354/32/2019-TRU dated 14-5-2019.
These broadly state the statutory provisions. The circular clearly states that the answers are
for guidance and easy understating and they do not have force of law. Practically, these FAQs
will be binding unless it is established that these are against statutory provisions.
Some important clarifications have been discussed at appropriate places.
23.1-1 Statutory provisions in respect of construction of complex
Following is 'supply of service' as per para 5(b) of Schedule II of CGST Act.
Construction of a complex, building, civil structure or a part thereof, including a complex or
building intended for sale to a buyer, wholly or partly, except where the entire consideration
has been received after issuance of completion certificate, where required, by the
competent authority or after its first occupation, whichever is earlier.
Explanation.- For the purposes of this clause- (1) the expression "competent authority"
means the Government or any authority authorized to issue completion certificate under
any law for the time being in force and in case of non-requirement of such certificate from
such authority, from any of the following, namely - (i) an architect registered with the Council
of Architecture constituted under the Architects Act, 1972; or (ii) a chartered engineer
registered with the Institution of Engineers (India); or (iii) a licensed surveyor of the
respective local body of the city or town or village or development or planning authority.
(2) the expression "construction" includes additions, alterations, replacements or
remodeling of any existing civil structure.
Residential Complex - "Residential complex" means any complex comprising of a building or
buildings, having more than one single residential unit - para 2 of Notification No. 12/2017-
CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Single Residential Unit - "Single residential unit" means a self-contained residential unit
which is designed for use, wholly or principally, for residential purposes for one family - para
2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017,
effective from 1-7-2017.
Occupancy certificate granted in is equal to completion certificate - In Mumbai i.e.
Brihanmumbai Municipal Corporation (BMC), occupancy certificate is granted. Sale after
such occupancy certificate (even before completion certificate) will be sale of immovable
property and outside service tax net - PIB (Press Information Bureau), Ministry of Finance
dated 26-10-2015.
Same view has been held in Bindu Ventures, In re [2018] 100 taxmann.com 207 (AAR -
Karnataka) in respect of occupancy certificate issued by Bruhat Bengaluru Mahanagara
Palike.
23.1-2 Meaning of 'first occupation'
As per para 5 of Schedule III read with para 5(b) of Schedule II of CGST Act, If entire
consideration is received 'after issuance of completion certificate/occupancy certificate by
the competent authority or its first occupation whichever is earlier', the promoter (builder
 408

or developer) is not liable to pay GST, even if completion certificate or occupancy certificate
is not obtained from authorities.
The words 'after its first occupation' are confusing. 'Occupation' by whom? The 'occupation'
should be of that particular apartment which is being sold or any apartment in that complex?
As per FAQ (Part I) No. 29 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-
2019, 'first occupation' means 'first occupation' of the project in accordance with laws, rules
and regulations of State/Central Government or any other authority. Thus, mere staying in
the apartment before obtaining completion/occupancy certificate will not be considered as
'first occupation'.
Thus, the FAQ (Part I) treats 'first occupation' as equivalent to completion/occupancy
certificate. If so, the words 'or its first occupation whichever is earlier' become redundant. It
is well settled that an interpretation which treats some words as otiose or redundant should
not be adopted.
In many places, there is delay in issuing completion certificate/occupancy certificate
[Corruption is of course one major reason, but there can be other reasons too]. However,
the customers start occupying the apartments.
However, such occupation is illegal occupation.
State Authorities register apartments even before obtaining completion
certificate/occupancy certificate - In many States, documents relating to apartments are
registered by State Government authorities even before building is completed. Thus, State
Governments have willy-nilly accepted these transactions as transactions in immovable
property of a completed apartment.
Registration under Registration Act required only in case of immovable property - As per
section 17(1)(b) of Registration Act, Non-testamentary Instrument purport or operate to
create, declare, assign, limit or extinguish (whether present or future) any right, title or
interest (whether vested or contingent) of the value of over Rs. 100 in immovable property
requires compulsory registration with Registrar or Sub-Registrar appointed by Government.
As per section 2(6) of Registration Act, Immovable property includes any land, buildings,
hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit arising out
of land, and things attached to earth or permanently fastened to anything which is attached
to earth, but does not include standing timber, growing crops or grass.
However, GST can be levied on immovable property also.
Tax on land and buildings is State subject - Taxes on lands and buildings is specified in Entry
No. 49 of List II (State List). This entry is continuing under GST Law also.
Under GST Law, Taxes on lands and buildings is within jurisdiction of State Government.
Central Government can impose tax on land and buildings only to the extent permitted by
GST Council, as GST is concurrent subject. This is done by including 'deeming provision' in
Schedule II of CGST Act or in a notification.
Conclusion - Since provisions in GST Law are overriding provisions, GST should be leviable
even if building is occupied before obtaining completion/occupancy certificate.
 409

Purchaser of apartment is not liable to tax even if he sales before occupation or completion
- The Purchaser of apartment is not liable to tax even if he sales before occupation or
completion, for two reasons - (a) He is not supplying construction service, as deeming
provision requires supply of construction service (b) He is not in the business of sale of
apartments.
23.1-3 Issue of partial completion certificate or occupancy certificate
All the accounts are to be maintained project-wise. If project is big, it is advisable to have
separate registration for each project.
In one project, there may be more than one building. Often, partial completion
certificate/occupancy certificate is obtained for each building.
The issue is critical in respect of GST liability in respect of GST on transfer of development
rights or FSI or upfront payment for long term lease.
As per FAQ (Part I) No. 29 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-
2019, if partial completion/occupancy certificate has been obtained before 31-3-2019, the
first occupation shall not be considered to have taken place. It will be considered as ongoing
project as on 1-4-2019. Promoter can opt to pay tax @ 1%/5% on such project.
23.1-4 Apartment partially completed as on 1-4-2019
If apartment was partially completed as on 1-4-2019, and if promoter opts for 1%/5%
scheme, the customer will be liable to pay GST @ 1%/5% on remaining portion. For example,
if 40% amount was paid before 1-4-2019, GST at earlier rate [8% or 12% as applicable] will
be payable. On balance 60%, 1%/5% as applicable will be payable - FAQ (Part I) No. 17 issued
by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019.
23.1-5 Cancellation of booking of apartment by customer
FAQ (Part I) No. 20 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019 as
clarified as follows.
If apartment is booked before 1-4-2019 but cancelled after 1-4-2019, the promoter can issue
credit note under section 34 of CGST Act and refund the amount with tax to customer. If he
refunds the total amount with GST, the promoter can adjust the tax amount refunded can
be adjusted against other liability of GST including liability arising at the rate of 1%/5% GST
payable, if entire amount is refunded to customer.
If customer who has booked apartment prior to 1-4-2019 cancels the booking made earlier
and makes fresh booking, the tax paid by him earlier will be reversed by promoter.
23.1-6 Each project is separate project and promoter can treat them differently
All accounts are to be maintained project-wise.
Each project can be treated differently e.g. for some projects, promoter may opt for 1%/5%
scheme and for some projects 8%/12% scheme - FAQ (Part I) No. 32 issued by CBI&C vide
circular F No. 354/32/2019-TRU dated 7-5-2019.
23.1-7 Liability of services of contractor or sub-contractor
The contractor or sub-contractor supplying service to promoter or other contractor is liable
to pay tax @ 18% in case of construction of commercial apartments or residential
apartments other than affordable apartments. In case of services of contractor or sub-
 410

contractor for construction of affordable apartments, the GST rate is 12% - FAQ (Part I) No.
2 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019.
Para 2.2 of CBE&C Circular No. 151/2/2012-ST dated 10-2-2012 had stated as follows [Now
this circular is not valid w.e.f. 1-7-2012 in respect of redevelopment but still applicable to
slum rehabilitation projects]
23.1-8 Redevelopment is subject to GST
Generally in re-development project, land is owned by a society, comprising members of the
society with each member entitled to his share by way of an apartment. When it becomes
necessary after the lapse of a certain period, society or its flat owners may engage a
promoter (builder/developer) for undertaking re-construction. Society/individual apartment
owners give 'No Objection Certificate' (NOC) or permission to the promoter
(builder/developer), for re-construction. The promoter (builder/developer) constructs
apartments with same or different carpet area for original owners of apartment and
additionally may also be involved in one or more of the following: (i) construct some
additional apartments for sale to others (ii) arrange for rental accommodation or rent
payments for society members/original owners for stay during the period of re-construction
(iii) pay an additional amount to the original owners of flats in the society.
Under this model, the promoter (builder/developer) receives consideration for the
construction service provided by him, from two categories of service receivers. First category
is the society/members of the society, who transfer development rights over the land
(including the permission for additional number of apartments), to the promoter
(builder/developer). The second category of service receivers consist of buyers of
apartments other than the society/members. Generally, they pay by cash.
In both the cases, GST is payable as in first case, the promoter receives consideration in form
of TDR and in other cases, by cash.
23.1-9 GST on Slum Rehabilitation Programmes
In Slum Rehabilitation programmes, Government transfers TDR/FSI to promoter. The
promoter supplies apartments to slum dwellers without monetary consideration. The
apartments constructed in addition to apartments given free to the slum dwellers are sold.
In both the cases, GST is payable - FAQ (Part II) Nos. 8 and 9 issued by CBI&C vide circular F
No. 354/32/2019-TRU dated 14-5-2019.
If the apartments fall within the definition of affordable residential apartments, GST rate will
be 1% [0.5% CGST plus 0.5% SGST/UTGST]. Similarly, if such apartments are covered under
specified schemes, the GST rate will be 1%
Purchaser of apartment is not liable to tax even if he sales before occupation or completion
- The Purchaser of apartment is not liable to tax even if he sales before occupation or
completion, for two reasons - (a) He is not supplying construction service, as deeming
provision requires supply of construction service (b) He is not in the business of sale of
apartments.
23.2 Definitions of various terms used
Various terms are used in the new scheme of GST on real estate. These are explained below.
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23.2-1 Affordable Residential Apartment

As per para 4 clause (xvi) to Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both
dated 28-6-2017 inserted w.e.f. 1-4-2019, the term "affordable residential apartment" shall
mean, -
(a) a residential apartment in a project which commences on or after 1-4-2019, or in an
ongoing project in respect of which the promoter has not exercised option in the
prescribed form to pay central tax on construction of apartments at the rates as
specified for item (ie) or (if) against serial number 3, as the case may be, having carpet
area not exceeding 60 square meter in metropolitan cities or 90 square meter in
cities or towns other than metropolitan cities and for which the gross amount
charged is not more than forty five lakhs rupees.
For the purpose of this clause, -
(i) Metropolitan cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida,
Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai
(whole of MMR) with their respective geographical limits prescribed by an order
issued by the Central or State Government in this regard.
(ii) Gross amount shall be the sum total of: - (A) Consideration charged for the services
specified at item (i) and (ic) in column (3) against Sl. No. 3 in the Table [cannot
understand what is meant as there are no such items against Sr No. 3] (B) Amount
charged for the transfer of land or undivided share of land, as the case may be
including by way of lease or sub lease; and (C) Any other amount charged by the
promoter from the buyer of the apartment including preferential location charges,
development charges, parking charges, common facility charges etc.
However, 'gross amount charged' shall not include stamp duty payable to statutory
authority, maintenance charges/deposits for maintenance of apartment or
maintenance of common infrastructure - FAQ (Part II) No. 3 issued by CBI&C vide
circular F No. 354/32/2019-TRU dated 14-5-2019.
(b) an apartment being constructed in an ongoing project under any of the schemes
specified in sub-item (b), sub-item (c), sub-item (d), sub-item (da) and sub-item (db)
of item (iv); sub-item (b), sub-item (c), sub-item (d) and sub-item (da) of item (v); and
sub-item (c) of item (vi), against serial number 3 of the Table above, in respect of
which the promoter has not exercised option to pay central tax on construction of
apartments at the rates as specified for item (ie) or (if) against serial number 3, as
the case may be.

In Primarc Projects P Ltd. In re [2021] 83 GST 83 = 120 taxmann.com 53 (AAR-WB), it was

held that contractor providing works contract service for construction of affordable
residential real estate project are taxable under entry 3(v)(da) of Notification No. 11/2017-
CT (Rate) dated 28-6-2017, if promoter does not opt for paying tax under entry No. 3(ie) or
3(if) [i.e. GST rate 12%].
23.2-2 Apartment booked on or before 31-3-2019
 412

An apartment booked on or before the 31st March, 2019 shall mean an apartment which
meets all the following three conditions, namely- (a) part of supply of construction of which
has time of supply on or before the 31st March, 2019 and (b) at least one instalment has
been credited to the bank account of the registered person on or before the 31st March,
2019 and (c) an allotment letter or sale agreement or any other similar document evidencing
booking of the apartment has been issued on or before the 31st March, 2019 - clause (xii) of
paragraph 4 of Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-
2017 inserted w.e.f. 1-4-2019.
In case of re-development/slum rehabilitation project, the existing dwellers (in respect of
free supply units) do not make any payment to promoter. Hence, in such cases, there is no
requirement of credit of at least one instalment to the bank account of the registered person
on or before the 31st March, 2019, if other requirements are satisfied - FAQ (Part I) No. 35
issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019.
23.2-3 Apartment
"Apartment" shall have the same meaning as assigned to it in section 2(e) of the Real Estate
(Regulation and Development) Act, 2016 [RERA] - clause (xiv) of paragraph 4 of Notification
No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-4-2019.
As per section 2(e) of the Real Estate (Regulation and Development) Act, 2016 [RERA],
"Apartment" whether called block, chamber, dwelling unit, flat, office, show room, shop,
godown, premises, suit, tenement, unit or by any other name, means a separate and self-
contained part of any immovable property, including one or more rooms or enclosed spaces,
located on one or more floors or any part thereof, in a building or on a plot of land, used or
intended to be used for any residential or commercial use such as residence, office, shop,
showroom or godown or for carrying on any business, occupation, profession or trade, or
for any other type of use ancillary to the purpose specified.
23.2-4 Project
The term "project" shall mean a Real Estate Project or a Residential Real Estate Project
[RERA] - clause (xv) of paragraph 4 of Notification No. 11/2017-CT (Rate) and 8/2017-IT
(Rate) both dated 28-6-2017 inserted w.e.f. 1-4-2019.
23.2-5 Promoter
"Promoter" shall have the same meaning as assigned to it in section 2(zk) of the Real Estate
(Regulation and Development) Act, 2016 [RERA] - clause (xvii) of paragraph 4 of Notification
No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-4-2019.
RERA defines 'promoter' as follows -
"Promoter" means,—
(i) a person who constructs or causes to be constructed an independent building or a
building consisting of apartments, or converts an existing building or a part thereof
into apartments, for the purpose of selling all or some of the apartments to other
persons and includes his assignees; or
 413

(ii) a person who develops land into a project, whether or not the person also constructs
structures on any of the plots, for the purpose of selling to other persons all or some
of the plots in the said project, whether with or without structures thereon; or
(iii) any development authority or any other public body in respect of allottees of—
(a) buildings or apartments, as the case may be, constructed by such authority or body
on lands owned by them or placed at their disposal by the Government; or
(b) plots owned by such authority or body or placed at their disposal by the Government,
for the purpose of selling all or some of the apartments or plots; or
(iv) an apex State level co-operative housing finance society and a primary co-operative
housing society which constructs apartments or buildings for its Members or in
respect of the allottees of such apartments or buildings; or
(v) any other person who acts himself as a builder, coloniser, contractor, developer,
estate developer or by any other name or claims to be acting as the holder of a power
of attorney from the owner of the land on which the building or apartment is
constructed or plot is developed for sale; or
(vi) such other person who constructs any building or apartment for sale to the general
public.
Explanation.—For the purposes of this clause, where the person who constructs or
converts a building into apartments or develops a plot for sale and the person who
sells apartments or plots are different persons, both of them shall be deemed to be
the promoters and shall be jointly liable as such for the functions and responsibilities
specified, under this Act or the rules and regulations made thereunder - section 2(zk)
of the Real Estate (Regulation and Development) Act, 2016 [RERA].

23.2-6 Real Estate Project

The term "Real Estate Project (REP)" shall have the same meaning as assigned to it in section
2(zn) of the Real Estate (Regulation and Development) Act, 2016 [RERA] - clause (xviii) of
paragraph 4 of Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-
2017 inserted w.e.f. 1-4-2019.
As per section 2(zn) of the Real Estate (Regulation and Development) Act, 2016 [RERA], "Real
estate project" means the development of a building or a building consisting of apartments,
or converting an existing building or a part thereof into apartments, or the development of
land into plots or apartments, as the case may be, for the purpose of selling all or some of
the said apartments or plots or building, as the case may be, and includes the common areas,
the development works, all improvements and structures thereon, and all easement, rights
and appurtenances belonging thereto.
23.2-7 Residential Real Estate Project (RREP)
The term "Residential Real Estate Project (RREP)" shall mean a REP in which the carpet area
of the commercial apartments is not more than 15% of the total carpet area of all the
 414

apartments in the REP - clause (xix) of paragraph 4 of Notification No. 11/2017-CT (Rate) and
8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-4-2019.
Common buildings cannot be considered for purpose of 15% commercial apartments - In
any real estate project, there are some common buildings like Security Office, Club House,
Temple, Security Cabin, library etc. for use of all members of society. In my view, these
cannot be considered for limit of 15%, as these are not 'commercial apartments'. These are
not for sale.
23.2-8 Ongoing Project
As per clause (xx) of paragraph 4 of Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate)
both dated 28-6-2017 inserted w.e.f. 1-4-2019, the term "ongoing project" shall mean a
project which meets all the following conditions, namely-
(a) commencement certificate in respect of the project, where required to be issued by
the competent authority, has been issued on or before 31st March, 2019, and it is
certified by any of the following that construction of the project has started on or
before 31st March, 2019 - (i) an architect registered with the Council of Architecture
constituted under the Architects Act, 1972 (20 of 1972); or (ii) a chartered engineer
registered with the Institution of Engineers (India); or (iii) a licensed surveyor of the
respective local body of the city or town or village or development or planning
authority. - - Construction of a project shall be considered to have started on or
before the 31st March, 2019, if the earthwork for site preparation for the project has
been completed and excavation for foundation has started on or before the 31st
March, 2019.
(b) where commencement certificate in respect of the project, is not required to be
issued by the competent authority, it is certified by any of the authorities specified in
sub-clause (a) above that construction of the project has started on or before the
31st March, 2019. Construction of a project shall be considered to have started on or
before the 31st March, 2019, if the earthwork for site preparation for the project has
been completed and excavation for foundation has started on or before the 31st
March, 2019.
(c) completion certificate has not been issued or first occupation of the project has not
taken place on or before the 31st March, 2019.
(d) apartments being constructed under the project have been, partly or wholly, booked
on or before the 31st March, 2019.

Partial Completion/Occupancy Certificate will not be considered as 'completion certificate'

- As per FAQ (Part I) No. 29 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-
2019, if partial completion/occupancy certificate has been obtained before 31-3-2019, the
first occupation shall not be considered to have taken place. It will be considered as ongoing
project as on 1-4-2019. Promoter can opt to pay tax @ 1%/5% on such project.
Commence Certificate for one part is sufficient - If commencement certificate even for part
of project is obtained before 31-3-2019, the entire project will be treated as ongoing project
 415

if other requirements of ongoing project are satisfied - FAQ (Part I) No. 34 issued by CBI&C
vide circular F No. 354/32/2019-TRU dated 7-5-2019.
If no apartment was booked before 31-3-2019 - If no apartment is booked prior to 31-3-
2019, the project will be treated as 'project which commences after 1-4-2019' and not 'on
going projects'. In such cases, GST rate of 1%/5% is mandatory - FAQ (Part I) No. 40 issued
by' CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019.
23.2-9 Commencement Certificate
"Commencement certificate" means the commencement certificate or the building permit
or the construction permit, by whatever name called issued by the competent authority to
allow or permit the promoter to begin development works on an immovable property, as
per the sanctioned plan - clause (xxi) of paragraph 4 of Notification No. 11/2017-CT (Rate)
and 8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-4-2019.
The definition is same as contained in section 2(m) of the Real Estate (Regulation and
Development) Act, 2016 [RERA].
Commencement Certificate for one part sufficient - Commencement Certificate even for
part of project before 31-3-2019, the entire project will be treated as ongoing project if other
requirements of ongoing project are satisfied - FAQ (Part I) No. 34 issued by CBI&C vide
circular F No. 354/32/2019-TRU dated 7-5-2019.
23.2-10 Development Works
"Development works" means the external development works and internal development
works on immovable property - clause (xxii) of paragraph 4 of Notification No. 11/2017-CT
(Rate) and 8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-4-2019.
The definition is same as contained in section 2(t) of the Real Estate (Regulation and
Development) Act, 2016 [RERA].
23.2-11 External Development Works
"External development works" includes roads and road systems landscaping, water supply,
sewerage and drainage systems, electricity supply transformer, sub-station, solid waste
management and disposal or any other work which may have to be executed in the
periphery of, or outside, a project for its benefit, as may be provided under the local laws -
clause (xxiii) of paragraph 4 of Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both
dated 28-6-2017 inserted w.e.f. 1-4-2019.
The definition is same as contained in section 2(w) of the Real Estate (Regulation and
Development) Act, 2016 [RERA].
23.2-12 Internal Development Works
"Internal development works" means roads, footpaths, water supply, sewers, drains, parks,
tree planting, street lighting, provision for community buildings and for treatment and
disposal of sewage and sullage water, solid waste management and disposal, water
conservation, energy management, fire protection and fire safety requirements, social
infrastructure such as educational health and other public amenities or any other work in a
project for its benefit, as per sanctioned plans - clause (xxiv) of paragraph 4 of Notification
No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-4-2019.
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The definition is same as contained in section 2(zb) of the Real Estate (Regulation and
Development) Act, 2016 [RERA].
23.2-13 Competent Authority
The term "competent authority" as mentioned in definition of "commencement certificate"
and "residential apartment", means the local authority or any authority created or
established under any law for the time being in force by the Central Government or State
Government or Union Territory Government, which exercises authority over land under its
jurisdiction, and has powers to give permission for development of such immovable property
- clause (xxv) of paragraph 4 of Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both
dated 28-6-2017 inserted w.e.f. 1-4-2019.
The definition is practically same as contained in section 2(p) of the Real Estate (Regulation
and Development) Act, 2016 [RERA].
23.2-14 Carpet Area
The term "carpet area" shall have the same meaning assigned to it in section 2(k) of the Real
Estate (Regulation and Development) Act, 2016 [RERA] - clause (xxvi) of paragraph 4 of
Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017 inserted
w.e.f. 1-4-2019.
As per section 2(k) of the Real Estate (Regulation and Development) Act, 2016 [RERA],
"Carpet area" means the net usable floor area of an apartment, excluding the area covered
by the external walls, areas under services shafts, exclusive balcony or verandah area and
exclusive open terrace area, but includes the area covered by the internal partition walls of
the apartment.
Explanation.—For the purpose of this clause, the expression "exclusive balcony or verandah
area" means the area of the balcony or verandah, as the case may be, which is appurtenant
to the net usable floor area of an apartment, meant for the exclusive use of the allottee; and
"exclusive open terrace area" means the area of open terrace which is appurtenant to the
net usable floor area of an apartment, meant for the exclusive use of the allottee.
23.2-15 Real Estate Regulatory Authority
The term "Real Estate Regulatory Authority" shall mean the Authority established under
section 20(1) of the Real Estate (Regulation and Development) Act, 2016 [RERA] by the
Central Government or State Government - clause (xxvii) of paragraph 4 of Notification No.
11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-4-2019.
23.2-16 Project which commences after 1-4-2019
"Project which commences on or after 1st April, 2019" shall mean a project other than an
ongoing project - clause (xxviii) of paragraph 4 of Notification No. 11/2017-CT (Rate) and
8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-4-2019.
23.2-17 Residential Apartment
"Residential apartment" shall mean an apartment intended for residential use as declared
to the Real Estate Regulatory Authority or to competent authority - clause (xxix) of paragraph
4 of Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017 inserted
w.e.f. 1-4-2019.
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23.2-18 Commercial Apartment

"Commercial apartment" shall mean an apartment other than a residential apartment -
clause (xxx) of paragraph 4 of Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both
dated 28-6-2017 inserted w.e.f. 1-4-2019.
23.2-19 Floor Space Index
"Floor space index (FSI)" shall mean the ratio of a building's total floor area (gross floor area)
to the size of the piece of land upon which it is built - clause (xxxi) of paragraph 4 of
Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017 inserted
w.e.f. 1-4-2019.
23.3 GST Rate w.e.f. 1-4-2019 on various types of real estate projects
GST Rates have been specified on various types of real estate projects. These are explained
below.
23.3-1 Construction of affordable residential apartments
In respect of construction of affordable residential apartments, the GST rate is CGST 0.5%
plus SGST/UTGST 0.5% (total 1%) or IGST 1% (without ITC), where supply of services involves
transfer of land or undivided share of land - Sr No. 3(i) and 3(ic) of Notification No. 11/2017-
CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017 as amended w.e.f. 1-4-2019.
The GST rate will be CGST 0.75% plus SGST/UTGST 0.75% (total 1.50%) or IGST 1.50% where
supply of services does not involve transfer of land or undivided share of land.
This rate applies to Construction of affordable residential apartments by a promoter in (a) a
Residential Real Estate Project (termed as RREP) Sr No. 3(i) and (b) Real Estate Project
(termed as REP) other than RREP Sr No. 3(ic).
This rate applies to RREP or REP commenced on or after 1-4-2019. This rate also applies to
an ongoing RREP or REP in respect of which the promoter has not exercised option to pay
central tax on construction of apartments at full rate (after availing ITC) as specified in item
3(ie) or 3(if) of Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-
2017 as amended w.e.f. 1-4-2019.
In case of ongoing projects, this rate applies even in case of projects which were not coming
under definition of affordable houses under earlier scheme - FAQ (Part II) No. 20 issued by
CBI&C vide circular F No. 354/32/2019-TRU dated 14-5-2019.
No GST is payable where the entire consideration has been received after issuance of
completion certificate, where required, by the competent authority or after its first
occupation, whichever is earlier.
In respect of new projects, the tax (CGST, SGST/UTGST or IGST as applicable) shall be paid in
cash by debiting the electronic cash ledger only [without utilising Input Tax Credit].
In respect of ongoing projects as on 31-3-2019, Input Tax Credit can be availed to the extent
as prescribed in Annexure I in the case of REP (other than RREP) and in Annexure II in the
case of RREP to Notification No. 03/2019-CT (Rate) dated 29-3-2019.
Input Tax Credit in respect of ongoing projects where promoter shifts to new scheme on 1-
4-2019 - In respect of ongoing projects as on 1-4-2019, promoter can either continue under
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earlier scheme and continue to avail Input Tax Credit (ITC) or shift to new scheme of tax,
where he is not entitled to ITC after 1-4-2019.
In such cases, the promoter must have availed some ITC and paid tax (CGST and
SGST/UTGST) on some supplies till 31-3-2019. In such case, there are two possibilities -
(a) He has availed more ITC compared to the tax paid by him on his output supply [of
which chances are high] . In such cases, he should reverse the excess ITC availed by
him.
(b) He has availed less ITC compared to the tax paid by him on his output supply [of
which chances are low]. In such cases, he is entitled to get credit to the extent of less
ITC availed by him.

In such cases, the promoter is required to make project wise calculations of ITC availed and
ITC eligible, as prescribed in Annexure I in the case of REP (other than RREP) and in Annexure
II in the case of RREP to Notification No. 11/2017-CT (Rate) dated 28-6-2017.
The Annexures give illustrations also.
After such calculations, if it is found that the promoter has availed higher credit than eligible
on supplies made upto 31-3-2019, he is required to refund that amount to Government. If
such amount is huge, he can apply to Commissioner to pay the same in monthly instalments
not exceeding 24. He should apply in form GST DRC-20 and Commissioner can issue order in
form GST DRC-21 to allow time to make payments in upto 24 monthly instalments [in my
view, interest will be payable though the circular is silent on it].
If it is found that he has taken less credit, he will be allowed to take and utilise that credit
even after 1-4-2019, though the promoter is otherwise not eligible for ITC after 1-4-2019.
Main distinction between Annexure I and Annexure II is that in case of RREP, the promoter
is eligible for concessional rate of GST (5%) even on commercial portion after 1-4-2019, while
in case of REP, the promoter is not eligible for concessional rate of GST after 1-4-2019 (as he
has to pay GST @ 12%). Hence, he is entitled to carry forward entire accumulated ITC in
respect of commercial portion of the project.
The input credit seems worthless as promoter pays tax @ 1%/5% in cash - The ITC available
does not seem to be of any use as the promoter is required to pay tax @ 1%/5% through
electronic cash ledger only. The ITC may be used for discharging any other supply of service
- FAQ (Part II) No. 13 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 14-5-2019.
Since registration is project wise, there seems no possibility of using such credit elsewhere.
23.3-2 Construction of residential apartments (other than affordable residential
apartments)
In respect of construction of residential apartments (other than affordable residential
apartments), the GST rate is CGST 2.5% plus SGST/UTGST 2.5% (total 5%) or IGST 5% (without
ITC), where supply of services involves transfer of land or undivided share of land - Sr No.
3(ia) and 3(id) of Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-
2017 as amended w.e.f. 1-4-2019.
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The GST rate will be CGST 3.75% plus SGST/UTGST 3.75% (total 7.50%) or IGST 7.50% where
supply of services does not involve transfer of land or undivided share of land.
This rate applies to Construction of residential apartments (other than affordable residential
apartments) by a promoter in (a) a Residential Real Estate Project (termed as RREP) or (b)
Real Estate Project (other than RREP).
This rate applies to projects which commence on or after 1-4-2019. This rate also applies to
an ongoing RREP and REP in respect of which the promoter has not exercised option to pay
central tax on construction of apartments at full rate (after availing ITC) as specified in item
3(ie) or 3(if) of Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-
2017 as amended w.e.f. 1-4-2019.
No GST is payable where the entire consideration has been received after issuance of
completion certificate, where required, by the competent authority or after its first
occupation, whichever is earlier.
In respect of new projects, the tax (CGST, SGST/UTGST or IGST as applicable) shall be paid in
cash by debiting the electronic cash ledger only [without utilising Input Tax Credit].
In respect of ongoing projects as on 1-4-2019, Input Tax Credit can be availed to the extent
as prescribed in Annexure I in the case of REP (other than RREP) and in Annexure II in the
case of RREP to Notification No. 03/2019-CT (Rate) dated 29-3-2019.
The input credit seems worthless if promoter pays tax @ 1%/5% - The ITC available does
not seem to be of any use as the promoter is required to pay tax @ 1%/5% by cash only. The
ITC may be used for discharging any other supply of service - FAQ (Part II) No. 13 issued by
CBI&C vide circular F No. 354/32/2019-TRU dated 14-5-2019.
Since registration is project wise, there seems no possibility of using such credit elsewhere.
23.3-3 Construction of commercial apartments (shops, offices, godowns etc.)
In case of commercial apartments constructed in RREP (Residential Real Estate Projects),
where carpet area of commercial apartments is not more than 15% of total carpet area of
REP, the concessional rate of 5% applies (without ITC). In case of ongoing projects as on 1-4-
2019, the promoter has option to pay tax at normal rate after availing Input Tax Credit (ITC).
In case of commercial apartments in REP (Real Estate Projects) other than RREP, there is no
concession and GST rate of 12% applies (with ITC).
The statutory provisions are as follows.
Commercial apartments in RREP - In respect of construction of commercial apartments
(shops, offices, godowns etc.) in RREP, the GST rate is CGST 2.5% plus SGST/UTGST 2.5%
(total 5%) or IGST 5% (without ITC), where supply of services involves transfer of land or
undivided share of land - Sr No. 3(ib) of Notification No. 11/2017-CT (Rate) and 8/2017-IT
(Rate) both dated 28-6-2017 as amended w.e.f. 1-4-2019.
The GST rate will be CGST 3.75% plus SGST/UTGST 3.75% (total 7.50%) or IGST 7.50% where
supply of services does not involve transfer of land or undivided share of land.
This rate applies to Construction of commercial apartments which commences on or after
1-4-2019. This rate also applies to an ongoing commercial project in RREP, in respect of
which the promoter has not exercised option to pay central tax on construction of
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commercial apartments at full rate (after availing ITC) as specified in item 3(ie) or 3(if) of
Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017 as amended
w.e.f. 1-4-2019.
No GST is payable where the entire consideration has been received after issuance of
completion certificate, where required, by the competent authority or after its first
occupation, whichever is earlier.
In respect of new projects, the tax (CGST, SGST/UTGST or IGST as applicable) shall be paid in
cash by debiting the electronic cash ledger only [without utilising Input Tax Credit].
In respect of ongoing projects as on 1-4-2019, Input Tax Credit can be availed to the extent
as prescribed in Annexure I in the case of REP (other than RREP) and in Annexure II in the
case of RREP to Notification No. 11/2017-CT (Rate) dated 28-6-2017.
Commercial apartments in REP (other than RREP) - In respect of construction of commercial
apartments (shops, offices, godowns etc.) in REP (other than RREP), the GST rate is CGST 6%
plus SGST/UTGST 6% (total 12%) or IGST 12% (with ITC), where supply of services involves
transfer of land or undivided share of land - Sr No. 3(if)(i) of Notification No. 11/2017-CT
(Rate) and 8/2017-IT (Rate) both dated 28-6-2017 as amended w.e.f. 1-4-2019.
The GST rate will be CGST 9% plus SGST/UTGST 9% (total 18%) or IGST 18% where supply of
services does not involve transfer of land or undivided share of land.
This rate applies to Construction of commercial apartments in REP (Other than RREP) which
commences on or after 1-4-2019. This rate also applies to an ongoing commercial project in
REP (other than RREP).
No GST is payable where the entire consideration has been received after issuance of
completion certificate, where required, by the competent authority or after its first
occupation, whichever is earlier.
Input Tax Credit is available.
23.4 Value for GST when total amount charged includes value of land
When the total amount charged for sale of residential or commercial apartment includes
value of land, the tax is payable on total amount charged less value of land. The value of land
will be taken as one third of total amount charged.
The statutory wording is as follows -
In case of supply of service specified in column (3), it item (i); (ia), (ib), (ic), (id), (ie) and (if)
against Serial No. 3, involving transfer of land or undivided share of land, as the case may
be, the value of such supply shall be equivalent to the total amount charged for such supply
less the value of transfer of land or undivided share of land, as the case may be, and the
value of such transfer of land or undivided share of land, as the case may be, in such supply
shall be deemed to be one third of the total amount charged for such supply - para 2 of
Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017 as amended
w.e.f. 1-4-2019.
For the purpose of paragraphs 2 and 2A, 'total amount' means the sum total of (a)
Consideration charged for such service and (b) amount charged for transfer of land or
undivided share of land, as the case may be, including by way of lease/sub-lease -
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explanation to para 2 of Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated
28-6-2017 as amended w.e.f. 1-4-2019.
23.4-1 Is the deeming provision in respect of value of land legally valid?
The deeming provision states that value of land will be 'deemed to be one third of total
amount charged.
There is no option available to promoter to deduct actual value of land involved in sale of
apartment instead of deemed value - FAQ (Part I) No. 36 issued by CBI&C vide circular F No.
354/32/2019-TRU dated 7-5-2019.
Land value as per deeming provision is required to be taken even if actual land value is
available - Karma Buildcon, In re [2020] 119 taxmann.com 299 (AAR - Gujarat).
The provision applies even when the promoter enters into two agreements - one for sale of
undivided share in land and other for construction of superstructure - Kara Property
Ventures LLP, In re (2019) 73 GST 289 = 103 taxmann.com 279 (AAR- TN).
In many cases (in particularly large cities), the value of land is actually much more than 33%
of total amount charged. In such cases, the promoter is required to pay GST at value much
higher than actual value of construction.
It is well settled that any 'deeming provision' cannot override a section. The 'value' cannot
exceed value as specified in section 15 of CGST Act, red with relevant valuation rules in CGST
Rules.
See discussions in next chapter.
In my view, it is possible to challenge this deeming provision, though, of course, final result
is uncertain.
23.4-2 Illustrations clarifying GST rates in various situations
Question - A promoter has a real estate project of apartments commenced after 1-4-2019,
with total carpet area of 10,000 Sq M, comprising of following - (a) Affordable residential
apartments - 4,000 Sq M (b) Residential apartments other than affordable residential
apartments - 4,500 Sq M (c) Commercial Apartments (Office, shops, godowns) - 1,500 Sq M.
State the GST rates applicable in each case.
Answer - Since carpet area of commercial apartments does not exceed 15% of total carpet
area, the project qualifies as 'Residential Real Estate Project'. Hence, GST rates are as follows
(assuming that the total amount charged includes value of land) - (a) Affordable residential
apartments - 1% (b) Residential apartments other than affordable residential apartments -
5% (c) Commercial Apartments (Office, shops, godowns) - 5%. Input Tax Credit cannot be
availed.
Question - A promoter has a real estate project of apartments commenced after 1-4-2019,
with total carpet area of 10,000 Sq M, comprising of following - (a) Affordable residential
apartments - 4,000 Sq M (b) Residential apartments other than affordable residential
apartments - 4,400 Sq M (c) Commercial Apartments (Office, shops, godowns) - 1,600 Sq M.
State the GST rates applicable in each case.
Answer - Since carpet area of commercial apartments exceeds 15% of total carpet area, the
project does not qualify as 'Residential Real Estate Project'. It is 'real estate project'. Hence,
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GST rates are as follows (assuming that the total amount charged includes value of land)- (a)
Affordable residential apartments - 1% (b) Residential apartments other than affordable
residential apartments - 5% (c) Commercial Apartments (Office, shops, godowns) - 12%.
Proportionate Input Tax Credit in respect of commercial apartments can be availed.
Question - A promoter has a real estate project of apartments commenced after 1-4-2019,
with total carpet area of 10,000 Sq M, comprising of following - (a) Affordable residential
apartments - 1,000 Sq M (b) Residential apartments other than affordable residential
apartments - 2,000 Sq M (c) Commercial Apartments (Office, shops, godowns) - 7,000 Sq M.
State the GST rates applicable in each case.
Answer - Since carpet area of commercial apartments exceeds 15% of total carpet area, the
project does not qualify as 'Residential Real Estate Project'. It is 'real estate project'. Hence,
GST rates are as follows (assuming that the total amount charged includes value of land)- (a)
Affordable residential apartments - 1% (b) Residential apartments other than affordable
residential apartments - 5% (c) Commercial Apartments (Office, shops, godowns) - 12%.
Proportionate Input Tax Credit in respect of commercial apartments can be availed.
23.5 Reverse charge if receipts of input and services and capital goods received from
registered supplier
Promoter is required to procure all capital goods and at least 80% of inputs and input
services from registered suppliers. If not so procured, tax is payable by promoter on the
balance amount.
All cement must be purchased from registered supplier only. If not so received, the promoter
is required to pay GST @ 28% under reverse charge by promoter.
After considering payment of GST on cement under reverse charge (if any), at least 80% of
the procurement of inputs and input services [other than services by way of grant of
development rights, long term lease of land (against upfront payment in the form of
premium, salami, development charges etc.) or FSI (including additional FSI), electricity, high
speed diesel, motor spirit, natural gas], used in supplying the real estate project service shall
be received from registered supplier only.
If there is shortfall in procurement from registered suppliers, i.e. if still requirement of
procurement of 80% from registered suppliers is not achieved, GST @18% is payable on
value to the extent of shortfall.
In case of capital goods procured from unregistered person, the promoter is liable to pay
GST under reverse charge.
The statutory provisions are as follows.
Eighty per cent of value of input and input services, [other than services by way of grant of
development rights, long term lease of land (against upfront payment in the form of
premium, salami, development charges etc.) or FSI (including additional FSI), electricity, high
speed diesel, motor spirit, natural gas], used in supplying the service shall be received from
registered supplier only.
Inputs and input services on which tax is paid on reverse charge basis shall be deemed to
have been purchased from registered person.
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Where value of input and input services received from registered suppliers during the
financial year (or part of the financial year till the date of issuance of completion certificate
or first occupation of the project, whichever is earlier) falls short of the threshold of 80 per
cent tax shall be paid by the promoter on value of input and input services comprising such
shortfall at the rate of 18% on reverse charge basis and all the provisions of the Central
Goods and Services Tax Act, 2017 shall apply to him as if he is the person liable for paying
the tax in relation to the supply of such goods or services or both.
Liability of promoter to pay tax under reverse charge on goods and services or both [other
than TDR, FSI or upfront amount for long term lease of land) has been provided in Sr No. 1
and 2 of Notification No. 07/2019-CT (Rate) and 07/2019-IT (Rate) both dated 29-3-2019
effective from 1-4-2019.
These notifications, as amended w.e.f. 1-10-2019, make it clear that GST is payable on all
cement purchased from unregistered persons by promoter under reverse charge [This was
clear in eighth proviso contained in column 5 of Sr No. 11/2017-CT (Rate) dated 28-6-2017
as amended w.e.f. 1-4-2019 but there was drafting mistake in Notification Nos. 07/2019-CT
(Rate) and 07/2019-IT (Rate) both dated 29-3-2019 which has now been corrected].
Inward supplies of exempted goods/services shall be included in the value of supplies from
unregistered persons while calculating threshold of 80% - FAQ (Part II) No. 18 issued by
CBI&C vide circular F No. 354/32/2019-TRU dated 14-5-2019 [seems highly unfair].
Purchase of land from unregistered person shall not be considered for purpose of 80%
threshold, as sale of land is not supply - FAQ (Part II) No. 19 issued by CBI&C vide circular F
No. 354/32/2019-TRU dated 14-5-2019.
Promoter is also liable to pay GST under reverse charge on capital goods supplied to
promoter by unregistered person for construction of a project - Sr No. 3 of Notification No.
07/2019-CT (Rate) and 07/2019-IT (Rate) both dated 29-3-2019 effective from 1-4-2019.
The GST rate is 9% CGST and 9% SGST/UTGST) [total 18%] or IGST 18% even if the actual rate
of GST in case of some of inputs or input services may be lower than 18% - Sr No. 39 of
Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) and Sr No. 452Q of Schedule III of
Notification No. 08/2019-CT (Rate) and Notification No. 08/2019-IT (Rate) all dated 28-6-
2017 as inserted w.e.f. 1-4-2019.
However, where cement is received from an unregistered person, the promoter shall pay
tax on supply of such cement at the applicable rate (which is presently 28%). This tax will be
paid in the same month of purchases.
The promoter shall maintain project wise account of inward supplies from registered and
unregistered supplier and calculate tax payments on the shortfall at the end of the financial
year and shall submit the same in the prescribed form electronically on the common portal
by end of the quarter following the financial year. The tax liability on the shortfall of inward
supplies from unregistered person so determined shall be added to his output tax liability in
the month not later than the month of June following the end of the financial year.
Tax on cement received from unregistered person shall be paid in the month in which
cement is received.
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Input Tax Credit not availed shall be reported every month by reporting the same as
ineligible credit in GSTR-3B [Row No. 4 (D)(2)]
The illustrations are given in Annexure III to Notification No. 11/2017-CT (Rate) dated 28-6-
2017.
The amount payable under RCM on shortfall value below 80% should be paid through DRC-
03 - The amount payable under RCM on shortfall value below 80% should be paid through
DRC-03 - Instruction No. 3/2/2020-GST dated 24-6-2020.
Apportionment of procurement of limit of 80% in case of real estate projects - In case of
real estate project consisting of both residential and commercial apartments (more than
15%) having single GST Registration, apportionment of procurement for residential and
commercial portion shall be on basis of carpet area of residential and commercial portion -
FAQ (Part II) No. 5 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 14-5-2019. [I
am not clear why such apportionment is required].
23.5-1 Illustrations of reverse charge on supplies received from unregistered suppliers
Some illustrations in respect of supplies received from unregistered suppliers will clarify the
legal provisions.
Question - A promoter opting to pay GST at 1%/5% GST rate without availment of ITC
received following input and input services during financial year 2019-20 - (a) From
registered supplier - 65% (b) Cement received from unregistered person - 5% (c) Bricks, tiles
and labour services received from unregistered person - 30%. Explain liability of promoter
for payment of GST under reverse charge.
Answer - Promoter is liable to pay GST on cement @ 28% received from unregistered person
under reverse charge. Further, he is also liable to pay GST @ 18% on 10% of other goods and
services received from unregistered persons.
Question - A promoter opting to pay GST at 1%/5% GST rate without availment of ITC
received following input and input services during financial year 2019-20 - (a) From
registered supplier - 85% (b) Cement received from unregistered person - 5% (c) Bricks, tiles
and labour services received from unregistered person - 15%. Explain liability of promoter
for payment of GST under reverse charge.
Answer - Promoter is liable to pay GST under reverse charge on cement @ 28% received
from unregistered person, even if he has purchased 85% of supplies from registered person.
Question - A promoter opting to pay GST at 1%/5% GST rate without availment of ITC
received following input and input services during financial year 2019-20 - (a) From
registered supplier - 70% (b) Services received from unregistered suppliers on which tax is
payable by promoter under reverse charge - 4% (c) Cement received from unregistered
person - 6% (c) Bricks, tiles and labour services received from unregistered person - 15%.
Explain liability of promoter for payment of GST under reverse charge.
Answer - While calculating limit of 80%, inputs and input services on which tax is paid by
promoter under reverse charge shall be deemed to have been procured from registered
person. Promoter is liable to pay GST under reverse charge on cement @ 28% received from
unregistered person. Thus, promoter as received 80% of inputs and input services from
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registered persons [70 + 4 +6]. Hence, there is no further liability for payment of GST under
reverse charge.
Question - A promoter opting to pay GST at 1%/5% GST rate without availment of ITC
received following input and input services during financial year 2019-20 - (a) From
registered supplier paying tax at normal rate - 70% (b) From registered suppliers paying tax
under composition scheme - 15% (c) Cement received from unregistered person - Nil (d)
Bricks, tiles and labour services received from unregistered person - 15%. Explain liability of
promoter for payment of GST under reverse charge.
Answer - The supplies received from registered suppliers are 85%. All cement has been
received from registered suppliers. Hence, there is no liability on promoter to pay GST under
reverse charge.
Question - A promoter opting to pay GST at 1%/5% GST rate without availment of ITC
received following input and input services (A) during financial year 2019-20 - (a) From
registered supplier paying tax at normal rate - 70% (b) From registered suppliers paying tax
under composition scheme - 20% (c) Cement received from unregistered person - Nil (d)
Bricks, tiles and labour services received from unregistered person - 10%. (B) during financial
year 2020-21 - (a) From registered supplier paying tax at normal rate - 60% (b) From
registered suppliers paying tax under composition scheme - 10% (c) Cement received from
unregistered person - Nil (d) Bricks, tiles and labour services received from unregistered
person - 30%. Explain liability of promoter for payment of GST under reverse charge.
Answer - In financial year 2019-20, the supplies received from registered suppliers are 90%.
All cement has been received from registered suppliers. Hence, there is no liability on
promoter to pay GST under reverse charge.
In respect of financial year 2020-21, there is short fall of 10% in supplies received from
unregistered person. Hence, the promoter is liable to pay GST on 10% of value @ 18% under
reverse charge.
The calculations are to be done financial year-wise. Hence, excess amount received from
registered suppliers in financial year 2019-20 cannot be adjusted in financial year 2020-21.
Question - A promoter opting to pay GST at 1%/5% GST rate without availment of ITC
received following input and input services during financial year 2019-20 - (a) From
registered supplier making taxable supplies - 70% (b) From registered supplies making
exempted supplies (like interest) - 10%. (c) Cement received from unregistered person - Nil
(c) Bricks, tiles and labour services received from unregistered person - 20%. Explain liability
of promoter for payment of GST under reverse charge.
Answer - Promoter has received 80% supplies from registered suppliers. There is no
requirement that the supplies received should be taxable. Hence, there is no liability under
reverse charge.
Question - A promoter opting to pay GST at 1%/5% GST rate without availment of ITC
received following input and input services during financial year 2019-20 - (a) From
registered supplier - 80% (b) Cement received from unregistered person - 5% (c) Bricks, tiles
and labour services received from unregistered person - 10% (d) Capital goods received from
 426

unregistered supplier - 5%. Explain liability of promoter for payment of GST under reverse
charge.
Answer - Promoter is liable to pay GST under reverse charge on cement @ 28% received
from unregistered person and on capital goods received from unregistered supplier at rate
applicable to capital goods received.
23.6 Provisions in respect of ongoing projects where promoter opts to avail Input Tax
Credit
In respect of ongoing projects as on 1-4-2019, the promoter has option to pay GST at normal
rates (as applicable prior to 1-4-2019). In that case he can avail Input Tax Credit.
In that case, the GST rates are as follows -
The GST rate is CGST 6% plus SGST/UTGST 6% (total 12%) or IGST 12% (with ITC), where
supply of services involves transfer of land or undivided share of land - Sr No. 3(if) of
Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017 as amended
w.e.f. 1-4-2019. There are no restrictions on availment of ITC.
The GST rate will be CGST 9% plus SGST/UTGST 9% (total 18%) or IGST 18% where supply of
services does not involve transfer of land or undivided share of land. There are no
restrictions on availment of ITC.
No GST is payable where the entire consideration has been received after issuance of
completion certificate, where required, by the competent authority or after its first
occupation, whichever is earlier.
This rate applies to following ongoing projects -
(a) construction of complex, building, civil structure or part thereof in (i) Commercial
apartments (shops, officer, godowns etc.) in a REP other than RREP. (ii) Residential
apartments in other than affordable residential apartments.
(b) Supply of services where concessional rate is applicable as detailed below.
23.6-1 Concessional rate on ongoing projects in respect of certain apartments
The concessional GST rate is CGST 4% plus SGST/UTGST 4% (total 8%) or IGST 8% (with ITC),
where supply of services involves transfer of land or undivided share of land - Sr No. 3(ie) of
Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017 as amended
w.e.f. 1-4-2019. There are no restrictions on availment of ITC.
The GST rate will be CGST 6% plus SGST/UTGST 6% (total 12%) or IGST 12% where supply of
services does not involve transfer of land or undivided share of land. There are no
restrictions on availment of ITC.
No GST is payable where the entire consideration has been received after issuance of
completion certificate, where required, by the competent authority or after its first
occupation, whichever is earlier.
This concessional rate applies to following -
Services specified in Sr No. 3(iv)(b) - a civil structure or any other original works
pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or
Rajiv Awas Yojana
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Services specified in Sr No. 3(iv)(c) - a civil structure or any other original works
pertaining to the In-situ redevelopment of existing slums using land as a resource,
under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban)
Services specified in Sr No. 3(iv)(d) - a civil structure or any other original works
pertaining to the "Beneficiary led individual house construction/enhancement"
under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana
Services specified in Sr No. 3(iv)(da) - a civil structure or any other original works
pertaining to the "Economically Weaker Section (EWS) houses" constructed under
the Affordable Housing in partnership by State or Union territory or local authority
or urban development authority under the Housing for All (Urban) Mission/Pradhan
Mantri Awas Yojana (Urban)

Services specified in Sr No. 3(iv)(db) - a civil structure or any other original works
pertaining to the "houses constructed or acquired under the Credit Linked Subsidy
Scheme for Economically Weaker Section (EWS)/Lower Income Group (LIG)/Middle
Income Group-1 (MIG-1)/Middle Income Group-2 (MIG-2)" under the Housing for All
(Urban) Mission/Pradhan Mantri Awas Yojana (Urban)
Services specified in Sr No. 3(v)(b) - a single residential unit otherwise than as a part
of a residential complex. "Single residential unit" means a self-contained residential
unit which is designed for use, wholly or principally, for residential purposes for one
family.
Services specified in Sr No. 3(v)(c) - low-cost houses up to a carpet area of 60 square
metres per house in a housing project approved by competent authority empowered
under the 'Scheme of Affordable Housing in Partnership' framed by the Ministry of
Housing and Urban Poverty Alleviation, Government of India.
Services specified in Sr No. 3(v)(d) - low cost houses up to a carpet area of 60 square
metres per house in a housing project approved by the competent authority under-
(1) the "Affordable Housing in Partnership" component of the Housing for All (Urban)
Mission/Pradhan Mantri Awas Yojana (2) any housing scheme of a State Government.

Services specified in Sr No. 3(v)(da) - low-cost houses up to a carpet area of 60 square

metres per house in an affordable housing project which has been given
infrastructure status vide notification of Government of India, in Ministry of Finance,
Department of Economic Affairs vide F. No. 13/6/2009-INF, dated the 30th March,
2017.
Services specified in Sr No. 3(vi)(c) - Service provided to the Central Government,
State Government, Union Territory, a local authority, a governmental authority or a
Government Entity for a residential complex predominantly meant for self-use or the
use of their employees or other persons specified in paragraph 3 of the Schedule III
of the Central Goods and Services Tax Act, 2017.

23.6-2 Option if taxable person intends to avail ITC in respect of ongoing project
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In case of ongoing project, the registered person shall exercise one time option in the Form
at Annexure IV to pay central tax on construction of apartments in a project at the rates as
specified for item (ie) or (if), as the case may be, by the 10th of May, 2019. Where the option
is not exercised in Form at annexure IV by the 20 th of May, 2019, option to pay tax at the
rates as applicable to item (i) or (ia) or (ib) or (ic) or (id) above, as the case may be, shall be
deemed to have been exercised [the time limit was initially 10th May 2019].
Annexure IV has to be filed separately for each project - FAQ (Part II) No. 22 issued by CBI&C
vide circular F No. 354/32/2019-TRU dated 14-5-2019.
Thus, if taxable person intends to avail ITC in respect of ongoing projects, he must specifically
intimate the same before 20-5-2019 [earlier it was 10-5-2019]. If he does not do so, it is
deemed that he has availed option not to avail ITC w.e.f. 1-4-2019 in respect of ongoing
project.
The form was required to be submitted manually and any modification/amendment in the
form filed is not permissible - - FAQ (Part I) No. 41 issued by CBI&C vide circular F No.
354/32/2019-TRU dated 7-5-2019.
Invoices for supply of the service can be issued during the period from 1st April 2019 to 20th
May 2019 before exercising the option, but such invoices shall be in accordance with the
option to be exercised.
23.7 Apportionment of ITC between taxable supply and exempt supply on basis of value
except in case of real estate services
Section 17(3) of CGST Act envisages that apportionment of ITC between exempt supply and
taxable supplies including zero rated supplies shall be on basis of value.
However, as per scheme of GST on real estate w.e.f. 1-4-2019, it is envisaged that such
apportionment shall be on basis of area of construction of complex. Hence, Removal of
Difficulties Order No. 04/2019-CT dated 29-3-2019 provides that such apportionment shall
be on basis of area of construction of complex.
23.8 Contracts for construction of affordable residential apartments
The concessional GST rates discussed above apply to affordable residential apartments in
REP or RREP, where the contract amount includes value of undivided portion of land.
However, in some cases, the contractor only undertakes construction of residential
apartments. In such contracts, some residential apartments may be affordable residential
apartments (as defined) and some may be normal residential apartments.
In that case, provision of concessional rate of GST has been made at Sr No. (va) to
Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017 inserted
w.e.f. 1-4-2019.
This concessional rate applies to both new projects after 1-4-2019 or ongoing projects as on
1-4-2019, where the promoter has not opted to pay GST at rates specified in item 3(ie) or
3(if).
The concessional rate of GST applies only to Affordable Residential Apartments and not to
all residential apartments in the project.
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The concessional rate should apply to sub-contractor also, if he is executing works contract
(i.e. with material).
The GST rate will be CGST 6% plus SGST/UTGST 6% (total 12%) or IGST 12%, as the supply of
services does not involve transfer of land or undivided share of land.
Input Tax Credit is available.
The carpet area of affordable residential apartments should be at least 50% of total carpet
area of all the apartments in the project.
Statutory wording - The provision in respect of Affordable Residential Apartments apply to
composite supply of works contract as defined in section 2(119) of the CGST Act, other than
that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if) above, supplied by way of
construction, erection, commissioning, installation, completion, fitting out, repair,
maintenance, renovation, or alteration of affordable residential apartments covered by
paragraph 4(xvi)(a), in a project which commences on or after 1st April, 2019, or in an
ongoing project in respect of which the promoter has not exercised option to pay central tax
on construction of apartments at the rates as specified for item (ie) or (if), as the case may
be, in the manner prescribed therein.
Meaning of 'affordable residential apartment' - Basically, 'affordable residential
apartment' means carpet area not exceeding 60 square meter in metropolitan cities or 90
square meter in cities or towns other than metropolitan cities and for which the gross
amount charged is not more than forty five lakh rupees. The detailed definition is given
above.
Conditions for concessional rate - The carpet area of the affordable residential apartments
should not be less than 50% of the total carpet area of all the apartments in the project.
For the purpose of determining whether the apartments at the time of supply of the service
are affordable residential apartments covered by clause 4(xvi)(a), value of the apartments
shall be the value of similar apartments booked nearest to the date of signing of the contract
for supply of the service.
In case it finally turns out that the carpet area of affordable residential apartments was less
than 50% of total carpet area of all the apartments, the promoter shall be liable to pay
difference between normal tax payable and the tax collected at concessional rate from the
buyers, under reverse charge basis.
The contractor can rely on declaration by promoter that the project meets conditions of
concessional rate on the works contract service - FAQ (Part II) No. 23 issued by CBI&C vide
circular F No. 354/32/2019-TRU dated 14-5-2019.
23.9 Valuation of apartments sold by promoter
The contract entered into by promoter with customer includes many clauses of charges in
respect of various services offered by promoter to customer. The issue of valuation is critical.
Following numerical examples will illustrate the GST liability in respect of various services
offered by promoter.
Question - A promoter has entered into agreement to sale a residential apartment with
carpet area of 120 Sq M, to customer on 1-5-2019. The breakup of his charges are as follows
 430

- (a) Price of flat - Rs 100 lakhs (b) Prime Location Charges (PLC) (extra charges to select
preferred location for better view, Vastu etc.) - Rs 2 lakhs (c) Charges for providing space for
covered parking - Rs 2.5 lakhs (d) Club membership fee (for club to be formed after
construction is complete) - Rs 3 lakhs. This amount will be held by promoter and handed
over to club after formed (e) Charges for carrying out modifications as required by customer
- Rs 1 lakh (f) Stamp duty for executing sale deed on actual basis - Rs 4 lakhs (g)
Documentation charges - Rs 50,000 (g) Maintenance charges to maintain building after
completion, till the Real Estate Project is handed over to Resident Welfare Association (or
Housing Society of members) - Rs 2 lakhs.
The promoter received payment of Rs 10 lakhs before construction was complete and
balance amount was received after obtaining completion certificate from the Corporation.
The promoter had used cement, steel and building material during construction, on which
SGST paid was Rs 70,000 and CGST - Rs 70,000. While providing maintenance services, the
promoter had used input goods and services on which tax paid was as follows - CGST - Rs
2,000 SGST - Rs 2,000.
Compute the tax payable by promoter.
Answer - The main service is construction of apartment for Rs 100 lakhs. Some other services
are provided which are normally provided while providing this service. This is termed as
'composite supply'. The service of construction of apartment will include these naturally
bundled services. These are - PLC - Rs. 2 lakhs, Charges for covered parking - Rs. 2.5 lakhs,
Modification charges - Rs. 1 lakh, Documentation charges - Rs. 50,000. Thus, total value of
service for construction of apartment is Rs 106 lakhs.
Tax payable by promoter through electronic cash ledger on Rs 106 lakhs- SGST @ 2.5% Rs
2.65 lakhs and CGST @ 2.5% - Rs 2.65 lakhs. Total Rs 5.30 lakhs.
No input tax credit is available.
Maintenance charges of Rs 2 lakhs not part of construction service of apartment. These are
not part of 'composite service' of construction.
Hence on maintenance charges - SGST @ 9% - Rs 18,000. CGST @ 9% - Rs 18,000.
ITC of SGST of Rs 2,000 and CGST of Rs 2,000 is available to promoter.
Hence, tax payable by promoter on maintenance charges through electronic cash ledger is -
CGST - Rs 16,000 and SGST - Rs 16,000.
Club membership fee of Rs. 3 lakhs is only a deposit to be handed over to club when formed.
At that stage, the club will be liable to pay GST on this amount.
Stamp duty is not a part of service. It is only reimbursement of expenses incurred on behalf
of customer.
Tax is payable on entire amount even if only part amount was received prior to completion
of construction of apartment.
Question - A customer 'A' who had booked the residential apartment and paid Rs 10 lakhs,
subsequently cancelled his booking. The promoter refunded Rs 9 lakhs and kept Rs one lakh
as cancellation charges. Another customer who had booked an apartment sold the
apartment to third person and requested promoter to transfer the apartment in name of
 431

new buyer. The builder charged Rs 50,000 as transfer charges. Is tax payable on these
amounts? Compute tax liability, if any.
Answer - Both the charges fall within the definition of 'tolerating an act or situation', which
is defined as a 'deemed service'. Hence, these charges will be subject to tax @ 18%.
Tax payable - SGST @ 9% of Rs 1,50,000 - Rs 13,500. CGST @ 9% - Rs 13,500.
23.9-1 Charges of PLC, EDC , parking space charges etc. are part of 'construction service' -
for valuation of apartment
A builder/contractor charges separately for Preferential Location Charges (PLC), additional
charges for modifications suggested by customers, maintenance during construction period,
covered parking charges, EDC (External Development Charges), IDC (Internal Development
Charges) etc. In my view, all these are 'naturally bundled services. These should get covered
under 'construction of complex' and be eligible for abatement in valuation - view confirmed
in FAQ (Part II) No. 4 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 14-5-2019.
Common amenities (like club house, swimming pool), water, electricity, drainage, sewage,
society formation, legal services and documentation charges are for services which are
integral part of composite supply of works contract, construction services being principal
supply. These are 'naturally bundled'. However, advance maintenance charges, stamp duty,
corpus fund and share application money will not be included in value of apartment - Joyville
Shapoorji Housing P Ltd. In re (2020) 81 GST 559 = 113 taxmann.com 369 (AAR-Maharashtra).
Club membership fee cannot be part of construction service and should not get covered
under 'naturally bundled service'. Similarly, maintenance service provided after construction
is over is not part of 'construction service' and should not be eligible for abatement.
Contrary decision of AAAR in respect of PLC - However, in Bengal Peerless Housing
Development Company Ltd., In re [2019] 110 taxmann.com 34 (AAAR-WB), it has been held
that PLC is a separate service charged separately at the option of customer. It is not part of
value of construction service and no abatement is available in respect of PLC amount
charged [In other words, it is not composite supply]. The decision in Bengal Peerless Housing
Development Co. Ltd., In re [2019] 105 taxmann.com 58 (AAR-West Bengal) has been
reversed, where, it was held that service of construction of a dwelling unit in a residential
complex, bundled with services relating to the preferential location of the unit and right to
use car parking space and common areas and facilities, is a composite supply, construction
service being the principle supply. Entire value of the composite supply is, therefore, to be
treated, for the purpose of taxation, as supply of construction service.
23.10 Development of land into plots by joint development agreement
In Maarq Spaces (P.) Ltd., In re [2020] 116 taxmann.com 702 (AAR-Karnataka), the appellant,
who was engaged in business of property development entered into a joint development
agreement with landowners for development of land into residential layout. Cost of
development was to be borne by appellant and revenue accruing from sale of plots was to
be shared in ratio of 75% for landowners and 25% for appellant. It was held that since joint
development agreement was entered into for two parties to jointly reap benefits of sale of
land to customers, there is a clear rendering of a service by developer to landowner in
 432

developing land which belongs to landowner. Hence, activity of developing land is a supply
of service by appellant.
23.11 Unresolved issues in case of GST on real estate transactions
The revised scheme of tax on real estate projects is comparatively simple, though against
basic concept of GST of input tax credit to avoid cascading effect of taxes.
However, many issues are yet to be resolved. Some issues which came to my mind
immediately are given below. Many other issues will arise in due course.
Mode of calculation of GST on transferable development rights as given in Sr Nos. 41
and 41B of Notification No. 12/2017-CT (Rate) dated 28-6-2017 is unworkable as the
provisions are presently worded, though principle can be understood.
There is provision that if land-owner promoter makes sale of apartments
independently before completion certificate, he is required to charge GST. He can
take ITC of GST charged to him by promoter developer. However, there is time
mismatch as the liability of land-owner to pay GST arises first while liability of
promoter builder to charge and pay GST arises later. Thus, land owner may not be
able to utilise credit of GST charged to him by promoter developer.
 433

TDR/FSI/Upfront amount in Long term lease in real estate transactions

24.1 Tax on real estate transactions except sale of land or completed building/apartment
As discussed earlier, definition of 'service' is so wide that it can cover all transactions relating
to land and buildings. However, GST is not payable on sale of land or completed
apartment/building/civil structure. Thus, GST is payable on following services -
Transfer of Development Rights (by land owner or society or tenant to promoter)
Transfer of Development Rights by Government (in case of slum rehabilitation project)
Transferable Development Rights (transfer of FSI)

Upfront amount for granting long term lease of land for thirty years or more or

GST applies on transfer of development rights - GST applies on transfer of development

rights by land owner to developer - Vilas Chandanmal Gandhi, In re [2020] 114 taxmann.com
239 (AAR) - affirmed in Vilas Chandanmal Gandhi, In re [2020] 120 taxmann.com 83 (AAAR -
Maharashtra)* Maarq Spaces P Ltd., In re (2020) 78 GST 25 = 111 taxmann.com 368 (AAR -
Karnataka). - confirmed in appeal in Maarq Spaces P Ltd. In re (2020) 81 GST 192 = 116
taxmann.com 702 (AAAR-Karnataka).
Service code - The service should fall under group 99721. The tax rate is 18% [9% CGST plus
9% SGST/UTGST].
Exemption in respect of residential apartments - In respect of aforesaid transactions,
exemption has been granted only to be extent of services of transfer of development rights
or FSI or payment of long term lease amounts, relating to residential apartments, where sale
is made before completion or occupation (as in that case, GST is payable @ 1%/5% without
ITC).
Tax payable by promoter under reverse charge - In most of the cases, GST on these
transactions is payable by promoter under reverse charge.
Tax payable by promoter under reverse charge in transactions after 1-4-2019 -GST on
these transactions is payable by promoter under reverse charge in case of transactions
entered into after 1-4-2019. This is confirmed in FAQ (Part I) No. 12 issued by CBI&C vide
circular F No. 354/32/2019-TRU dated 7-5-2019.
Thus, GST @ 18% (9% CGST plus 9% SGST/UTGST) is payable on - (a) commercial apartments
and (b) unbooked residential apartments as on date of issue of completion
certificate/occupancy certificate or first occupation of the project - FAQ (Part II) No. 7 issued
by CBI&C vide circular F No. 354/32/2019-TRU dated 14-5-2019.
If development rights were transferred prior to 1-4-2019, reverse charge does not apply
even if consideration for the same, in cash or kind, is received after 1-4-2019 - FAQ (Part I)
No. 38 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019.
GST on TDR applies even if land owner is individual and not in business of land relating to
activities - Definition of 'business' is very wide. Hence, GST on TDR applies even if land
owner is individual and not in business of land relating to activities - FAQ (Part I) No. 39
issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019.
 434

24.2 Transfer of development rights

In some cases, land owner transfers development rights to promoter. The landowner gets
some fully constructed apartments from promoter as consideration.
In case of old buildings owned by society, the development rights are given by owners of
apartments or tenants (where tenants have tenancy rights under law) to promoter. The
promoter demolishes old building and constructs new apartments. He gives agreed
constructed area (often equal to the area of earlier building which was demolished) to earlier
owner/tenant free i.e. without any monetary consideration. Then, the promoter sales
balance area.
Land owner/owner of apartment in society/tenant gives land development rights to
promoter, for which he is given some apartments. This is a barter transaction.
In such cases, GST is payable on such transfer of development rights (These are different
from 'transferable development rights' discussed later).
There is no doubt that the promoter is providing construction service to the land owner,
transferor of TDR or earlier tenant/owner of apartments. The consideration is paid to them
in form other than cash.
GST should be payable in respect of free apartments given to the land owner. See also CBI&C
circular dated 10-2-2012 and Para 6.2.1 of CBI&C's 'Taxation of Services : An Education
Guide' published on 20-6-2012, where the same view has been expressed.
In LCS City Makers P Ltd. v. CST (2012) 36 STT 228 = 23 taxmann.com 169 = 68 VST 318
(CESTAT), it has been held that service tax is payable even when consideration is received in
form of land - same view in Direktorna Direktsia Obzhalvane I Upravlenienaizpalnenieto v.
Or feyBalgaria EOOD (2013) 38 STT 289 (ECJ) * Southern Properties v. CCE (2015) 52 GST 413
= 61 taxmann.com 423 (Mad HC DB) * Gowra Ventures (P.) Ltd., In re [2018] 98 taxmann.com
320 (AAR- Telangana).
24.2-1 Transfer of development rights in case of re-development of slum rehabilitation
In re-development of old buildings or societies, apartments are given free to original
inhabitants as they transfer TDR/FSI to promoter.
In case of slum development projects, TDR/FSI is received from Government from promoter.
The promoter gives apartments free to slum dwellers.
In both the cases, GST is payable as consideration is received in form of TDR/FSI [it is not
free]. It is taxable supply -FAQ (Part II) No. 8 issued by CBI&C vide circular F No. 354/32/2019-
TRU dated 14-5-2019.
If the promoter opts to pay tax @ 8%/12% with ITC, he can avail ITC even in respect of
apartments supplied free to existing occupiers even if no monetary consideration is received
(as consideration is in form of grant of TDR/FSI).
24.3 Transferable Development Rights i.e. transfer of FSI
' Transferable Development Rights' (TDR) means certificates issued in respect of category of
land acquired for public purposes either by the Central or State Government in consideration
of surrender of land by the owner without monetary compensation, which are transferable
in part or whole - para 2.1.46 of Consolidated FDI Policy Circular dated 28-8-2017.
 435

TDR is also defined in section 6(2) of FEMA.

TDR is granted by a local authority in pursuance of Development Control Regulations. Owner
of land relinquishes or surrenders some area to local authority. In lieu of that area,
Government allows construction of additional built-up area. The land owner can use extra
built-up area either himself or transfer it to another for agreed some of consideration. Thus,
TDR is right given by authority to construct/develop land upto certain permissible Floor
Space Index (FSI) within permissible limits of Development Control Regulations.
Transferable Development Rights (TDR) allow the owner of TDR additional construction area
[FSI].
The owner of Transferable Development Rights is permitted to transfer these development
rights to third person for consideration. The third person purchasing these transferable
development rights (TDR) is allowed additional FSI to construct apartments using this TDR.
In the notifications issued under GST, the term used is 'transfer of Floor Space Index (FSI)
(including additional FSI)'. This is similar to transfer of Transferable Development Rights.
Supply of TDR is not sale of land. It is also not actionable claim. Such supply of TDR is subject
to GST.
TDR is different from Transfer of Development Rights - In TDR, Government (local authority)
gives an instrument to land owner (for surrender of his right) to either use it or sale it.
In Transfer of Development Rights, the owner of land allows promoter to develop the land
and construct apartments in his land. This is different from Transferable Development
Rights.
TDR (Transferable Development Right) is subject to GST - In Vilas Chandanmal Gandhi, In
re [2020] 114 taxmann.com 239 (AAR - MAHARASHTRA), it has been held that GST is leviable
on amount received on sale of Transferable Development Rights ('TDR')/Floor Space Index
('FSI') for surrendering joint rights in terms of Development Control Regulations granted.
TDR(Transferable Development Right) was subject to sales tax - In Sumer Corporation v.
State of Maharashtra (2017) 102 VST 251 (Bom HC DB), the developer had constructed some
apartments free of cost (without any charge) and supplied them to Slum Rehabilitation
Authority (SRA). The developer received Transferable Development Rights (TDR) from SRA.
The developer could sale the TDR in market and in fact, the developer did sale those TDR in
market. It was held that construction done by developer is works contract. It was further
held that TDR received by developer from SRA is 'other valuable consideration' received
from SRA and is subject to sales tax (works contract tax) on the construction of flats.
24.4 GST on Upfront amount payable for long term lease of land
Long term lease of land is not sale of land. Hence, GST is payable on services relating to long
term lease of land which may be even 99 years or 999 years.
The upfront amount may be called as premium, salami, cost, price, development charges or
by any other name.
Leasing of land for 99 years is subject to GST - HazariBagh Builders (P.) Ltd., In re [2020] 117
taxmann.com 797 (AAR - Rajasthan).
 436

In Builders Association of Navi Mumbai v. Union of India [2018] 67 GST 334 = 92

taxmann.com 134 (Bombay HC), it has been held that premium/one-time premium is a
measure on which tax is levied, assessed and recovered. Hence, demand for payment of GST
on one-time lease premium consideration paid by assessee for entering into lease with City
Industrial and Development Corporation of Maharashtra Limited (CIDCO) is justified.
This principle will apply to long term lease of land also.
In Goa Tourism Development Corporation Ltd., In re [2018] 71 GST 611 = 100 taxmann.com
128 (AAR - GOA), the applicant collected amount of Rs. 25.20 crores from a hotel Myrayash
in the name of onetime upfront Concession Fees for a term of 60 years for use of their
property through Private Investment mode on Design, Build, Finance, Operate and Transfer
(DBFOT) Basis. It was held that this service is not exempt.
Long lease of land is practically sale of land - In Lavasa Corporation Ltd. v. Jitendra Jagdish
Tulsiani [2018] 96 taxmann.com 212 (Bombay HC), agreement of lease was executed to take
apartments on long term lease of 999 years. Almost 80% of the cost was paid and substantial
amount of stamp duty and registration charges were paid. Lease rent was nominal of Rs. one
per year. It was held that though nomenclature of the document is 'agreement to lease' in
its real purpose, it is an 'Agreement to sale'. Law is well settled that the nomenclature of the
document cannot be a true test of its real intent. The document has to be read as a whole
to ascertain the intention of parties. In reality, the transaction is 'agreement of sale'.
This judgment is in respect of RERA, and may not apply to GST. Further, specific provisions
have been made in respect of GST on long lease in case of real estate projects of residential
and commercial apartments.
24.4-1 Upfront amount for long term lease of industrial plots exempt
Upfront amount (called as premium, salami, cost, price, development charges or by any
other name) payable in respect of service by way of granting of long term lease (of thirty
years, or more) of industrial plots or plots for development of infrastructure for financial
business, provided by the State Government Industrial Development Corporations or
Undertakings or by any other entity having 20%* or more ownership of Central Government,
State Government, Union territory to the industrial units or the developers in any industrial
or financial business area - Sr No. 41 of Notification No. 12/2017-CT (Rates) and Sr No. 43 of
9/2017-IT (Rates) both dated 28-6-2017 amended on 13-10-2017 and 1-1-2020. [* - The %
was 50% upto 1-1-2020]
Explanation.- For the purpose of this exemption, the Central Government, State
Government or Union territory shall have 20%* or more ownership in the entity directly or
through an entity which is wholly owned by the Central Government, State Government or
Union territory [* - The prescribed % was 50% upto 1-1-2020].
This explanation has been inserted under section 11(3) of CGST Act and hence has
retrospective effect from 1-7-2017.
Exemption available even if upfront amount on long term lease of industrial plots or for
financial business is paid in instalments - Exemption from GST is available even if upfront
amount on long term lease of industrial plots is paid in instalments - CBI&C circular No.
101/20/2019-GST dated 30-4-2019.
 437

Conditions for the exemption as introduced w.e.f. 1-1-2020 - The leased plots shall be used
for the purpose for which they are allotted, that is, for industrial or financial activity in an
industrial or financial business area. The State Government concerned shall monitor and
enforce the above condition as per the order issued by the State Government in this regard.
In case of any violation or subsequent change of land use, due to any reason whatsoever,
the original lessor, original lessee as well as any subsequent lessee or buyer or owner shall
be jointly and severally liable to pay such amount of central tax, as would have been payable
on the upfront amount charged for the long term lease of the plots but for the exemption
contained herein, along with the applicable interest and penalty.
The lease agreement entered into by the original lessor with the original lessee or
subsequent lessee, or sub- lessee, as well as any subsequent lease or sale agreements, for
lease or sale of such plots to subsequent lessees or buyers or owners shall incorporate in the
terms and conditions, the fact that the central tax was exempted on the long term lease of
the plots by the original lessor to the original lessee subject to above condition and that the
parties to the said agreements undertake to comply with the same - the condition as
introduced w.e.f. 1-1-2020. Earlier, there was no such condition.
Ancillary services relating to service of providing lease of industrial plots is taxable - Only
upfront amount is exempt from GST. Ancillary services like transfer fees, extension
permission fees, conversion fees for changing from leasehold to freehold plot, which are
relating to service of providing lease of industrial plots is taxable - Punjab Small Industries
and Export Corpn Ltd., In re (2018) 99 taxmann.com 293 = 71 GST 80 (AAR- Chandigarh).
Till 13-10-2017, the exemption was as follows - One time upfront amount (called as
premium, salami, cost, price, development charges or by any other name) leviable in respect
of the service, by way of granting long term (thirty years, or more) lease of industrial plots,
provided by the State Government Industrial Development Corporations or Undertakings to
industrial unit is exempt - Notification No. 12/2017-CT (Rates) and 9/2017-IT (Rates) both
dated 28-6-2017, effective from 1-7-2017, upto 13-10-2017.
However, in view of explanation inserted w.e.f. 1-7-2017, the amendment made on 13-10-
2017 will apply even for upfront fees paid during 1-7-2017 to 12-10-2017.
24.4-2 Upfront amount for long term lease paid after 1-4-2019 for construction of
residential apartments exempt, if apartment sold before completion
Upfront amount (called as premium, salami, cost, price, development charges or by any
other name) payable in respect of service by way of granting long term lease of thirty years
or more, on or after 1-4-2019, for construction of residential apartments by a promoter in
project, is exempt.
This exemption is available only when the promoter makes sale to buyer before obtaining
completion certificate of the building or its first occupation, whichever is earlier. If the
promoter received entire consideration from buyer after issuance of completion certificate
by competent authority or its first occupation, the exemption is not available.
In case of unsold residential apartments as on date of completion certificate, the promoter
is liable to pay GST on proportionate upfront amounts, as provided in Sl. No. 41B of
Notification No. 12/2017-CT (Rate) dated 28-6-2017, inserted w.e.f. 1-4-2019.
 438

See para 24.6 for detailed provisions [as provisions under Sr Nos. 41A and 41B are identical].
24.5 GST on Development Rights/FSI/Upfront Amount in real estate transactions by
promoter under reverse charge
GST is payable on transfer of development rights, FSI and upfront amount for long term
lease.
24.5-1 Person liable to pay GST on transfer of Development Rights/FSI/Upfront amount
for long term lease
Till 31-3-2019, tax was payable on transfer of development rights/FSI/upfront amount for
long term lease by transferor of development of rights or FSI or lessor who gave land on long
term lease.
This provision has changed w.e.f. 1-4-2019, vide Notification Nos. 6/2019-CT (Rate) and
06/2019-IT (Rate) both dated 29-3-2019 and Sr No. 5B and 5C of Notification No. 13/2017-
CT (Rate) dated 28-6-2017 inserted w.e.f. 1-4-2019.
W.e.f. 1-4-2019, the promoter is liable to pay tax under reverse charge in respect of following
-
Development rights or FSI (including additional FSI) received on or after 1-4-2019 for
construction of project (it may be residential or commercial).

Long term lease of land (30 years or more) granted after 1-4-2019 for construction
of project (it may be residential or commercial).

24.6 Transfer of development rights/FSI after 1-4-2019 for construction of residential

apartments exempt, if sold before completion
Exemption is available in respect of transfer of development rights, FSI made after 1-4-2019
or upfront amount for long term lease of land (30 years or more) paid after 1-4-2019, to the
extent of construction of residential apartments by promoter, when sale is made by
promoter during construction.
This exemption is not available - (a) where entire construction of residential apartment is
received after completion certificate or first occupation i.e. when ready apartments are sold
without GST (b) transfer of Development Rights/FSI or payment of long term lease amount
for commercial apartments.
In such cases, promoter is liable to pay GST under reverse charge.
The exemption is not applicable in respect of transfer of Development Rights/FSI or long
term lease of land (30 years or more) made on or before 31-3-2019.
Provisions in respect of exemption and tax on TDR/FSI/Upfront amount in real estate
transactions have been made in Sr Nos. 41A and 41B of Notification Nos. 12/2017-CT (Rate)
and 9/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-4-2019.
The provisions are in respect of following - (a) Service by way of transfer of development
rights(TDR) or Floor Space Index (FSI) (including additional FSI) on or after 1st April, 2019 (b)
Upfront amount (called as premium, salami, cost, price, development charges or by any
other name) payable in respect of service by way of granting of long term lease of thirty
years, or more on or after 1-4-2019.
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The service is for construction of residential apartments by a promoter in a project, intended

for sale to a buyer, wholly or partly, except where the entire consideration has been received
after issuance of completion certificate, where required, by the competent authority or after
its first occupation, whichever is earlier.
GST on TDR - GST on TDR @ 18% (9% CGST plus 9% SGST/UTGST) is payable on - (a)
commercial apartments and (b) unbooked residential apartments as on date of issue of
completion certificate or first occupation of the project - FAQ (Part II) No. 7 issued by CBI&C
vide circular F No. 354/32/2019-TRU dated 14-5-2019.
Exemption to the extent of residential apartments sold before completion - The amount of
GST exemption available for construction of residential apartments in the project under this
notification shall be calculated as provided in Sr Nos. 41A and 41B of Notification No.
12/2017-CT (Rate) dated 28-6-2017.
The provision has been very clumsily drafted. Hence, we have to understand the provision
considering the principle behind the provisions.
What is written below is not what is actually written against Sr Nos. 41A and 41B but what
is actually meant (based on principles). Hope the notification will be amended suitably to
clarify the position.
As per the principle, the first step is to calculate GST payable on development rights
transferred, which pertain to residential apartments.
(A) GST on transfer of development rights/FST attributable residential apartments = GST
payable on TDR or FSI (including additional FSI) or both or on upfront amount payable in
respect of service by way of granting of long term lease of thirty years, or more for
construction of the project] × (carpet area of the residential apartments in the project) ÷
(Total carpet area of the residential and commercial apartments in the project) .
[The notification wrongly terms it as 'Amount of exemption available for construction of
residential apartments].
The second step is to calculate GST payable by promoter on un-booked residential
apartments.
The promoter shall be liable to pay tax at the applicable rate, on reverse charge basis, on
such proportion of value of development rights or FSI (Including additional FSI) or both, or
upfront amount (called as premium, salami, cost, price, development charges or by any
other name) paid for long term lease of land, as is attributable to the residential apartments,
which remain un-booked on the date of issuance of completion certificate, or first
occupation of the project, as the case may be.
The calculation will be made in the following manner -
(B) GST payable on residential apartments remain un-booked on date of completion = [GST
payable on TDR or FSI (including additional FSI) or both or upfront amount (called as
premium, salami, cost, price, development charges or by any other name) payable for long
term lease of land for construction of the residential apartments in the project but for the
exemption contained herein] × (carpet area of the residential apartments in the project
which remain un-booked on the date of issuance of completion certificate or first
occupation÷ Total carpet area of the residential apartments in the project) - first proviso to
 440

Sr Nos. 41A and 41B of Notification No. 12/2019-CT (Rate) dated 28-6-2017 inserted w.e.f.
1-4-2019.
The exemption available on transfer of development rights/FSI attributable to residential
apartments which were booked prior to date of completion = (A) - (B).
Upper limit for tax on residential apartments - The tax payable in terms of above shall not
exceed 0.5% of CGST (plus 0.5% of SGST/UTGST) of the value in case of affordable residential
apartments and 2.5% of CGST (plus 2.5% of SGST/UTGST) of the value in case of residential
apartments other than affordable residential apartments remaining un-booked on the date
of issuance of completion certificate or first occupation - first part of second proviso to Sr
Nos. 41A and 41B of Notification No. 12/2019-CT (Rate) dated 28-6-2017 inserted w.e.f. 1-
4-2019.
Time when liability of promoter arises - The liability to pay central tax on the said portion
of the development rights or FSI, or both, or upfront amount paid for long term lease of land,
calculated as above, shall arise on the date of completion or first occupation of the project,
as the case may be, whichever is earlier - second part of second proviso to Sr Nos. 41A and
41B of Notification No. 12/2019-CT (Rate) dated 28-6-2017 inserted w.e.f. 1-4-2019.
Value of supply of service of development rights or FSI to promoter - Value of supply of
service by way of transfer of development rights or FSI by a person to the promoter against
consideration in the form of residential or commercial apartments shall be deemed to be
equal to the value of similar apartments charged by the promoter from the independent
buyers nearest to the date on which such development rights or FSI is transferred to the
promoter - para 1A of Notification Nos. 12/2017-CT (Rate) and 9/2017-IT (Rate) both dated
28-6-2017 inserted w.e.f. 1-4-2019.
As per paragraph 2 of Notification No. 11/2017-CT (Rate) dated 28-6-2017, the value will be
equal to total amount charged less one third of total amount as value of land.
In fact, if value is calculated on aforesaid basis, the 'value' will be much higher than that
provided in section 15 of CGST Act, which is legally impermissible [see discussed later].
Value if cash is received by land owner - If cash is received by land owner, the total amount
received will be taxable value of supply. Rule 31 applies - Maarq Spaces P Ltd. In re (2020)
78 GST 25 = 111 taxmann.com 368 (AAR-Karnataka).
Value of portion of un-booked residential or commercial apartments - Value of portion of
residential or commercial apartments remaining un-booked on the date of issuance of
completion certificate or first occupation, as the case may be, shall be deemed to be equal
to the value of similar apartments charged by the promoter nearest to the date of issuance
of completion certificate or first occupation, as the case may be - para 1B of Notification
Nos. 12/2017-CT (Rate) and 9/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-4-2019.
24.6-1 Issue of partial completion certificate/occupancy certificate
All the accounts are to be maintained project-wise. In one project, there may be more than
one building. Often, partial completion certificate/occupancy certificate is obtained for each
building.
As per FAQ (Part I) No. 29 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-
2019, if partial completion/occupancy certificate has been obtained before 31-3-2019, the
 441

first occupation shall not be considered to have taken place. It will be considered as ongoing
project as on 1-4-2019. Promoter can opt to pay tax @ 1%/5% on such project.
24.6-2 Illustrations in respect of GST payable by promoter under reverse charge
Some illustrations will clarify the statutory provisions.
Question - A promoter entered into agreement with land owner for transfer of deve-
lopment rights on 15-5-2019. As per the agreement, promoter was allowed to develop a real
estate project on the land. The promoter had agreed to give apartments consisting of 40%
of the carpet area to land owner as consideration for granting development rights to
promoter. The real estate project was of 100 apartments of same size. Out of these 100
apartments, 40 apartments were to be given by promoter to land owner. It was agreed that
promoter will make all the bookings and sales, even of apartments given to land owner. The
project was registered under RERA and construction commenced in August 2019.
The promoter started booking of apartments in September 2019. The rate offered was Rs 75
lakhs per apartment and first two apartments were booked at that rate.
The construction was completed on 20-11-2021. Five apartments were sold in October, 2021
for Rs 102 lakhs each.
Calculate value of transfer of development rights on which the promoter is liable to pay GST
under reverse charge (without considering the exemption available in respect of residential
apartments booked prior to 20-11-2021) and the GST payable.
Also calculate value of apartments remaining un-booked on 20-11-2021.
Answer - The development rights were transferred in May, 2019. The booking rate at that
time was Rs 75 lakhs. Hence, value of supply of service is Rs 50 lakhs (two-third of Rs 75
lakhs). Since 40 apartments were to be given to land owner, the total value of transfer of
development rights - 40 × 50 = Rs 2,000 lakhs.
GST payable of transfer of development rights = 18% of Rs 2,000 lakhs = Rs 360 lakhs.
The value of un-booked apartments is to be considered on basis of value of similar
apartments booked nearest to date of completion. The apartments were booked by
promoter for Rs 102 lakhs in October 2021. Hence, value of the apartment nearest to date
of completion is Rs 68 lakhs (two-third of Rs 102 lakhs).
Since 30 residential apartments remained un-booked on date of completion certificate, the
value of un-booked apartments = 68 × 30 = Rs 2,040 lakhs.
Question - In the aforesaid example, out of 100 apartments, 30 were commercial
apartments and 70 were residential apartments. Carpet area of each is 100 Sq M. Out of
these, 20 commercial apartments and 40 residential apartments were booked prior to date
of completion certificate. Value and carpet area of commercial and residential apartments
are same. Calculate the exemption available to promoter in respect of GST on development
rights and GST payable by promoter under reverse charge on transfer of development rights.
Answer - The calculations are as follows -
GST payable on transfer of development rights is Rs 360 lakhs (as above).
Carpet area of residential apartments of project = 70 × 100 - 7,000 Sq M
Total carpet area of residential and commercial apartments = 100 × 100 = 10,000 Sq M
 442

Carpet area of residential apartments which remain un-booked on date of completion = 30

× 100 = 3,000 Sq M.
(A) GST on transfer of development rights/FSI attributable residential apartments = GST
payable on TDR or FSI (including additional FSI) or both or on upfront amount payable in
respect of service by way of granting of long term lease of thirty years, or more for
construction of the project] × (carpet area of the residential apartments in the project) ÷
(Total carpet area of the residential and commercial apartments in the project).
Hence, (A) GST on transfer of development rights/FSI attributable residential apartments =
360 lakhs × 7,000/10,000 = Rs 252 lakhs.
(B) GST payable on residential apartments remain un-booked on date of completion = [GST
payable on development rights or FSI (including additional FSI) or both or upfront amount
(called as premium, salami, cost, price, development charges or by any other name) payable
for long term lease of land for construction of the residential apartments in the project but
for the exemption contained herein] × (carpet area of the residential apartments in the
project which remain un-booked on the date of issuance of completion certificate or first
occupation÷ Total carpet area of the residential apartments in the project) - first proviso to
Sr Nos. 41A and 41B of Notification No. 12/2019-CT (Rate) dated 28-6-2017 inserted w.e.f.
1-4-2019.
Hence, (B)GST payable on residential apartments remain un-booked on date of completion
= 252 × 3,000/7,000 = Rs 108 lakhs.
The tax payable shall not exceed 0.5% of CGST (plus 0.5% SGST/UTGST) of value of affordable
residential apartments remaining un-booked and 2.5% of CGST (plus 2.5% of SGST/UTGST)
of value of residential apartments (other than affordable residential apartments) remaining
un-booked on date of completion.
The value nearest to date of completion is Rs 2,040 lakhs (as in above example). Since area
of each residential apartment is 100 Sq M, these are residential apartments (other than
affordable residential apartments). Hence, 2.5% of Rs 2,040 lakhs is Rs 51 lakhs.
Thus, GST payable on un-booked residential apartments is Rs 51 lakhs of CGST plus Rs 51
lakhs of SGST/UTGST due to the ceiling.
Hence, (B) = Rs 102 lakhs.
Exemption available on development rights pertaining to residential apartments which were
booked prior to date of completion = (A) - (B) = 252 - 102 = Rs 150 lakhs
GST payable by promoter on transfer of development rights under revere charge = Total GST
Rs 360 lakhs - Exemption available on transfer of development rights pertaining to
residential apartments transferred prior to completion certificate 150 lakhs = Rs 210 lakhs.
Thus, the developer is liable to pay Rs 210 lakhs under reverse charge as GST on transfer of
development rights.
Check - This can be checked by making same calculations in different way.
GST on transfer of development rights/FSI attributable commercial apartments = GST
payable on TDR or FSI (including additional FSI) or both or on upfront amount payable in
respect of service by way of granting of long term lease of thirty years, or more for
 443

construction of the project] × (carpet area of the commercial apartments in the project) ÷
(Total carpet area of the residential and commercial apartments in the project).
Thus, (i) GST on transfer of development rights/FSI attributable commercial apartments =
360 lakhs × 3,000/10,000 = Rs 108 lakhs.
Add (ii) GST payable on un-booked residential apartments - Rs 51 lakhs CGST plus Rs 51 lakhs
SGST/UTGST (or Rs 102 lakhs IGST) (due to the limit of 2.5% of CGST plus 2.5% of
SGST/UTGST of value)
Total GST payable by promoter under reverse charge = (i) + (ii) = 108 + 102 = Rs 210 lakhs.
24.7 GST on Development Rights/FSI transferred or long term lease amount paid before
31-3-2019
The provisions discussed aforesaid apply where Development Rights/FSI was transferred or
Upfront Amount for long term lease was paid on or after 1-4-2019. In respect of rights
transferred before 31-3-2019, the provisions are discussed in para 16.4 above.
The provisions are contained in Notification No. 4/2018-CT (Rate) dated 25-1-2018.
When the promoter gets development rights from the land owner, this can be said to be
'advance received' and GST may become payable immediately.
However, CBI&C, vide its Circular No. 151/2/2012-ST dated 10-2-2012 had clarified that
service tax will be payable by the builder/developer on the 'construction service' involved in
the flats to be given to the land owner, at the time when the possession or right in the
property of the said flats are transferred to the land owner by entering into a conveyance
deed or similar instrument (e.g. allotment letter) - this view was confirmed in CBI&C
Instruction F No. 354/311/2015-TRU dated 20-1-2016.
This principle has also been confirmed in case of transfer of development rights by land
owner to builder/developer (now promoter) in Notification No. 4/2018-CT (Rate) and
4/2018-IT (Rate) both dated 25-1-2018.
If development rights or FSI are transferred for consideration in form of apartments, two
services are involved - (a) person transferring FSI or development rights to developer or
builder (now termed as 'promoter' w.e.f. 1-4-2019)- this is supply of FSI/development rights
(b) Builder or developer (termed as promoter w.e.f. 1-4-2019) transfers possession of
apartments to transferor of FSI/development rights - this is supply of construction service.
The time of supply upto 31-3-2019 was as follows, as per Notification Nos. 4/2018-CT (Rate)
and 4/2018-IT (Rate) both dated 25-1-2018.
Registered persons who supply development rights to a developer, builder, construction
company or any other registered person against consideration, wholly or partly, in the form
of construction service of complex, building or civil structure is liable to pay tax on
development rights/TDR.
Registered persons who supply construction service of complex, building or civil structure to
supplier of development rights against consideration, wholly or partly, in the form of transfer
of development rights, as the registered persons on whom the liability to pay central tax on
supply of the construction service will arise.
 444

Liability of promoter to pay GST on construction service - As per the notification No. 4/2018-
CT (Rate), dated 25-1-2018, the liability of promoter (earlier termed as developer, builder
etc.) and the land owner to pay GST shall arise at the time when the said developer, builder,
construction company or any other registered person, as the case may be, transfers
possession or the right in the constructed complex, building or civil structure, to the person
supplying the development rights by entering into a conveyance deed or similar instrument
(for example allotment letter).
Thus, even if completion certificate is not obtained, if specific apartments are conveyed by
conveyance deed to land owner, GST liability arises.
In my view, liability cannot arise when the promoter only identifies some apartments which
will be given to land owner at a later stage.
Issues of cash flow and transaction costs - In aforesaid situation, the transferor of
Development Rights is required to pay GST and the builder/developer (now promoter) is
required to take Input Tax Credit. This is creating serious cash flow problems and increased
transaction costs.
This position is continuing in respect of development rights or FSI transferred prior to 1-4-
2019
Position after 1-4-2019 - After 1-4-2019, the promoter is required to pay GST on such
transfer of development rights/FSI at the time of completion of real estate project (except
where exemption is available to GST on such transfer when made for residential apartments
where sale is made before completion of project). However, if he gets credit almost at the
end of project, there can be loss of Input Tax Credit.
24.8 Valuation of transfer of development rights and construction service provided by
promoter
If the transferor of development rights or FSI transfers development rights or FSI and
receives consideration in form of cash, the value of such supply will be amount of money
received by him.
If the transferor of development rights or FSI receives consideration in form of construction
of apartments, the value will be equal to total amount charged by developer-promoter from
other buyers of similar apartments, less the value of land, which will be taken as one third
of total amount charged.
If he receives partly in cash and partly in form of construction of apartments, the value will
be sum of two.
The statutory wording is as follows.
Where a (*) person transfers development right or FSI (including additional FSI) to a
promoter against consideration, wholly or partly, in the form of construction of apartments,
the value of construction service in respect of such apartments shall be deemed to be equal
to the Total Amount charged for similar apartments in the project from the independent
buyers, other than the person transferring the development right or FSI (including additional
FSI), nearest to the date on which such development right or FSI (including additional FSI) is
transferred to the promoter, less the value of transfer of land, if any, as prescribed in
paragraph 2 (see below) - para 2A of Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate)
 445

both dated 28-6-2017 as inserted w.e.f. 1-4-2019 [* - The word was 'registered'. This word
has been omitted w.e.f. 1-10-2019].
In case of supply of service specified in column (3), it item (i), (ia), (ib), (ic), (id), (ie) and (if)
against Serial No. 3, involving transfer of land or undivided share of land, as the case may
be, the value of such supply shall be equivalent to the total amount charged for such supply
less the value of transfer of land or undivided share of land, as the case may be, and the
value of such transfer of land or undivided share of land, as the case may be, in such supply
shall be deemed to be one third of the total amount charged for such supply - para 2 of
Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017 as amended
w.e.f. 1-4-2019.
For the purpose of paragraphs 2 and 2A, 'total amount' means the sum total of (a)
Consideration charged for such service and (b) amount charged for transfer of land or
undivided share of land, as the case may be, including by way of lease/sub-lease -
explanation to para 2 of Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated
28-6-2017 as amended w.e.f. 1-4-2019.
In Southern Properties v. CCE (2015) 49 GST 695 = 54 taxmann.com 116 (CESTAT), a prima
facie view was held that valuation should on basis of value of similar flats (apartments) and
not on basis of value of land.
24.8-1 Is the value of construction of similar apartments given to others comparable with
apartments given free to transferor of development rights or FSI?
The issue is whether the value of similar apartments given to others is comparable with
apartments given free to transferor of development rights or FSI i.e. whether that value is
correct as per section 15 of CGST Act read with Valuation Rules.
It is clear that GST is payable on value of supply of construction services. This value cannot
include value of land, while open market value of similar apartments include value of land
also.
It is obvious that value of land is recovered by promoter from buyers of apartments who pay
in cash. Thus, value of land is apportioned only on apartments which are sold for cash and
not on all apartments. Thus, the value of land is included in the price charged to buyers. In
fact, it is much higher than the average value of land, if such value was apportioned on all
apartments.
Even a cursory glance of definition of 'Open Market Value' and 'Supply of goods or services
or both of like kind and quality' in rule 27 of CGST Rules is sufficient to establish that value
of similar apartments sold to others cannot be considered as 'open market value' of
apartments given 'free', as the first includes value of land while the second does not include
value of land.
24.8-2 Can we apply 'deeming provision' to calculate value of 'Construction service' on
basis of open market value of apartments?
In case of construction of complex, the builder charges an amount which is inclusive of land
or undivided share of land. In that case, as per para 2 of Notification No. 11/2017-CT (Rate)
and No. 8/2017-IT (Rate) both dated 28-6-2017, the land value will be deemed to be one
 446

third (33.33%) of total amount (i.e. value including land value) and GST is payable on balance
amount.
This is a 'deeming provision' only, which is similar to composition scheme i.e. an easy and
hassle free way of calculating value of construction service.
However, in my view, such deeming provision cannot apply to determine value of
construction service provided by promoter to transferor of development rights, as the actual
value of land as included in open market value of similar apartments may be in most of the
cases more than 33.33%.
24.8-3 Value in any case cannot exceed value as determined under section 15 read with
valuation rules
Issue is 'Can deemed value exceed value as calculated as per section 15 of CGST Act?'.
In cases where value of land exceeds 33.33% of value, the value of construction will be less
than 66.67%. However, GST (goods and services tax) will be payable on 66.67% of value.
This is obviously not permissible, as any deeming provision cannot prescribe a value which
is higher than value as determined under section 15 of CGST Act.
24.8-4 Value of supply of goods or services or both based on cost
Where the value of a supply of goods or services or both is not determinable by any of the
preceding rules, the value shall be one hundred and ten per cent of the cost of production
or manufacture or cost of acquisition of such goods or cost of provision of such services -
Rule 30 of CGST and SGST Rules, 2017.
In case of services, valuation can be done on basis of rule 31 without taking recourse of rule
30. Hence, in my view, the promoter has following choices -
Value on basis of 'deeming provision' considering value of land as 33.33%, it the
actual land value is around that figure or less than 33.33% [rule 31 i.e. 'using
reasonable means' consistent with Acts and Rules].
Value of basis of cost plus 10% under rule 30.

In Gowra Ventures (P.) Ltd., In re [2018] 98 taxmann.com 320 (AAR- Telangana), valuation
on basis of cost of construction plus 10% was accepted.
There is no doubt that this view will not be accepted by department, which will insist on
valuation of free apartments on basis of similar apartments less land value to be taken as
one-third of total amount charged.
Hence, promoter has to decide whether to enter into litigation or pay as per provisions as
contained in notification.
24.9 Accommodation/rent given to earlier tenants/owners during transition period
The promoter often offers alternate accommodation or compensates rent to earlier
tenant/owners during transition period i.e. till new apartments are ready for occupation.
This comes under 'tolerating an act or situation' which is a deemed service.
Amount received by tenant towards alternate accommodation or delayed possession of new
premises would be receipt of amounts for doing an act i.e. vacating premises for
redevelopment as well as tolerating construction cum redevelopment work till possession
 447

of new redeveloped premises and further for tolerating an act of not having completed
redevelopment period within time, would be a 'supply' and therefore, GST to be levied on
such amount - Zaver Shankarlal Bhanushali, In re [2018] 68 GST 730 = 95 taxmann.com 3
(AAR - Maharashtra).
Of course, taxability will arise only if the tenant is getting amount exceeding Rs 20 lakhs per
annum, or where tenant is registered under GST.
24.10 Joint Development by land owner and promoter
In some cases, the land owner and promoter may have a joint venture for the construction
project. In some cases, they may form a separate legal entity or they may operate as UJV
(Unincorporated Joint Venture). In such cases, GST will be payable.
Para 2.7 of CBI&C Circular No. 151/2/2012-ST dated 10-2-2012 states as follows -
Joint Development Agreement Model : Under this model, land owner and builder/developer
join hands and may either create a new entity or otherwise operate as an unincorporated
association, on partnership/joint/collaboration basis, with mutua-lity of interest and to
share common risk/profit together. The new entity undertakes construction on behalf of
landowner and builder/developer.
Tax liability when land owner and promoter pool resources - In Gowra Ventures (P.) Ltd.,
In re [2018] 98 taxmann.com 320 (AAR- Telangana), applicant and land owner had
amalgamated their land parcels to construct a multi-storeyed building on it on condition that
legal ownership of land parcels will continue to be vested with applicant and 'P' respectively.
It was held that pooling of land by way of amalgamation of separate parcels would not
constitute a supply.
Applicant would carry out all construction even in respect of share belonging to land owner.
It was held that this is supply. It was held that value of construction service supplied by
applicant shall be 110 per cent of cost of provision of said service.
24.11 Summary of liability in case of transfer of development rights or FSI or long term
lease of land
Description Development rights/FSI transferred Development rights/FSI
or long term lease executed on or transferred or long term
after 1-4-2019 lease executed on or before
31-3-2019

Person liable for payment of Promoter under reverse charge [Sr Transferor of development
GST on transfer of Nos. 5B and 5C of Notification No. rights/FSI or lessor giving land
development rights or FSI or 13/2017-CT (Rate) dated 28-6-2017 as on lease under forward
long term lease of land (30 inserted w.e.f. 1-4-2019] charge
years or more) for
construction of project
[commercial or residential
apartments]

Time when liability of GST on Date of completion certificate of when the developer, builder
transfer of development project or its first occupation, (now promoter) transfers
 448

rights arises when whichever is earlier [Sr No. (a) of possession or the right to the
consideration is given by Notification No. 6/2019-CT (Rate) person supplying the
promoter in form of dated 29-3-2019] development rights by
construction of commercial Payable by Promoter under reverse entering into a conveyance
or residential apartments charge deed or similar instrument
[Notification No. 4/2018-CT
(Rate) dated 25-1-2018]
Payable by transferor under
forward charge
Time when liability of GST on (i) In respect of residential When agreement is executed
transfer of development apartments - Date of or payment received,
rights arises when consi- completion certificate of whichever is earlier [section
deration is paid by promoter project or its first 13(1) of CGST Act providing
in cash (monetary consi- occupation, whichever is for time of supply]
deration) earlier [Sr No. (b) Payable by transferor under
Notification No. 6/2019-CT forward charge
(Rate) dated 29-3-2019]
(ii) In respect of commercial
apartments - Date of when
payment is made by
promoter for transfer of
rights or FSI to supplier of
service or within 60 days
from contract (whichever
is earlier) [section 13(3) of
CGST Act providing for
time of supply]

Payable by Promoter under reverse

charge
Time when liability for (i) In respect of residential When agreement is executed
payment of GST arises in case apartments - Date of or payment received,
of upfront amount paid by completion certificate of whichever is earlier [section
promoter for long term lease project or its first 13(1) of CGST Act providing
of land occupation, whichever is for time of supply]
earlier [Sr No. (c) Payable by lessor under
Notification No. 6/2019-CT forward charge
(Rate) dated 29-3-2019]
(ii) In respect of commercial
apartments - Date of when
payment is made by
promoter to supplier of
 449

service or within 60 days

from contract (whichever
is earlier) [section 13(3) of
CGST Act providing for
time of supply]

Payable by Promoter under reverse

charge
Exemption available on (i) transfer or payment for Supply of land on long lease
transfer of development construction of residential for industrial plots by
rights/FSI to promoter or apartments is exempt [Sr Government or Government
payment for long term lease No. 41A and 41B of undertakings is exempt [Sr
Notification No. 12/2017- No. 41 of Notification No.
CT (Rate) dated 28-6-2017 12/2017-CT (Rate) dated 28-
inserted w.e.f. 1-4-2019] 6-2017 inserted w.e.f. 13-10-
(ii) Supply of land on long 2017]
lease for industrial plots by
Government or
Government under-takings
is exempt [Sr No. 41 of
Notification No. 12/2017-
CT (Rate) dated 28-6-2017
inserted w.e.f. 13-10-2017]
Liability of payment of GST on Promoter [as supplier of service] Developer/Builder (now
construction service provided termed as Promoter) [as
to transferor of development supplier of service]
rights or FSI
Time when liability of Date of completion certificate of when the developer, builder
promoter to pay GST on project or its first occupation, (now promoter) transfers
construction service provided whichever is earlier [Sr No. (d) of possession or the right to the
to transferor of development Notification No. 6/2019-CT (Rate) person supplying the
rights or FSI arises dated 29-3-2019] development rights by
entering into a conveyance
deed or similar instrument
[Notification No. 4/2018-CT
(Rate) dated 25-1-2018]
Value of construction service Total amount charged for similar Total amount charged for
when registered person apartments nearest to date on which similar apartments nearest to
transfers development rights development rights are transferred date on which development
to promoter against less one third of total amount charged rights are transferred less one
as value of land [Para 2A of third of total amount charged
Notification No. 11/2017-CT (Rate) as value of land [Para 2A of
 450

consideration of construction dated 28-6-2017 inserted w.e.f. 1-4- Notification No. 11/2017-CT
of apartments 2019] (Rate) dated 28-6-2017
inserted w.e.f. 1-4-2019]
[Though inserted w.e.f. 1-4-
2019, the provi-

If value is calculated on aforesaid sion should apply to valuation

basis, the 'value' will be much higher of construction services
than that provided in section 15 of provided after 1-4-2019, even
CGST Act, which is legally if agreement for transfer of
impermissible. development rights or FSI was
executed prior to 1-4-2019]

Value of service of transfer of Value of similar apartments charged Even earlier, as per CBI&C
development rights or FSI to by promoter from independent Instruction No.
promoter against buyers nearest to the date on which 354/311/2015-TRU dated
consideration in form of development rights or FSI is 20-1-2016, the value of
residential or commercial transferred to promoter - para 1A of similar flats was to be
apartments Notification No. 12/2017-CT (Rate) considered.
dated 28-6-2017 inserted w.e.f. 1-4- If value is calculated on
2019. aforesaid basis, the 'value'
As per paragraph 2 of Notification No. will be much higher than that
11/2017-CT (Rate) dated 28-6-2017, provided in section 15 of
the value will be equal to total CGST Act, which is legally
amount charged less one third of impermissible.
total amount as value of land.
In fact, if value is calculated on
aforesaid basis, the 'value' will be
much higher than that provided in
section 15 of CGST Act, which is
legally impermissible.
Value of portion of residential Value of similar apartments nearest to Not applicable as there was
or commercial apartments date of issuance of completion no exemption to transfer of
remaining un-booked on date certificate or first occupation, development rights or FSI in
of issuance of completion whichever is earlier - para 1B of respect of residential
certificate or first occupation Notification No. 12/2017-CT (Rate) apartments.
dated 28-6-2017 inserted w.e.f. 1-4-
2019]
Time when liability of Date of completion certificate or first Not applicable
promoter to pay GST under occupation of the project [second
reverse charge on transfer of proviso to Sr Nos. 41A and 41B of
development rights or FSI or Notification No. 12/2017-CT (Rate)
long term lease relating to
 451

unsold residential apartments dated 28-6-2017 inserted w.e.f. 1-4-

as on date of completion 2019]
certificate

24.12 Area sharing arrangement between landowner-promoter and promoter developer

The transferor of development rights or FSI (termed as landowner promoter) may sale the
apartments to others. If he sales after obtaining completion certificate, the issue of GST does
not arise. However, if he sales before completion certificate or first occupation, whichever
is earlier, liability of GST will arise.
In such case, the promoter developer shall charge GST to landowner- promoter by raising
tax invoice. The land-owner promoter can take its Input Tax Credit and in turn, raise tax
invoice on the buyer.
The statutory provision, as contained in fourth proviso to Sr No. 3(i) of Notification No.
11/2017-CT (Rate) dated 28-6-2017 are as follows -
Where a registered person (landowner- promoter) transfers development right or FSI
(including additional FSI) to a promoter (developer- promoter) against consideration, wholly
or partly, in the form of construction of apartments, -
(i) the developer- promoter shall pay tax on supply of construction of apartments to the
landowner-promoter, and
(ii) such landowner - promoter shall be eligible for credit of taxes charged from him by
the developer promoter towards the supply of construction of apartments by
developer- promoter to him, if the landowner-promoter further supplies such
apartments to his buyers before issuance of completion certificate or first occupation,
whichever is earlier, and pays tax on the same which is not less than the amount of
tax charged from him on construction of such apartments by the developer-promoter.

"Developer-promoter" is a promoter who constructs or converts a building into apartments

or develops a plot for sale.
"Landowner- promoter" is a promoter who transfers the land or development rights or FSI
to a developer- promoter for construction of apartments and receives constructed
apartments against such transferred rights and sells such apartments to his buyers in
dependently.
Land owner promoter can take ITC of GST charged to him by developer promoter but not
of other input services - Land owner promoter can take ITC of GST charged to him by
developer promoter but not of other input services - FAQ (Part II) No. 2 issued by CBI&C vide
circular F No. 354/32/2019-TRU dated 14-5-2019.
Land Owner Promoter can avail ITC even if he does not make cash payment to developer-
promoter - As per second proviso to section 16(2) of CGST Act, ITC cannot be taken if
payment is not made to supplier within 180 days. In this case, the 'payment' is made in form
of TDR even before service is supplied. Hence, Land Owner Promoter can avail ITC even if he
does not make cash payment to developer-promoter - FAQ (Part II) No. 2 issued by CBI&C
vide circular F No. 354/32/2019-TRU dated 14-5-2019.
 452

24.12-1 Land owner and Developer should apply identical option for a project
For legal and operational harmony, Land owner Promoter and Developer Promoter should
apply identical option for a project (i.e. both should opt either for 1%/5% scheme or 8%/12%
scheme) - FAQ (Part II) No.1 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 14-
5-2019.
24.12-2 Time of supply of service of developer - promoter
As per clause D of Notification No. 6/2019-CT (Rate) dated 29-3-2019, in case of supply of
construction service by promoter against consideration in the form of development rights
or FSI (including additional FSI) shall arise on date of completion certificate of project by
competent authority or first occupation, whichever is earlier.
Thus, liability of developer promoter to pay GST arises only when completion certificate is
obtained.
However, the land owner promoter is required to issue tax invoice when he makes a supply
to his buyer before issuance of completion certificate by competent authority.
Thus, there is time mismatch. The land owner promoter is required to pay tax first while he
can take input tax credit of tax charged to him by promoter developer only on obtaining
completion certificate. In many cases, the land owner promoter may not be able to utilise
the input tax credit which may go waste, if the land user promoter does not have any other
project in hand.
Let us hope that suitable amendment is made in Notification No. 6/2019-CT (Rate) dated 29-
3-2019.
Till such amendment is made, the only option is to raise tax invoice by promoter developer
in respect of apartments which the land owner promoter intends to sale before obtaining
completion certificate, arguing that provision in fourth proviso to Sr No. 3(i) of Notification
No. 11/2017-CT (Rate) dated 28-6-2017 is a special provision, which prevails over general
provision contained in Notification No. 6/2019-CT (Rate) dated 29-3-2019.
24.12-3 Joint Development by land owner and builder/promoter-developer
In some cases, the land owner and promoter (builder/developer) may have a joint venture
for the construction project. In some cases, they may form a separate legal entity or they
may operate as UJV (Unincorporated Joint Venture). In such cases, GST will be payable by
such incorporated or unincorporated joint venture.
Para 2.7 of CBE&C Circular No. 151/2/2012-ST dated 10-2-2012 had stated as follows -
Joint Development Agreement Model: Under this model, land owner and builder/developer
join hands and may either create a new entity or otherwise operate as an unincorporated
association, on partnership/joint/collaboration basis, with mutuality of interest and to share
common risk/profit together. The new entity undertakes construction on behalf of land
owner and promoter (builder/developer).
GST liability in case of Joint Development Agreement - If a separate legal entity (like
company or partnership firm) is constituted, then obviously GST would be payable by such
firm or company. Even If it is unincorporated joint venture, it can come under definition of
'person', as Section 2(84) of CGST Act states that 'person' includes an association of persons
 453

or body of individuals, whether incorporated or not. In such cases, the AOP should obtain
PAN and have separate registration under service tax law. In some cases, the agreement
provides that some apartments will be sold directly by the land owner and some by the
promoter (builder/developer). In such cases, the land owner may pay GST on apartments
sold by him and promoter on apartments sold by him directly to customers. The Joint
Development Agreement should be very clear and specific on these aspects.
In Durga Projects & Infrastructure (P.) Ltd., In re [2019] 108 taxmann.com 106 (AAR -
KARNATAKA), applicant was engaged in construction and sale of residential apartments
under joint development agreements (agreement between land owner and developer) and
had executed projects under JDA with land owners for an agreed ratio of built-up area. It
was held that applicant is liable to pay GST towards work executed under Joint Development
Agreement on land owner's portion, on value to be arrived at in terms of para 2 of
Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017 at time of transfer of
possession of land owners' portion of apartments.
Joint development agreement with land owner for development of plot and its sale is taxable
as works contract and value of supply is equal to amount payable receivable by developer
(in this case, land was sold by land owner and developer was entitled to get 40% of amount
of amount received on sale of land. This amount was held as taxable) - Vidit Builders In re
(2020) 81 GST 361 = 115 taxmann.com 216 (AAR-MP).
24.12-4 Illustration of sale by land owner developer
Question - XYZ is land owner. He transfers development rights of land to PQR Co. Ltd. The
PQR Co. Ltd. agrees to supply 20 duly constructed apartments to XYZ. PQR Co. Ltd. identifies
20 apartments in the building plan, which will be handed over to XYZ after completion. PQR
Co. Ltd. is entering into contract with other independent buyers to sale the apartment @ Rs
120 lakhs. XYZ enters into agreement with a buyer to sale one of the identified apartments
@ Rs 123 lakhs. Explain how the transaction should be effected.
Answer - PQR Co. Ltd. is charging Rs 120 lakhs for an apartment. After deducting land value
equal to one third of Rs 120 lakhs, the value of taxable service is Rs 80 lakhs. PQR Co. Ltd.
will charge CGST @ 3.75% and SGST @ 3.75% on Rs 80 lakhs (which is same as CGST @ 2.5%
and SGST @ 2.5% on Rs 120 lakhs).
Thus, PQR Co. Ltd. will raise tax invoice on XYZ charging CGST of Rs 3,00,000 and SGST of Rs
3,00,000 (total Rs 6 lakhs).
XYZ will raised tax invoice on his buyer charging 2.5% CGST and 2.5% SGST on Rs 123 lakhs.
Thus, he will charge CGST Rs 3,07,500 and SGST Rs 3,07,500. He will take credit of CGST and
SGST charged to him and pay Rs CGST of Rs 7,500 and SGST of Rs 7,500 through electronic
credit ledger.
Question - In aforesaid case, if PQR sales the apartment at Rs 117 lakhs, what will be the tax
implications?
Answer - PQR Co. Ltd. will issue tax invoice charging CGST of Rs 3,00,000 and SGST of Rs
3,00,000 (total Rs 6 lakhs).
 454

XYZ will issue tax invoice charging CGST of Rs 3,00,000 and SGST of Rs 3,00,000 (total Rs 6
lakhs), as the tax charged by him cannot be less than the amount of tax charged from him
on construction of such apartments by the developer-promoter.
Thus, PQR will not be liable to pay any tax through electronic cash ledger but there will be
no balance in his electronic credit ledger.
 455

Distributive Trade Services

25.1 Trading and Hospitality Services
Distributive trade services and hospitality services fall under section 6 of Classification of
Services.
Headings for distributive trade are - (a) wholesale trade (9961) (b) Retail Trade (9962).
Heading for hospitality services (Accommodation food and beverage services) is 9963.
Groups in this heading are - Accommodation Service (of hotel, campsite) (99631),
Accommodation service (rooms, hostels) (99632) and Food, edible preparation and
beverage services (99633).
25.2 Services of commission agent
Services of commission agent in wholesale trade fall under 99611.
Services of commission agent in retail trade fall under 99621.
Note that services of Clearing and Forwarding Agent (C&F) do not fall under this head.
The GST rate is 18% (CGST 9% and SGST 9%) or IGST 18%.
Commission Agent is not required to register if his receipts of commission are less than Rs
20/10 lakhs per annum - Persons who supply goods or services or both on behalf of other
taxable persons whether as an agent or otherwise require registration under GST even if his
turnover is below Rs 20/10 lakhs per annum- section 24(1)(vii) of CGST Act.
There was misunderstanding that all commission agents require mandatory registration
under GST irrespective of his commission income (i.e. even if income from commission is
below 20/10 lakhs per annum).
Now it has been clarified that such registration is required only by C&F agents who stock and
sale goods on behalf of Principal. Registration is not required by ordinarily commission
agents who do not deal in goods or services themselves, if their annual turnover is less than
Rs 20/10 lakhs - CBI&C Circular No. 57/31/2018-GST dated 4-9-2018.
Position in respect of del credere agent - Del credere agent is similar to commission agent.
The only difference is that he guarantees payment to supplier of goods or services, if
recipient does not pay. In some cases, the del credere agent himself pays to supplier and
then recovers amount from recipient. In some case, the del credere agent advances short
term loan to buyer and then buyer pays to the supplier.
CBI&C, vide circular No. 73/47/2018-GST dated 5-11-2018, has clarified that if del credere
agent is like ordinary commission agent, there is no impact on GST liability.
However, if the del credere agent (DCA) received the goods and then supplies as per para 3
of Schedule I of CGST Act (i.e. he is C&F Agent), the value of interest will be included in the
value of supply of goods by DCA to the recipient as per section 15(2)(d) of CGST Act. [Note
that in this case, there are two separate transactions and tax invoices. The first transaction
is when supplier raises tax invoice on DCA (who is similar to C&F Agent in this case) and
second is when the DCA (who is similar to C&F Agent in this case) issues tax invoice on buyer].
Del credere agent passing early payment bonus to buyer - In K K Polymers, In re (2019) 72
GST 41 = 100 taxmann.com 17 (AAR-Rajasthan), the applicant, a Del credere agent, was
 456

getting bonus for early payment which he was passing on to customer. It was held that this
not a service.
25.2-1 Exemption to services of Fair Price Shops to Central/State Government or Union
Territory
Service provided by Fair Price Shops to Central Government by way of sale of wheat, rice
and coarse grains under Public Distribution System (PDS) against consideration in the form
of commission or margin are exempt.
Service provided by Fair Price Shops to Central Government, State Government or Union
Territory by way of sale of food grains, kerosene, sugar, edible oil, etc. under Public
Distribution System (PDS) against consideration in the form of commission or margin are
exempt - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017,
amended w.e.f. 22-8-2017 [The words in italics inserted w.e.f. 15-11-2017]
During the period 22-8-2017 to 15-11-2017, the exemption was as follows - Service provided
by Fair Price Shops to State Governments or Union territories by way of sale of kerosene,
sugar, edible oil, etc. under Public Distribution System (PDS) against consideration in the
form of commission or margin are exempt - Notification No. 12/2017-CT (Rate) and No.
9/2017-IT (Rate) both dated 28-6-2017, amended w.e.f. 22-8-2017 and existing upto 15-11-
2017.
The service may fall under 9961 or 9962.
25.3 Accommodation Services
Service heading for accommodation, food and beverages in 9963.
Accommodation Service (of hotel, campsite) fall under service group 99631 and
accommodation service (of rooms, hostels) fall under group 99632.
The GST rates for accommodation in hotels, inns, guest house, clubs, campsites or other
places meant for residential or lodging purposes are based on 'value of supply' [Till 27-7-
2018, the GST rates were based on 'declared tariff' of the hotel].
25.3-1 GST Rates on hotel accommodation services w.e.f. 1-10-2019
The GST rates for accommodation in hotels, inns, guest house, clubs, campsites or other
places meant for residential or lodging purposes are based on 'value of supply' w.e.f. 27-7-
2018.
The rates on 'hotel accommodation' are as follows w.e.f. 1-10-2019 -
Value of Supply of a unit of accommodation less than or equal to Rs. 1,000 - Nil
[Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017.
Words in italics inserted w.e.f. 1-10-2019].
Value of Supply of a unit of accommodation above Rs. 1,000 but less than or equal to
Rs. 7,500 - 12% (6% SGST/UTGST and 6% CGST) - Sr No. 7(i) of Notification No.
11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 as substituted
w.e.f. 1-10-2019.
 457

Value of Supply a unit of accommodation of above Rs. 7,500 - 18% (9% SGST/UTGST
and 9% CGST) - Sr No. 7(vi) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT
(Rate) both dated 28-6-2017 as substituted w.e.f. 1-10-2019.

Only SGST/UTGST and CGST can apply, not IGST - For accommodation service, place of
supply is where service is supplied. Hence, on this service, IGST cannot be charged, even if
the recipient is registered in another State.
Meaning of 'hotel accommodation' - 'Hotel accommodation' means supply, by way of
accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places
meant for residential or lodging purposes including the supply of time share usage rights by
way of accommodation - para 4(xxxiv) of Notification No. 11/2017-CT (Rate) and No. 8/2017-
IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-10-2019.
25.3-2 Arranging hotel booking is taxable under 998552
Arrangement for client accommodation in hotels is a service classifiable under SAC 998552.
It is taxable at 18 per cent (CGST + SGST) under Sl. No. 23(iii) of Notification No. 11/2017 -
CT (Rate) dated 28-6-2017 - Golden Vacations Tours & Travels, In re [2019] 109 taxmann.com
439 (AAR-West Bengal).
25.3-3 Homestay service or guest house service provided through e-commerce operator
If Homestay or guest house service provided through e-commerce operator, the supplier of
service can claim exemption from tax if his annual turnover is below Rs. 20 lakhs (Rs. 10 lakhs
in some States). In that case, the supplier is not required to register under GST and liability
to pay tax will be on e-commerce operator - CBI&C circular No. 27/1/2018 dated 4-1-2018.
25.3-4 Hostel services provided to students
In Ramnath Bhimsen Charitable Trust, In re [2019] 73 GST 602 = 105 taxmann.com 153 (AAR
- Chhattisgarh), applicant was running a girls hostel and was providing accommodation to
girls in hostel against a charge of Rs. 6,000/Rs. 7,000 per month per boarder. The charges
included ancillary services such as food, parking facility, hot water facility, guest rooms and
temple. It was held that is it composite supply. Activities undertaken by applicant would fall
under Heading No. 9963 and are exempted from payment of GST, as charges are less than
Rs. 1,000 per day - same view in Students' Welfare Association, In re (2019) 73 GST 650 = 103
taxmann.com 449 (AAR-Maharashtra).
25.3-5 Accommodation Services supplied to SEZ unit
As per section 7(5)(b) of IGST Act, supply of goods or services or both to SEZ unit or SEZ
Developer is inter-State supply. This is a specific provision and hence will prevail over general
provision as contained in section 12(3)(c) of IGST Act, which states that in case of supply of
short term accommodation or event management services, place of supply is where
immovable property is located. Hence, in case of supply of such services, IGST will be payable
and not CGST and SGST/UTGST.
Further, if such supply is for operations, these will be zero rated supplies. These can be made
under LUT/bond without payment of GST or on payment of IGST. If such supply is for
authorised operations, IGST will be refunded if paid or input tax credit refund can be
obtained if supplied under LUT/Bond. Endorsement of specified officer of SEZ will be
 458

required that these services are for authorised operations - CBI&C circular No. 48/22/2018-
GST dated 14-6-2018.
Accommodation services in hotels rendered to SEZ unit is zero rated, LUT should be
executed - Accommodation service proposed to be rendered by applicant to SEZ units were
covered under IGST as it was an inter-State supply as per section 7(5)(b) of IGST Act, 2017
and same could be treated as zero rated supplies and invoice could be raised without
charging Tax after executing LUT under section 16 - Carnation Hotels (P.) Ltd., In re [2019]
110 taxmann.com 196 (AAR - Karnataka)
However, in a contrary decision, in Gogte Infrastructure Development Corporation Ltd., In re
(2018) 68 GST 20 = 93 taxmann.com 201 (AAR - Kar), it has been held that in case of
accommodation services supplied to employees and guests of SEZ units outside the SEZ are
taxable to CGST and SGST (of State where the hotel is located).
25.3-6 Accommodation service with food, housekeeping, TV, Internet, parking is
composite supply
Accommodation service with food, housekeeping, TV, Internet, parking is 'composite
supply', with accommodation is principal supply. The service falls under heading 996311. If
total amount charges is less than Rs 1,000 per day, it is exempt - Srisai Luxurious Stay LLP In
re (2020) 81 GST 372 = 116 taxmann.com 399 (AAR-Karn).
25.3-7 GST Rates on hotel accommodation services during 27-7-2018 to 30-9-2019
The rates for hotel accommodation were as follows w.e.f. 27-7-2018 and upto 30-9-2019.
Value of Supply (Declared tariff upto 27-7-2018) less than Rs. 1,000 - Nil [Notification No.
12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017
and existing upto 1-10-2019].
Value of Supply (Declared tariff upto 27-7-2018) of Rs. 1,000 or more but less than 2,500 -
12% (6% SGST/UTGST and 6% CGST)
Value of Supply (Declared tariff upto 27-7-2018) of Rs. 2,500 or more but less than 7,500 -
18% (9% SGST/UTGST and 9% CGST)
Value of Supply (Declared tariff upto 27-7-2018) of Rs. 7,500 or more - 28% (14%
SGST/UTGST and 14% CGST)
Only SGST/UTGST and CGST could apply, not IGST - For accommodation service, place of
supply is where service is supplied. Hence, on this service, IGST cannot be charged.
25.3-8 GST Rate on basis of 'declared tariff' upto 27-7-2018
Till 27-7-2018, the GST rates were on basis of 'declared tariff'.
"Declared tariff" includes charges for all amenities provided in the unit of accommodation
(given on rent for stay) like furniture, air conditioner, refrigerators or any other amenities,
but without excluding any discount offered on the published charges for such unit -
Explanation to Sr No. 7(ii) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate)
both dated 28-6-2017, effective from 1-7-2017 as existing upto 27-7-2018.
Star rating not relevant for GST rate - The rates are on basis of tariff and not on basis of
star rating. Thus, even in a five star hotel, the GST rate will be on basis of declared tariff only
 459

- PIB press release dated 18-7-2017 13:47 IST. [This clarification is not relevant after 27-7-
2018 as now GST rate is based only on 'value of supply'].
Determination of declaration of tariff to determine rate of tax - Tariff can be declared on
website or displayed at reception or printed on tariff card. If different tariff rates are
declared at different places, highest tariff rate will be considered. However, different tariff
can be declared for different seasons or periods and that tariff rate will apply. Tariff rate as
applicable on date of supply of service is required to be considered and not at the time of
booking. The declared tariff is net i.e. without taxes - CBI&C circular No. 27/1/2018 dated 4-
1-2018 [This clarification is not relevant after 27-7-2018 as now GST rate is based only on
'value of supply'].
GST Rate depended on declared tariff upto 27-7-2018, not actual amount charged but tax
payable on actual amount charged to customer - Actual amount charged may be less if
discount is given. Actual amount charged may be more for extra charged for bed, food etc.
However, the GST rate was based on declared tariff only, but that rate was applicable to the
actual amount charged in tax. This was so even when upgrade is provided to room with
higher tariff e.g. if accommodation is booked for Rs. 7,000 but upgraded to room with tariff
rate of Rs. 10,000, the tax rate will be 28% - CBI&C circular No. 27/1/2018 dated 4-1-2018
[This clarification is not relevant after 27-7-2018 as now GST rate is based only on 'value of
supply'].
25.4 Supply of food or drinks as part of service is supply of service
Supply, by way of or as part of any service or in any other manner whatsoever, of goods,
being food or any other article for human consumption or any drink (other than alcoholic
liquor for human consumption), where such supply or service is for cash, deferred payment
or other valuable consideration is 'supply of service' - para 6(b) of Schedule II of CGST Act.
[similar provision in Section 66E(i) of Finance Act, 1994 which defines 'declared service'].
As per Article 366(29A)(f) of Constitution of India, a tax on the supply, by way of or as part
of any service or in any other manner whatsoever, of goods, being food or any other article
for human consumption or any drink (whether or not intoxicating), where such supply or
service, is for cash, deferred payment or other valuable consideration, is 'deemed sale of
goods'.
Thus, the Constitution states that 'supply' is deemed sale of goods, while CGST Act states
that it is 'supply of service' [in any case, GST is payable, but issues relating to rate, place of
supply or time of provision of service can arise]
Supply of food items is supply of goods or service? - The issue is whether supply of food
items is supply of goods or service.
The aforesaid definition clearly states that supply of food is supply of service, as the words
used are 'or in any other manner whatsoever'. Thus, mere supply of food is 'service' as per
the aforesaid definition.
However, food items are specified in Customs Tariff also. Sweetmeats, idli/dosa batter,
Khakhra, chapati are falling under heading 2016 and GST rate is 5%.
 460

Namkeens, bhujia, mixture, chabena and similar edible preparations in ready for
consumption form are taxable @ 5% under heading 2106. However, same items put up in
unit containers and bearing brand name are subject to GST @ 12% under heading 2106.
Ice cream and other edible ice, whether or not containing cocoa fall under heading 2105 00
00 and are subject to GST @ 18%.
In Atul Kumar Rajpal In re (2020) 113 taxmann.com 610 (AAR-UP), it was held that if
namkeen is packed in sealed and printed pouches containing details of manufacturer, the
product falls under 210690 and GST rate is 12%.
In Square One Homemade Treats In re (2020) 77 GST 477 = 110 taxmann.com 494 = (AAR-
Kerala), various items were classified as follows - (a) Sweets, Agra petha, ladoo, namkeen
items (other than in unit containers) - 2006 (b) Banana Chips, chilli nuts, fried peanuts - 2008
(c) pickle - 1604 (d) Jam - 2007 (e) Juice green mango - 2009 (f) Juice butter milk - 0403 90
10 (g) Lasagn - 1902 20 10 (h) Natural honey - 0409 00 00
25.4-1 Any supply of food where element of service is involved is supply of service
The definition does not use the words 'in restaurant' or 'in eating joint' or 'in mess'. Thus,
any supply of food were some service is involved will be 'supply of service'. Thus, even home
delivery of cooked food will be a 'supply of service'.
However, sale of tinned food items or stored items is sale of goods as no 'service' element
is involved.
Thus, sale of packed farsan or pre-prepared sweets or samosa/pakoda across the counter is
not 'supply of service'. However, same item supplied in restaurant or eating joint is 'supply
of service'.
Supply of packed food like namkeen, chips, biscuits, water etc., and supply of samosa,
kachori, cutlet etc. from takeaway counter on railway platform (counter sale) is 'supply of
service' and is taxable @ 5% without ITC - Rajeev Kumar Garg In re (2020) 113 taxmann.com
562 (AAR-UP).
In Hatsun Agro Products Ltd. In re (2019) 110 taxmann.com 287 (AAR Karnataka), it was held
that supply of ice cream and other food products with seating facility is composite supply. It
is supply of service and taxable @ 5%.
There are contrary views also.
Sale of packed food products by restaurant is taxable as supply of goods (and not as
'restaurant service') - Mountain Trail Foods P Ltd. In re (2020) 77 GST 343 = 110 taxmann.com
433 (AAR - Karn).
In Square One Homemade Treats In re (2020) 77 GST 477 = 110 taxmann.com 494 = (AAR-
Kerala), the applicant was purchasing goods like cakes (bakery products), cookies,
homemade packed food etc. The food items were pre-packed. Facility of tables was provided
to customers who wanted to eat food items purchased on counter. It was held that this is
not 'restaurant service'. It is sale of goods and GST rate as applicable to each item will apply.
[Different view is possible, but the applicant is now in trouble] [in my view, for counter sale
of such goods, GST should be 5%].
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25.4-2 Rate of GST for supply of food in restaurant, eating joint, canteen, hotels, outdoor
catering w.e.f. 1-10-2019
Service heading for accommodation, food and beverages in 9963. Service group for food and
beverage services is 99633.
Provisions relating to GST on supply of food has been rationalized w.e.f. 1-10-2019.
Broadly, in case of supply of food, the GST rate is 5% [CGST 2.5% plus SGST/UTGST 2.5% or
IGST 5% - IGST of 5% can apply where outdoor caterer registered in one State is supplying
service in another State - see section 12(4) of IGST Act] without ITC w.e.f. 1-10-2019, in all
cases, except where food is supplied in hotels with 'declared tariff' of any unit of
accommodation above Rs. 7,500 per unit per day.
Even prior to 1-10-2019, the GST rate was same i.e. 5%.
In case of hotels with declared tariff exceeding Rs. 7,500 per unit per day (termed as
'specified premises'), the GST rate is 18% w.e.f. 1-10-2019 (CGST 9% plus SGST/UTGST 9% -
there cannot be charge of IGST as place of supply will always be where hotel is situated).
Prior to 1-10-2019, the GST rate was 28%.
Payment of tax @ 5% is mandatory and there is no option to pay GST at higher rate of 18%
for availment of ITC - Explanation at Sr No. 7(vi)(a) of Notification No. 11/2017-CT (Rate) and
No. 8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-10-2019.
In case of outdoor catering services, GST rate has been reduced w.e.f. 1-10-2019 to 5%
without ITC, except in case of catering services in hotel where declared tariff exceeds Rs.
7,500, where GST rate will be 18% with GST.
No ITC can be taken in respect of goods or services used exclusively in supplying food related
services. In case of common inputs of goods or services, only proportionate ITC can be taken,
treating supply of food items as exempted supply, as per Explanation (iv) in para 4 of
Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017.
The detailed provisions in respect of each type of service relating to food are given below.
25.4-3 Supply of 'restaurant service' other than at 'specified premises' w.e.f. 1-10-2019
In case of supply of 'restaurant service' other than at 'specified premises', the GST rate is 5%
[CGST 2.5% plus SGST/UTGST 2.5% or IGST 5%] w.e.f. 1-10-2019, provided that credit of
input tax charged on goods and services used in supplying the service has not been taken
[Please refer to Explanation No. iv] - Sr No. 7(ii) of Notification No. 11/2017-CT (Rate) and
No. 8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-10-2019.
'Specified premises' means hotels with declared tariff exceeding Rs. 7,500 per unit per day.
Explanation (iv) in para 4 states that no ITC can be taken in respect of goods or services used
exclusively in supplying food related services. In case of common inputs of goods or services,
only proportionate ITC can be taken, treating supply of food items as exempted supply.
IGST may become payable where food is supplied by registered person in one State to
recipient in other State.
Meaning of 'restaurant service ' - 'Restaurant service' means supply, by way of or as part of
any service, of goods, being food or any other article for human consumption or any drink,
provided by a restaurant, eating joint including mess, canteen, whether for consumption on
 462

or away from the premises where such food or any other article for human consumption or
drink is supplied - para 4(xxxii) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT
(Rate) both dated 28-6-2017 inserted w.e.f. 1-10-2019.
The definition is wide and it covers home delivery also.
25.4-4 Supply of food in trains or platforms by IRCTC or their licensees w.e.f. 1-10-2019
In case of supply of goods, being food or any other article for human consumption or any
drink, by the Indian Railways or Indian Railways Catering and Tourism Corporation Ltd. or
their licensees, whether in trains or at platforms, the GST rate is 5% [CGST 2.5% plus
SGST/UTGST 2.5% or IGST 5%] w.e.f. 1-10-2019, provided that credit of input tax charged on
goods and services used in supplying the service has not been taken [Please refer to
Explanation No. iv] - Sr No. 7(iii) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT
(Rate) both dated 28-6-2017 inserted w.e.f. 1-10-2019.
Explanation (iv) in para 4 states that no ITC can be taken in respect of goods or services used
exclusively in supplying food related services. In case of common inputs of goods or services,
only proportionate ITC can be taken, treating supply of food items as exempted supply.
25.4-5 Outdoor catering at premises other than 'specified premises' w.e.f. 1-10-2019
'Outdoor catering' is event based catering. Thus, 'outdoor catering' has to be 'event based'.
Mere supply of food outside own premises is not 'outdoor catering'. The general rate is 5%
except where catering services are provided in hotel with declared tariff exceeding Rs. 7,500
per unit per day.
In case of supply of 'outdoor catering', at premises other than 'specified premises' provided
by any person other than- (a) suppliers providing 'hotel accommodation' at 'specified
premises', or (b) suppliers located in 'specified premises', the GST rate is 5% [CGST 2.5% plus
SGST/UTGST 2.5% or IGST 5%] w.e.f. 1-10-2019, provided that credit of input tax charged on
goods and services used in supplying the service has not been taken [Please refer to
Explanation No. iv] - Sr No. 7(iv) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT
(Rate) both dated 28-6-2017 inserted w.e.f. 1-10-2019.
Till 1-10-2019, the GST rate was 18%.
Composite supply of 'outdoor catering' with renting of premises, other than specified
premises - In case of composite supply of 'outdoor catering' together with renting of
premises (including hotel, convention center, club, pandal, shamiana or any other place,
specially arranged for organising a function) at premises other than 'specified premises'
provided by any person other than- (a) suppliers providing 'hotel accommodation' at
'specified premises', or (b) suppliers located in 'specified premises', the GST rate is 5% [CGST
2.5% plus SGST/UTGST 2.5% or IGST 5%] w.e.f. 1-10-2019, provided that credit of input tax
charged on goods and services used in supplying the service has not been taken [Please refer
to Explanation No. iv] - Sr No. 7(v) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT
(Rate) both dated 28-6-2017 inserted w.e.f. 1-10-2019.
Meaning of 'specified premises' - 'Specified premises' means hotels with declared tariff
exceeding Rs. 7,500 per unit per day.
ITC on proportionate basis in case of common input services - Explanation (iv) in para 4
states that no ITC can be taken in respect of goods or services used exclusively in supplying
 463

food related services. In case of common inputs of goods or services, only proportionate ITC
can be taken, treating supply of food items as exempted supply.
Meaning of 'outdoor catering ' - 'Outdoor catering' means supply, by way of or as part of
any service, of goods, being food or any other article for human consumption or any drink,
at Exhibition Halls, Events, Conferences, Marriage Halls and other outdoor or indoor
functions that are event based and occasional in nature - para 4(xxxiii) of Notification No.
11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-10-2019.
Thus, 'outdoor catering' has to be 'event based'. Mere supply of food outside own premises
is not 'outdoor catering'.
No option to pay GST @ 18% on outdoor catering for availing ITC - Payment of tax @ 5% is
mandatory and there is no option to pay GST at higher rate of 18% for availment of ITC (Input
Tax Credit)- Explanation at Sr No. 7(vi)(a) of Notification No. 11/2017-CT (Rate) and No.
8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-10-2019.
25.4-6 GST on Restaurant service or outdoor catering services in hotel with declared tariff
exceeding Rs. 7,500 per unit per day, w.e.f. 1-10-2019
In case of food or catering services in hotel with declared tariff exceeding Rs. 7,500 per unit
per day, the GST rate is 18% [CGST 9% plus SGST/UTGST 9% - there cannot be IGST as food
is served in hotel, which will be 'place of supply' in all cases] w.e.f. 1-10-2019 - Sr No. 7(vi) of
Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 inserted
w.e.f. 1-10-2019.
ITC can be availed.
As per explanation below Sr No. 7(vi), this entry covers supply of 'restaurant service' and
'outdoor catering' at 'specified premises'. This entry also covers composite supply of
'outdoor catering' together with renting of premises (including hotel, convention center,
club, pandal, shamiana or any other place, specially arranged for organising a function)
provided by suppliers providing 'hotel accommodation' at 'specified premises', or suppliers
located in 'specified premises'.
Till 1-10-2019, the GST rate was 28%.
Soft beverages/aerated water supplied by restaurant located in hotel declared tariff
exceeding Rs 7,500 per unit per day would attract GST @ 18% - Mfar Hotels and Resorts P
Ltd. In re (2020) 120 taxmann.com 442 (AAR - TN).
In Kutting Fusion Hospitality LLP In re (2020) 114 taxmann.com 234 (AAR-Maharashtra),
applicant was planning to start restaurant, which will be part of a retail arcade owned by
hotel (JW Marriot) where declared tariff was more than Rs 7,500 per day. There was inter-
connectivity between hotel and arcade. Entry gate was common. It was held that GST rate
is 18%.
Meaning of 'declared tariff' - 'Declared tariff' means charges for all amenities provided in
the unit of accommodation (given on rent for stay) like furniture, air conditioner,
refrigerators or any other amenities, but without excluding any discount offered on the
published charges for such unit - para 4(xxxv) of Notification No. 11/2017-CT (Rate) and No.
8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-10-2019.
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Meaning of 'specified premises' - 'Specified premises' means premises providing 'hotel

accommodation' services having declared tariff of any unit of accommodation above Rs.
7,500 per unit per day or equivalent - para 4(xxxvi) of Notification No. 11/2017-CT (Rate) and
No. 8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-10-2019.
Service provided by star hotel at other premises are taxable @ 18% or 5%? - In Hotel
Sandesh (P.) Ltd., In re [2021] 125 taxmann.com 134 (AAR - Karnataka), a hotel with tariff
rates ranging from Rs 3,000 to Rs 10,000 was providing restaurant services in Non A/c
premises at place 2 Kms away from hotel. It was held that GST rate is 5% without ITC, if
separate registration is obtained for those premises or separate accounts were maintained.
However, if common accounts were maintained, GST rate would be 5% but proportionate
ITC will have to be reversed.
However, in Jewel Classic Hotels (P.) Ltd., In re [2021] 124 taxmann.com 38 (AAR - Haryana),
the applicant had three separate units with common GSTIN. In only one hotel the tariff rate
was more than Rs 7,500. They were catering of food, banquet facilities and combination of
both (as per requirement of customer) in self owned marriage and party halls. It was held
that catering services provided at places other than hotel premises (where room rent was
less than Rs 7,500 or where only banquet services were provided) also are to be taxed @
18%. The 5% rate is not applicable. They were also arranging flower decoration, DJ, special
cutlery etc. for which they were charging 'convenience/facilitation fee' separately. It was.
held that this is not service as 'pure agent' and hence no exemption is available.
In my view, if service is provided at place other than 'specified premises', GST rate of 5%
should apply even if the service provider owns a five star hotel at some other place.
25.4-7 Exemptions and refund in case of food items
Food supplied to weaker section of society - Food preparations put up in unit containers
and intended for free distribution to economically weaker sections of the society under a
programme duly approved by the Central Government or any State Government is exempt
from tax if certificate is issued by prescribed authority - Notification Nos. 39/2017-CT (Rate)
and 40/2017-IT (Rate) both dated 13-10-2017.
Refund of ITC when food supplied free at religious places - A scheme 'Seva Bhoj Yojaya' has
been introduced w.e.f. 1-8-2018 to refund Input Tax Credit of CGST and IGST paid on input
food articles used to distribute free food in temples, gurudwaras, mosques, churches, math
etc. Nodal Central Officer has been designated in each State. Detailed procedures have been
explained in CBI&C circular No. 75/49/2018-GST dated 27-12-2018.
Catering and Mid-day meals sponsored by Government - Service of catering and mid-day
meals in schools sponsored by Government is exempt under Sr No. 66(b) clauses (ii) of
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017].
This has been confirmed in Mahalakshmi Mahila Sangha, In re [2020] 116 taxmann.com 862
(AAR - Karn).
No GST on free food supplied in religious places - There will be no GST on free food supplied
in anna kshetras run by religious institutions. Further, prasadam supplied by religious places
like temples, mosques, churches, gurudwaras attracts Nil rate of tax. However, ITC will not
 465

be available - - PIB press release dated 11-7-2017 15:44 IST and CBI&C press release No.
75/2017 dated 11-7-2017.
Sale of prasadam is exempt from tax as per entry 98 of Notification No. 2/2017-CT (Rate)
dated 28-6-2017 - Sri Malai Mahadeshwara Swamy Kshetra Development Authority In re
(2020) 82 GST 698 = 116 taxmann.com 430 (AAR-Karnataka).
Services supplied by educational institutions - Service supplied by an educational institution
to its students, faculty and staff is exempt from GST - Sr No. 66(a) of Notification No.
12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017. This should cover
canteen services, if provided directly by educational institution.
Canteen services provided in recognized educational institution - If canteen service is
supplied in college by the educational institute itself, there is no tax liability. However, if the
service is supplied through contractor, tax @ 5% [CGST 2.5% plus SGST/UTGST 2.5%] is
payable - CBI&C circular No. 28/02/2018-GST dated 8-1-2018 - reiterated in CBI&C circular
No. 85/04/2019-GST dated 1-1-2019.
The circular dated 8-1-2018 was withdrawn w.e.f. 27-7-2018 - MF (TRU) circular No.
50/24/2018-GST dated 31-7-2018.
However, there was still confusion and hence the notification has been suitably amended
w.e.f. 1-1-2019 and earlier provision as per circular dated 8-1-2018 has been reiterated.
25.4-8 Case law relating to supply of food services relevant even after 1-10-2019
After rationalization of GST on supply of food, many of earlier controversies and issues have
been sorted out. Some case law and clarifications which are relevant even after 1-10-2019
are given below.
Supply of ice cream from retail outlet is supply of 'services' for service in the outlet,
takeaway or outdoor catering, but not when bulk supply - Supply of ice cream in parlour
(retail outlet) with sitting arrangement to customers is restaurant service under heading
9963. This rate applies to takeaway customers also. GST rate is 5% without ITC under Sr No.
7(ii) of Notification No. 11/2017-CT(Rate) dated 28-6-2017, w.e.f. 1-10-2019. Supply of ice-
cream at outdoor catering will fall under Sr No. 7(iv) and GST rate is 5% without ITC. If ice
cream is sold in bulk, it will be sale of goods - Sri Venkateshwara Agencies In re (2020) 80
GST 783 = 117 taxmann.com 214 (AAR-Telangana).
In Hatsun Agro Products Ltd. In re (2019) 110 taxmann.com 287 = 79 GST 259 (AAR-
Karnataka), it was held that supply of ice cream and other food products with seating facility
is composite supply. It is supply of service under heading 9963 and taxable @ 5%.
In Arihant Enterprises In re (2019) 73 GST 760 = 104 taxmann.com 230 (AAR-Maharashtra),
it has been held that supply of ice cream from retail outlet is supply of 'goods', if no dining
facility is provided [In many ice cream parlours, some eating facility is available but many
customers take ice cream home also. Further, since ice cream has to be sold in frozen
condition, it is difficult to say that no 'service' is involved].
Ice cream and other edible ice, whether or not containing cocoa fall under heading 2105 00
00 and are subject to GST @ 18%. Manufacturers of ice cream are not eligible for
composition scheme.
 466

Supply of food in hospitals - GST on supply of food in hospitals is 5% w.e.f. 27-7-2018 (when
food outsourced by hospitals, but no GST if hospital itself prepares food and supplies to
patients) - Navneeth kumar Talla, In re[2020] 120 taxmann.com 453 (AAR- TELANGANA).
Supply of food in club - Supply of food, by way of or as part of any service or in any other
manner whatsoever, from the restaurant of club is classifiable under SAC 9963 and taxable
@ 5% - Bengal Rowing Club, In re [2019] 103 taxmann.com 451 (AAR-West Bengal). -
confirmed in Bengal Rowing Club, In re [2019] 75 GST 721 = 108 taxmann.com 4 (AAAR -
WB).
Sale of liquor and food from same premises - Separate invoice should be made for sale of
liquor (as per State law) and supply of food (as per GST Law). They could not opt for
composition scheme as they are supplying non taxable goods (liquor) - FAQ No. 10(ii) and
10(vi) of FAQ on Food Processing issued by Directorate General of Taxpayer Services on 31-
7-2017.
In any case, on supply of food, GST rate will be 5% [2.5% CGST plus 2.5% SGST/UTGST].
Supply of food in canteen, offices etc. on contractual basis - Activity of supply of food in
canteens of office, factory, hospital, college, industrial unit etc. on contractual basis
(excepting that supply is not event based or on specific occasions), constitutes supply of
service in terms of amended Notification No.13/2018- Central Tax (Rate), dated 26-7-18 and
is taxable at the rate of 2.5% CGST + 2.5% SGST and supplier is not eligible for input tax credit
- same view in Ismail Ahamad Soofi, In re [2018] 99 taxmann.com 259 (AAR - Maharashtra).
The controversy has been set at rest by making specific provision in the GST Notification
itself on 27-7-2018 that even if canteen service is contracted out, the tax rate will still be 5%
- confirmed in Goodwill Industrial Canteen, In re (2018) 70 GST 225 = 97 taxmann.com 451
(AAR - Tamil Nadu).
In Amneal Pharmaceuticals (P.) Ltd., In re [2021] 123 taxmann.com 245 (AAR - GUJARAT),
applicant was providing canteen facilities through third party canteen services at its factory.
Canteen services which was obligatory under section 46 of Factories Act, 1948. Company
was providing food to its employees on subsidized rate. Employee's share of cost was being
deducted from their salary by assessee. It was held that such recovery of amount by
applicant from its employee would come under definition of 'outward supply' as defined in
section 2(83) and, therefore, taxable as a supply under GST.
In Musashi Auto Parts (P.) Ltd. In re [2021] 124 taxmann.com 87 (AAR - Haryana), it was held
that ITC is not available in respect of GST paid on canteen services, even if canteen is
mandatory under Factories Act. It was also held that if some amount is recovered from
employees (by way of coupons), GST will be payable on open market value i.e. amount paid
to canteen contractor [In my view, the decision is correct].
Supply of food with and without transport facilities - If applicant provides food to students
mess, training institutes etc., GST rate is 5%. However, if applicant provides transport
services to a training institute for carting food from one building to another for service/sale
and applicant charges separate transport charges, applicant needs to discharge GST on gross
amount (cost of Food + cost of Transportation) at rate of 18% GST - Prism Hospitality Services
(P.) Ltd., In re [2018] 100 taxmann.com 401 (AAR- Telangana).
 467

[The second part of decision needs review, as even in that case, principal supply is of food
and transportation is secondary].
Supply of food in food court of theatre - Supply of food items, soft drinks and snacks in food
court or snack bar of theatre is classifiable under Service code 9963 and GST rate is 5% (2.5%
CGST plus 2.5% SGST) - Jabalpur Entertainment Complexes P. Ltd., In re (2018) 70 GST 201 =
97 taxmann.com 587 (AAR-MP).
This GST rate is mandatory. There is no option to pay tax @ 18% and avail Input Tax Credit -
view confirmed in Coffee Day Global Ltd., In re (2018) 69 GST 901 = 97 taxmann.com 426
(AAR-Karnataka).
Supply of food and sweets in restaurant cum sweet shop - In Kundan Misthan Bhandar, In
re [2019] 74 GST 209 = 105 taxmann.com 364 (AAAR- Uttarakhand), the appellant had sweet
shop on ground floor and restaurant on first floor. Separate billing was done. It was held that
sale of sweets, namkeens, cold drinks and other edible items through restaurant will be
treated as composite supply and GST rate applicable on restaurant service will be applicable
(without ITC). However, sale of sweets, namkeens, cold drinks and other edible items from
sweet-shop counter will be treated as supply of goods and GST rate as applicable to goods
will apply and ITC will be available, if separate records are maintained.
This decision was in appeal against decision in Kundan Misthan Bhandar, In re [2018] 100
taxmann.com 18 = 71 GST 211 (AAR- Uttarakhand), where it was held that sweet shop is
extension of restaurant. It is composite supply with restaurant as principal supply. Service
falls under heading 9963 and GST rate is 5% on all supply on all sales (including sale from
sweet shop). This decision is now set aside by Appellate Authority.
GST on takeaway counter i.e. food parcels - Food parcels (or takeaways) will attract 5% GST
without ITC w.e.f. 15-11-2017 - Decision at GST Council meeting held on 10-11-2017 -
communicated on CBI&C website.
MRP provisions do not apply to sale of goods in restaurant as part of service - When sale
of food and drinks takes place in hotels and restaurants, there is really one indivisible
contract of service incidentally coupled sale of food and drinks. Since it is not possible to
divide the 'service element' which is the dominant element, from the 'sale element', it is
clear that such composite contracts cannot be subject matter of sales tax. Since definition
of 'sale' in Legal Metrology Act does not refer to 'deemed sale' as defined in Article
366(29A)(f) of Constitution of India, provisions of MRP are not applicable for sale of
packaged water bottles in hotels and restaurants - Federation of Hotel and Restaurant
Associations of India v. UOI (2018) 2 SCC 97 = 65 GST 448 = 89 taxmann.com 384 = 359 ELT
97 (SC).
Supplying cold drink in restaurant - The GST on cold drinks (aerated water) is 40% [14%
CGST plus 14% SGST + 12% GST Compensation Cess]. However, if it is sold in restaurant as
part of restaurant service, then it is a composite service and GST rate should be 5% [2.5%
CGST plus 2.5% SGST/UTGST].
Supply of food in canteen to employees is subject to GST - In Caltech Polymers (P.) Ltd., In
re [2018] 67 GST 95 = 92 taxmann.com 142 (AAR-Kerala), it has been held that GST is payable
 468

of supply of food in canteen made to workmen on chargeable basis - confirmed in Caltech

Polymers (P.) Ltd., In re [2018] 70 GST 582 = 98 taxmann.com 355 (AAAR-Kerala)
In Delta Jute Industries v. CTO (2001) 121 STC 186 (WBTT), it was held that supply of food to
workman at a price is a 'sale' and is taxable - same view in Tata Iron v. State of Orissa (1975)
35 STC 195 (Ori) * Tata Iron v. State of Bihar (1985) 58 STC 302 (Pat) * BRPL Canteen Co-op.
Soc. v. State of Assam (2003) 130 STC 138 (Gau HC) * Nuclear Atomic Power Supply Canteen
v. CTO (2008) 18 VST 241 (All HC) * TVS Motors Co. Ltd. v. State of Karnataka (2014) 46 GST
730 = 47 taxmann.com 279 (Karn HC DB).
Normally, GST should be payable on basis of 'open market value'. However, it has been
clarified that fringe benefits are in relation to employment and hence outside GST- PIB press
release dated 10-7-2017 17:09 IST.
Hence, it can be argued that GST should be only on actual amount recovered from
employees. If canteen contract has been given on contract basis of a contractor, it may be
advisable to charge GST on cost plus 10% and avail ITC of GST charged by the contractor.
Canteen services provided by contractor either directly to employees or directly to
employer - In Ismail Ahamad Soofi, In re [2018] 99 taxmann.com 259 (AAR - Maharashtra),
applicant is in business of providing catering/canteen services to industries and corporates.
Applicant entered into contract with industries and corporates to provide two types of
catering services, namely, Business to Business (B2B) Model or Business to consumer (B2C)
Model. Under B2B Model, they serve food and beverages directly to employees of
companies in cafeteria designated within companies premises for which consideration is
paid by companies directly to applicant as per agreed schedule and under B2C model, they
provide catering services to employees of companies in which amount of consideration is
paid by employees directly to applicant as per agreed schedule. It was held that catering
services provided by applicant under B2B Model and B2C Model are to be classified as
canteen services under Entry No. 7(i) or (iv) of Notification No. 11/2017 Central Tax (Rate),
dated 28-6-2017 and is chargeable to GST at rate of 5 per cent (2.5% CGST and 2.5%
SGST/UTGST).- similar view in Gurukrupa Hospitality Services, In re [2020] 121 taxmann.com
22 (AAR - GUJARAT).
Food supplied to SEZ or employees of SEZ - In Coffee Day Global Ltd., In re (2018) 69 GST
420 = 96 taxmann.com 247 (AAR Maharashtra), it was been held that supply of beverages
using coffee vending machines are not certified as authorised operations by proper officer
of SEZ and hence are not 'zero rated supply'.
Same view in Merit Hospitality Services P Ltd., In re (2018) 69 GST 298 = 95 taxmann.com
206 (AAR - Maharashtra), where it was held that supply of food to employees of SEZ unit is
not covered under authorised operations and hence is not a zero rated supply. This view has
been confirmed in appeal in Merit Hospitality Services P. Ltd. In re (2018) 70 GST 814 = 99
taxmann.com 75 (AAAR - Maharashtra).
Frozen food items - In Signature International Foods India (P.) Ltd., In re [2018] 100
taxmann.com 292 (AAR - Maharashtra), it has been decided as follows - (a) Frozen plain
chapatis, rotis, khakra, paratha, tortilla (un-leaven flat breads) - falls under entry 99A and
rate is 5% (b) Frozen Naan, kulcha and Lalupa (leaven flat bread) - fall under residual entry
 469

453 and rate 18% (c) Frozen Corn chips, corn taco and corn taco strips - rate 18% (d) Frozen
Pizza base - Pizza base is pizza bread and rate is 18%.
Unleavened Flatbreads products such as plain chapatti, Tortilla, Tortilla Wraps, roti, Roti
rolls, Wraps, Paratha and Paratha wraps are covered under Entry No. 99A of Schedule I of
Notification No. 1/2017-Central Tax (Rate), dated 28-6-2017 and they would be liable to tax
at 5% (2.5% each for CGST and SGST and 5% for IGST).
Product Leavened Flatbreads such as Naan, Kulcha and Chalupa are not covered by the
expression 'bread' as mentioned under Entry No. 97 of Notification No. 2/2017-Central Tax
(Rate), dated 28-6-2017, but they would be covered under residual entry 453 of Schedule III
of GST Act and they would be liable for taxes @ 18% (9% CGST and 9% SGST). However Pita
Bread is covered by the expression 'bread' as mentioned under Entry No. 97 of Exemption
Notification.
Products like Corn Chips, Corn Taco and Corn, Taco Strips would be treated as 'wafer' under
Entry No. 16 of Schedule III of Rate Notifications and it would be liable for taxes @ 18% (9%
CGST and 9% SGST).
Product Pancakes would be treated as All Goods as mentioned under Entry No. 16 of
Schedule III of Rate Notifications and it would be liable for taxes @ 18% (9% CGST and 9%
SGST).
Product, Pizza Base would be treated as 'Pizza Bread' as mentioned under Entry No. 99 of
Schedule/of Rate Notifications and it would be liable for taxes @ 18% (9% CGST and 9%
SGST).
Mid-day meals and Anganwadi meals supplied under Government schemes - In Akshya
Patra Foundation, In re [2019] 102 taxmann.com 213 (AAR-Rajasthan), applicant was
supplying Mid-day meals to Government schools and Anganwadi, under Government
schemes to Government schools. The entire cost was borne by Government. It was held that
GST is applicable. [really, service of mid-day meals in schools are exempt under Sr No. 66(b)
clauses (i), (ii) and (iii) of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017].
Position of tax on outdoor catering upto 27-7-2018 - GST rate on outdoor catering was 18%
(whether or not alcoholic liquor is served) is 18% (CGST 9% and SGST 9%) w.e.f. 1-7-2017 and
that rate continues to be 18% - Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate)
both dated 28-6-2017, effective from 1-7-2017 and existing upto 27-7-2018 - view confirmed
in Rashmi Hospitality Services P Ltd. In re (2018) 69 GST 95 = 93 taxmann.com 309 (AAR).
If any additional service like decoration, furniture hire, flower arrangement etc. is provided,
it will be part of outdoor catering service. It will be 'composite supply' and will be charged at
same tax rate.
25.4A Rate of GST for supply of food in restaurant, eating joint, canteen w.e.f. 27-7-2018
and upto 1-10-2019
The rate for supply of food or drink in any restaurant, eating joint, canteen, take-away food
is 5% IGST [or 2.5% CGST plus 2.5% SGST/UTGST] w.e.f. 27-7-2018 and upto 1-10-2019. Input
Tax Credit is not available - Sr No. 7(i) of Notification No. 11/2017-CT (Rate) and No. 8/2017-
IT (Rate) both dated 28-6-2017 as amended w.e.f. 27-7-2018 and as existing upto 1-10-2019.
 470

This GST rate is mandatory. There is no option to pay tax @ 18% and avail Input Tax Credit -
view confirmed in Coffee Day Global Ltd., In re (2018) 69 GST 901 = 97 taxmann.com 426
(AAR-Karnataka).
The canteen, mess, cafeteria or dining space may be in factory, office, school, college,
hospital etc. It may be run by owner or by contractor, the GST rate applies to take away food
also.
This rate is not applicable in following cases - (a) Hotel, guest house etc. where declared
Tariff of any unit is Rs. 7,500 or above per unit per day (b) Event based and occasional
outdoor or indoor catering. - - - In these two cases, GST rate is 18% IGST [or 9% CGST plus
9% SGST/UTGST]. Input Tax Credit is available in these two cases.
The statutory wording is as follows -
Supply, by way of or as part of any service, of goods, being food or any other article for
human consumption or any drink, provided by a restaurant, eating joint including mess,
canteen, whether for consumption on or away from the premises where such food or any
other article for human consumption or drink is supplied, other than those located in the
premises of hotels, inns, guest houses, clubs, campsites or other commercial places meant
for residential or lodging purposes having declared tariff of any unit of accommodation of
seven thousand five hundred rupees and above per unit per day or equivalent is subject to
5% IGST [or 2.5% CGST plus 2.5% SGST/UTGST] w.e.f. 27-7-2018 and upto 1-10-2019.
Explanation 1.- This item includes such supply at a canteen, mess, cafeteria or dining space
of an institution such as (*) hospital, industrial unit, office, by such institution or by any other
person based on a contractual arrangement with such institution for such supply, provided
that such supply is not event based or occasional. [* - The words were 'school, college'. These
words have been omitted w.e.f. 1-1-2019].
Explanation 2.- This item excludes the supplies covered under item 7(v). [Item 7(v) covers
event based outdoor or indoor catering].
Explanation 3.- "declared tariff" includes charges for all amenities provided in the unit of
accommodation (given on rent for stay) like furniture, air conditioner, refrigerators or any
other amenities, but without excluding any discount offered on the published charges for
such unit.
25.4A-1 GST rates on restaurant, food supply etc. in various cases w.e.f. 27-7-2018 and
upto 1-10-2019
The GST rate on supply of food in various cases was as follows during 27-7-2018 to 1-10-
2019.
Supply of food or drink in train or platform - Supply, of goods, being food or any other
article for human consumption or any drink, by the Indian Railways or Indian Railways
Catering and Tourism Corporation Ltd. or their licensees, whether in trains or at platforms
was subject to 5% IGST [or 2.5% CGST plus 2.5% SGST/UTGST] w.e.f. 27-7-2018. Input Tax
Credit was not available - Sr No. 7(ia) of Notification No. 11/2017-CT (Rate) and No. 8/2017-
IT (Rate) both dated 28-6-2017 as amended w.e.f. 27-7-2018 and as existing upto 1-10-2019.
The GST rate was mandatory.
 471

Supply of food at event based occasional outdoor or indoor functions - In case of supply,
by way of or as part of any service, of goods, being food or any other article for human
consumption or any drink, at Exhibition Halls, Events, Conferences, Marriage Halls and other
outdoor or indoor functions that are event based and occasional in nature, the GST rate was
18% IGST [or 9% CGST plus 9% SGST/UTGST]. Input Tax Credit was available - Sr No. 7(v) of
Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 as
amended w.e.f. 27-7-2018 and existing upto 1-10-2019.
25.4A-2 GST rates on food items during 15-11-2017 to 27-7-2018
The rates were more or less same but there was some confusion. The rate were as follows -
The rates of GST for supply, by way of or as part of any service of food or any other article
for human consumption or any drink (other than alcoholic liquor for human consumption),
in restaurant, eating joint, mess or canteen are as follows [Notification No. 11/2017-CT
(Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 as amended w.e.f. 15-11-2017 and
existing upto 27-7-2018].
The rates were as follows during 15-11-2017 to 27-7-2018.
(a) A stand-alone restaurant or restaurant or eating joints in hotels, guest houses, clubs
meant for residential or lodging purposes with declared tariff less than Rs. 7,500 per
day - GST 5% [2.5% CGST plus 2.5% SGST/UTGST] [There cannot be IGST as place of
supply is where service is supplied]. Input Tax Credit of goods or services is not
available. There was no option to avail Input Tax Credit and pay tax at full rate.
(b) A restaurant or eating joints in hotels, guest houses, clubs meant for residential or
lodging purposes with declared tariff Rs. 7,500 or more per day - GST 18% [9% CGST
plus 9% SGST/UTGST]

[There cannot be IGST as place of supply is where service is supplied]. Input Tax Credit of
goods and services is available.
Service where eating place is provided in bakery - If eating place is provided in bakery, tax
is payable @ 5% under composition scheme @ 5% - CBI&C circular No. 27/1/2018 dated 4-
1-2018.
However, in Square One Homemade Treats In re (2019) 110 taxmann.com 494 (AAR-Kerala),
the applicant was purchasing goods like cakes (bakery products), cookies, homemade
packed food etc. The food items were pre-packed. Facility of tables was provided to
customers who wanted to eat food items purchased on counter. It was held that this is not
'restaurant service'.
GST rate in case of food and drinks supplied in running trains and on platforms - GST rate
in case of food and drinks supplied in running trains and on platforms is uniform @ 5%
without Input Tax Credit - Order No. 02/2018 [F No. 354/03/2018-TRU] dated 31-3-2018.
Now, specific provision has been made in the notification itself and hence the order No.
02/2018 dated 31-3-2018 has been withdrawn w.e.f. 27-7-2018 - MF (TRU) circular No.
50/24/2018- GST dated 31-7-2018.
 472

However, in Deepak & Co., In re [2018] 68 GST 57 = 93 taxmann.com 94 (AAR - New Delhi),
it was held that supply of food, bottled water etc. in railways is pure supply of goods. Train
cannot be called as a restaurant, eating joint, mess or canteen.
Now the controversy has been settled by making specific provision in the notification itself.
GST rates as applicable upto 15-11-2017 - The rates of GST for supply, by way of or as part
of any service of food or any other article for human consumption or any drink (other than
alcoholic liquor for human consumption), in restaurant, eating joint, mess or canteen were
as follows [Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-
2017, effective from 1-7-2017 as existing upto 15-11-2017].
(a) Not having air conditioning or heating in any part of establishment at any time during
the year and not having licence or permit to serve alcoholic liquor for human
consumption - 12% (CGST 6% and SGST 6%).
(b) having liquor license or permit, whether or not having air conditioning or heating in
any part of establishment at any time during the year 18% (CGST 9% and SGST 9%).
(c) having air conditioning or heating in any part of establishment at any time during the
year whether or not having licence or permit to serve alcoholic liquor for human
consumption - 18% (CGST 9% and SGST 9%).

For food related service, place of supply is where service is supplied. Hence, on this service,
IGST cannot be charged.
25.4A-3 Service of outdoor catering or catering within premises of hotel or restaurant upto
30-9-2019
The definition and concept of 'outdoor catering' was done away, w.e.f. 27-7-2018. The term
used was 'outdoor or indoor functions that are event based and occasional in nature'.
In case of supply, by way of or as part of any service, of goods, being food or any other article
for human consumption or any drink, at Exhibition Halls, Events, Conferences, Marriage Halls
and other outdoor or indoor functions that are event based and occasional in nature, the
GST rate is 18% IGST [or 9% CGST plus 9% SGST/UTGST]. Input Tax Credit is available - Sr No.
7(vii) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017
as amended w.e.f. 27-7-2018 and as existing upto 1-10-2019.
If food is supplied by way of or as part of the services associated with organizing social events
at the club premises, together with renting of such premises, it will be classifiable under SAC
9963 and taxable @ 18% - Bengal Rowing Club, In re [2019] 103 taxmann.com 451 (AAR-
West Bengal) - view confirmed in Bengal Rowing Club, In re [2019] 108 taxmann.com 4
(AAAR-West Bengal).
Now the rates have been reduced w.e.f. 1-10-2019 as discussed earlier.
25.5 Cargo handling services
Cargo handling service falls under heading 9967.
In Signode India v. CCE (2017) 50 STR 3 (SC), it has been held that simple packing is not cargo
handling. Goods become cargo only after they are packed.
25.5-1 Satellite Launch Services
 473

Satellite Launch Services fall under heading 9965. The Satellite Launch Services supplied by
ISRO, Antrix and New Space India have been exempted from GST w.e.f. 16-10-2020.
25.6 Electricity and gas distribution service
Electricity and gas distribution service falls in service heading 9969.
Service of transmission or distribution of electricity by an electricity transmission or
distribution utility is exempt from GST - Notification No. 12/2017-CT (Rate) and No. 9/2017-
IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Services supplied for construction, erection or installation of infrastructure for extending
electricity to tube well of farmer - Services supplied by electricity distribution utilities by
way of construction, erection, commissioning, or installation of infrastructure for extending
electricity distribution network upto the tube well of the farmer or agriculturalist for
agricultural use are exempt from GST - Notification No. 12/2017-CT (Rate) and No. 9/2017-
IT (Rate) both dated 28-6-2017 as inserted w.e.f. 27-7-2018.
These fall under service heading 9954.
Other services supplied by DISCOMS against charge are taxable under GST - Service of
transmission or distribution of electricity by DISCOMS is exempt from tax. DISCOMS provide
other services for which they charge separately e.g. i. Application fee for releasing
connection of electricity; ii. Rental Charges against metering equipment; iii. Testing fee for
meters/transformers, capacitors etc.; iv. Labour charges from customers for shifting of
meters or shifting of service lines v. charges for duplicate bill. These are subject to tax -
MF(DR)(TRU) circular No. 34/8/2018-GST dated 1-3-2018.
Non-tariff charges recovered by electricity companies, such as application fee for releasing
connection of electricity, rental charges against metering equipment, testing fee for
meters/transformers, capacitors etc., are taxable under GST - TP Ajmer Distribution Ltd., In
re [2018] 68 GST 719 = 95 taxmann.com 61 (AAR - Rajasthan)
Only transmission and distribution of electricity to consumers is exempt. Other services like
connection, reconnection, supervision of works, erection of poles, sub-stations, supply of
meters etc. are not exempt - Southern Power Distribution Co of AP Ltd. In re (2019) 111
taxmann.com 500 (AAR - AP).
Work to lay down infrastructure for distribution (termed as 'deposit work') is not directly
related to transmission of electricity. 'Deposit work' is neither integral nor ancillary to service
of transmission and distribution of electricity Hence, the 'deposit work' is taxable under GST
- Uttar Pradesh Power Distribution Corporation Ltd. In re (2020) 114 taxmann.com 309 (AAR-
UP).
[In other words, as per the circular and decision of AAR, it is a mixed supply and not
composite supply. The issue is surely arguable as really it is a composite supply though
charged separately].
No GST on delayed payment charges/interest recovered on supply of electricity - In
Madhya Pradesh Poorv Kshetra Vidyut Vitaran Co. Ltd., In re (2019) 72 GST 63 = 101
taxmann.com 100 (AAR-MP), it was held that distribution and supply of electricity is exempt.
Delayed payment surcharge (interest) is not a separate service. It is included in value of
 474

supply and it is also exempt - same view in TP Ajmer Distribution Ltd., In re (2019) 103
taxmann.com 227 (AAAR- Rajasthan).
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Passenger Transport Services

26.1 Transport of persons
Service classification for Passenger Transport Services is 9964. Groups under this heading
are Local Transport and sightseeing transportation service (99641) and Long Distance
transport services of passengers (99642).
Rental services of transport vehicles with operator fall under heading 9966 w.e.f. 1-10-2019.
Till 1-10-2019, Rental services of transport vehicles with or without operator were falling
under heading 9966. These could also fall under service code 997329.
26.2 Transport of passengers by rail
The local rail transport service falls under heading 996411 and long distance transport
service falls under 996421.
The GST rate is 5% (2.5% CGST and 2.5% SGST/UTGST) or 5% IGST for travel in first class or
air conditioned coach. ITC of input services is available but not of goods - Notification No.
11/2017-CT (Rates) and 8/2017-IT (Rates) dated 28-6-2017, effective from 1-7-2017.
Services of transport by air in metro, monorail or tramway and in railways in class other that
first class of air conditioned coach are exempt from GST - Notification No. 12/2017-CT
(Rates) and 9/2017-IT (Rates) both dated 28-6-2017, effective from 1-7-2017.
26.3 Transport of passengers by road
Passenger transport services fall under heading 9964.
The local road transport service falls under group 99641 and long distance transport service
falls under group 99642.
Rental services of transport vehicles with operator falls under heading 9966, w.e.f. 1-10-
2019.
Leasing or Rental services of motor vehicles without operator falls under heading 9973,
w.e.f. 1-10-2019.
Till 1-10-2019, both the headings 9966 and 9973 covered renting of motor vehicle with or
without operator and there was overlapping.
Rationalisation of GST on services of transportation of passengers and renting of motor
vehicle - The provisions of GST on services of transportation of passengers and
renting/leasing of motor vehicles has been rationalised.
Earlier, there was overlapping between headings 9966 and 9973 as both covered renting
with our without operator. Now, clear distinction has been made. Heading 9966 will cover
renting with operator while heading 9973 will cover leasing or renting without operator.
Distinction between passenger transport service and renting of motor vehicle service -
There is clear distinction between passenger transport service and service of renting or
leasing of motor vehicle. In case of passenger transport service, the supplier of service has
separate contract with each passenger travelling in motor vehicle. In case of renting or
leasing of motor vehicle, the supplier of service has contract only with one person (company,
Government, firm, proprietor etc.) and then the service recipient (company, Government,
 476

firm, proprietor etc.) can allow any person to use that vehicle for transport of persons. This
service is not 'passenger transport service'.
In Andhra Pradesh State Road Transport Corporation, In re [2020] 117 taxmann.com 975
(AAR - AP), the applicant, State Transport Corporation, giving Non Air Conditioned Buses on
contract for occasions of marriages, functions etc, for transportation of employees and
students of other organizations/Department, etc., It was held that these services are not
covered under contract carriage service, but rental services. It fits under Serial No. 10 of
Notification No.11/2017-CT(Rate) dated 28-6-2017. Rate of tax on rental services where cost
of fuel is included in consideration charged from service recipient is 5%/12% subject to
satisfying conditions. In case conditions are not satisfied, applicant has to pay GST at 18%.
There is contrary decision in Bhavika Bhatia In re [2020] 78 GST 501 = 111 taxmann.com 168
(AAR-MP), where contract was for transportation of students and staff in non-AC buses
[probably this decision needs review. The exemption also does not apply as the
transportation service was to college students and not upto HSC students].
Renting of e-bikes/bicycles without operator falls 9973 - Renting of e-bikes/bicycles
without operator is classifiable under Heading No. 9973 - Leasing or rental services without
operator and rate of tax under Sl. No. 17(viia) of Notification No. 11/2017 Central Tax (Rate),
dated 28-6-2017 will be same rate of tax as applicable on supply of like goods involving
transfer of title in goods - Yulu Bikes (P.) Ltd., In re [2021] 125 taxmann.com 147 (AAAR-
Karnataka) [reversing decision in Yulu Bikes (P.) Ltd., In re [2020] 120 taxmann.com 188 = 84
GST 159 (AAR - Karnataka), where it was (indeed incorrectly) held that renting of e-
bikes/bicycles without operator by assessee could not be classified under SAC 9973. It will
be classified under 9966]
Renting or leasing of motor vehicle without operator will attract higher rate of GST - One
major impact is that renting or leasing of motor vehicle without operator will be subject to
tax at same rate as applicable to supply of like goods. Thus, GST rate in such cases will be
28% plus GST compensation Cess as applicable to that motor vehicle.
Summary of taxability of passenger transport service and renting of motor vehicle - The
broad summary of taxability under (a) Notification Nos. 11/2017-CT (Rates) and 8/2017-IT
(Rates) dated 28-6-2017 and (b) No. 12/2017-CT (Rates) and 9/2017-IT (Rates) dated 28-6-
2017 is as follows -
Description Passenger transport Rental services of Leasing or rental
service transport vehicles services without
with operator operator

Service heading 9964 9966 9973

Transport of passengers in Nil [Sr. No. 15(b) and
non-air conditioned 15(c) of Notification
contract carriage (other 12/2017-CT(R)]
than radio taxi) excluding
tourism, tour, charter or
 477

hire) and non-air

conditioned stage carriage
Service of metered cabs or Nil [Sr. No. 17(e) of NA NA
auto-rickshaws including e- Notification 12/2017-
rickshaw with or without CT(R)]
accompanied belongings
Service of giving on hire NA Nil [Sr. No. 22 of Nil [Sr. No. 22 of
motor vehicle meant to Notification 12/2017- Notification 12/2017-
carry more than 12 CT(R)] CT(R)]
passengers to state
transport undertaking or
motor vehicle to
educational institution upto
HSC
Service by way of giving on NA Nil [Sr. No. 22(aa) of Nil [Sr. No. 22(aa) of
hire electrically operated Notification No. Notification No.
motor vehicle meant to 12/2017-CT(R)] 12/2017-CT(R)]
carry more than 12
passengers, provided to
local authority

Transport in (a) AC Contract 5% - no ITC [Sr. No. 8(ii) 5% without ITC and NA
Carriage other than motor of Notification 12% with ITC if with
cab (b) AC stage carriage 11/2017-CT(R)] fuel [Sr. No. 10(i) of
and (c) radio taxi Notification 11/2017-
CT(R)]
Any motor vehicle to carry 5% [Sr. No. 8(vi) of 5% [Sr. No. 10(i) of NA
passengers where cost of Notification 11/2017- Notification 11/2017-
fuel is included and ITC only CT(R)] CT(R)]
of input service in same line
of business
Any motor vehicle to carry 12% [Sr. No. 8(vi) of 12% [Sr. No. 10(i) of NA
passengers where cost of Notification 11/2017- Notification 11/2017-
fuel is included with full ITC CT(R)] CT(R)]
Other services (where cost 18% [Sr. No. 8(vii) of 18% [Sr. No. 10(iii) of Same rate as
of fuel is not included) - Notification 11/2017- Notification 11/2017- applicable to supply of
entire ITC available CT(R)] CT(R)] like goods [Sr. No.
17(viia) of Notification
11/2017-CT(R)]

26.3-1 Transport in non-AC contract carriage and stage carriage

 478

In case of transport of passengers in non-air conditioned contract carriage (other than radio
taxi) excluding tourism, tour, charter or hire) and non-air conditioned stage carriage, the GST
is not subject to GST - Sr No. 15(b) and 15(c) of Notification 12/2017-CT(R).
This service falls under heading 9964.
"Contract carriage" has the meaning assigned to it in section 2(7) of the Motor Vehicles Act,
1988.
"Stage carriage" has the meaning assigned to it in section 2(40) of the Motor Vehicles Act,
1988.
The detailed wording is as follows -
Passenger transport service in non-AC contract carriage and Non-AC stage carriage is not
taxable - Following services of transport of passengers by road are not taxable GST - (a) non-
air-conditioned contract carriage other than radio taxi, for transportation of passengers,
excluding tourism, conducted tour, charter or hire; or (b) stage carriage other than air-
conditioned stage carriage - Sr No. 15(b) and 15(c) of Notification No. 12/2017-CT (Rate) and
No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Meaning of 'Stage carriage' - 'Stage Carriage' means a motor vehicle constructed or
adopted to carry more than six passengers excluding the driver for hire or reward at separate
fairs paid by or for individual passengers, either for the whole journey or for stages of the
journey [section 2(40) of the Motor Vehicles Act, 1988].
A 'stage carriage' is a motor vehicle which operates between fixed destinations. It can pick
up passengers en-route. A 'contract carriage' carries passengers as a group and cannot pick
up passengers en-route.
Meaning of Contract Carriage - Section 2(7) of the Motor Vehicles Act defines a 'contract
carriage' as follows : 'Contract carriage' means a motor vehicle which carries a pas senger or
passengers for hire or reward and is engaged under a contract, whether express or implied,
for the use of such vehicle as a whole for the carriage of passengers mentioned therein and
entered into by a person with a holder of a permit in relation to such vehicle or any person
authorised by him in this behalf on a fixed or an agreed rate or sum— (a) on a time basis,
whether or not with reference to any route or distance; or (b) from one point to another;- -
and in either case, without stopping to pick up or set down passengers not included in the
contract anywhere during the journey, - - and includes— (i) a maxi-cab; and (ii) a motor-cab
notwithstanding that separate fares are charged for its passengers.
Thus, the essential ingredient of a contract carriage is that it plies under a contract for a fixed
set of passengers, and does not allow any other passenger to board or alight from the car
riage at will.
A 'contract carriage' carries passengers as a group and cannot pick up passengers en-route.
26.3-2 Service of metered cabs or auto-rickshaws including e-rickshaw
Service of metered cabs or auto-rickshaws including e-rickshaw with or without
accompanied belongings is not subject to GST - Sr No. 17(e) of Notification 12/2017-CT(R).
This service falls under heading 9964.
 479

26.3-3 Hire of motor vehicle to carry more than 12 passengers to state transport
undertaking is not taxable
Service of giving on hire motor vehicle meant to carry more than 12 passengers with or
without operator, to state transport undertaking is not taxable.
The detailed wording is as follows.
Service of giving motor vehicle to carry more than 12 passengers on hire to state transport
undertaking is not taxable - Services by way of giving on hire to a state transport
undertaking, a motor vehicle meant to carry more than twelve passengers is exempt from
GST - Sr No. 22(a) Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated
28-6-2017, effective from 1-7-2017.
This hire may be with operator (under heading 9966) or without operator (under heading
9973). This distinction has been made w.e.f. 1-10-2019. Exemption is available in both the
cases. Even earlier, the exemption was available in both the cases.
However, in SST Sustainable Transport Solutions India (P.) Ltd., In re [2018] 71 GST 188 = 100
taxmann.com 122 (AAR - Maharashtra), applicant was rendering services to State Municipal
Corporation by way of giving out on rent/hire, buses, which were further used by
Corporation for transportation of passengers, such renting of buses by assessee would fall
under Sr. No. 10, Heading No. 9966 of Notification No. 11/2017-Central Tax (Rate), dated
28-6-2017 and tax rate would be 18% [This may be because the hire was to Municipal
Corporation and not to State transport undertaking],
26.3-4 Service of hire of motor vehicle for transportation of students, faculty and staff upto
HSC level is exempt w.e.f. 25-1-2018
Service by way of giving on hire motor vehicle for transport of students, faculty and staff, to
a person providing services of transportation of students, faculty and staff to an educational
institution providing services by way of pre-school education and education upto higher
secondary school or equivalent are exempt w.e.f. 25-1-2018 - Sr. No. 22(c) of Notification
Nos. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 25-1-
2018.
This hire may be with operator (under heading 9966) or without operator (under heading
9973). This distinction has been made w.e.f. 1-10-2019. The exemption is available in both
the cases. Even earlier, the exemption was available in both the cases.
26.3-5 Service of hire of electrically operated motor vehicle meant to carry more than 12
passengers, provided to local authority not taxable w.e.f. 1-8-2019
Service by way of giving on hire electrically operated motor vehicle meant to carry more
than 12 passengers, provided to local authority is not taxable w.e.f. 1-8-2019 - Sr. No. 22(aa)
of Notification Nos. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017
inserted w.e.f. 1-8-2019.
This hire may be with operator (under heading 9966) or without operator (under heading
9973). This distinction has been made w.e.f. 1-10-2019. The exemption is available in both
the cases. Even earlier, the exemption was available in both the cases.
26.3-6 Transport of passengers in AC contract carriage, state carriage and radio taxi
 480

Transport in (a) AC Contract Carriage other than motor cab (b) AC stage carriage and (c) radio
taxi is subject to GST @ 5% [2.5% CGST plus 2.5% SGST/UTGST or 5% IGST]. ITC cannot be
availed.
Service head is 9964.
If AC Contract Carriage or AC stage carriage is given on hire with operator and inclusive of
cost of fuel, GST is 5% [2.5% CGST plus 2.5% SGST/UTGST or 5% IGST] and @ 12% [6% CGST
plus 6% SGST/UTGST or 12% IGST] with ITC - Sr No. 10(i) of Notification 11/2017-CT(R).
[Radio-taxi, by definition, cannot be given on hire, but as ordinary motor vehicle, it can be
given on hire].
Service head is 9966.
Radio taxi - "Radio taxi" means a taxi including a radio cab, by whatever name called, which
is in two-way radio communication with a central control office and is enabled for tracking
using Global Positioning System (GPS) or General Packet Radio Service (GPRS).
Motor cab - Section 2(25) of Motor Vehicles Act, 1988 defines 'motor cab' as any motor
vehicle constructed or adapted to carry not more than 6 passengers excluding driver, for
hire or reward.
Maxi cab - As per section 2(22) of Motor Vehicles Act, 1988 'maxi cab' means any motor
vehicle constructed or adapted to carry more than 6 passengers, but not more than 12
passengers, excluding the driver, for hire or reward. These vehicles are more popularly
known as vans, Innova, sumo etc.
26.3-7 Transport of passenger or renting of motor vehicle (other than above) where cost
of fuel is included
In case of passenger transport in motor vehicle to carry passengers where cost of fuel is
included [service head 9964] or hire of motor vehicle with operator where cost of fuel is
included [service head 9966] the GST rate is as follows - (a) ITC only of input service in same
line of business - GST @ 5% [2.5% CGST plus 2.5% SGST/UTGST or 5% IGST] (b) Entire ITC
available - GST @ 12% [6% CGST plus 6% SGST/UTGST or 12% IGST] - Sr. Nos. 8(vi) and 10(i)
of Notification 11/2017-CT(R).
The detailed wording is as follows.
Transport of passengers in any motor vehicle with restricted ITC, where fuel is included in
consideration - GST rate on transport of passengers in any motor vehicle (till 13-10-2017,
the word was 'motor cab') designed to carry passengers, where cost of fuel is included in the
consideration charged from the service recipient is 5% (2.5% CGST and 2.5% SGST) or 5%
IGST. ITC on goods or services is not available - Sr No. 8(vi) of Notification Nos. 11/2017-CT
(Rate) and 8/2017-IT (Rate) dated 28-6-2017 amended on 22-8-2017 and 13-10-2017.
The service falls under heading 9964.
[Till 13-10-2017, the concessional rate of 5% was only in respect of transport of passengers
in motor cab. After 13-10-2017, the concessional rate is available for transport of passengers
by any motor vehicle like contract carriage, buses, maxi cab etc.].
Credit of input tax charged on goods and services used in supplying the service is not
available, other than the input tax credit of input service in the same line of business (i.e.
 481

service procured from another service provider of transporting passengers in a motor

vehicle or renting of a motor vehicle) - proviso to Sr No. 8(vi) of Notification Nos. 11/2017-
CT (Rates) and 8/2017-IT (Rates) dated 28-6-2017 amended on 22-8-2017 and 13-10-2017.
Renting of motor vehicle with operator and inclusive of cost of fuel - The GST rate is 5%
(2.5% CGST and 2.5% SGST/UTGST) or 5% IGST for renting of any motor vehicle designed to
carry passengers with operator, where cost of fuel is included in the consideration charged
from the service recipient. Credit of input tax charged on goods and services used in
supplying the service is not available, other than the input tax credit of input service in the
same line of business (i.e. service procured from another service provider of transporting
passengers in a motor vehicle or renting of a motor vehicle). If entire ITC is availed, GST rate
is 12% (6% CGST and 6% SGST/UTGST) or 12% IGST - Sr No. 10(i) of Notification Nos. 11/2017-
CT (Rates) and 8/2017-IT (Rates) dated 28-6-2017, effective from 1-7-2017. [The word 'and'
was 'or' upto 13-10-2017].
Service head is 9966.
Service of giving motor vehicle on hire on rental basis is renting of motor vehicle classifiable
under 9966. ITC is not available on motor vehicle. It is not a 'passenger transport service'
under heading 9964 - Mohana Ghosh In re (2019) 74 GST 288 = 106 taxmann.com 108 (AAR-
West Bengal) and Mohana Ghosh In re (2019) 75 GST 211 = 106 taxmann.com 380 (AAR-
West Bengal).
If entire ITC is availed, GST rate is 12%, as explained below.
Transport of passengers in any motor vehicle with full ITC, where cost of fuel is included in
consideration - The GST rate on transport of passengers in any motor vehicle (till 13-10-
2017, the word was 'motor cab') designed to carry passengers, where cost of fuel is included
in the consideration charged from the service recipient will be 12% (6% CGST and 6% SGST)
or 12% IGST, if the supplier of service intends to avail entire ITC of goods and services - Sr
No. 8(vi) of Notification Nos. 11/2017-CT (Rates) and 8/2017-IT (Rates) dated 28-6-2017
amended on 22-8-2017 and 13-10-2017 [During 1-7-2017 to 22-8-2017, the GST rate was
18% IGST (or 9% CGST + 9% SGST/UTGST), if supplier of services intended to avail ITC].
The service falls under heading 9964.
Similarly, renting of any motor vehicle with operator designed to carry passengers, where
cost of fuel is included in the consideration charged from the service recipient will be 12%
(6% CGST and 6% SGST) or 12% IGST, if the supplier of service intends to avail entire ITC of
goods and services - Sr No. 10(i) of Notification Nos. 11/2017-CT (Rates) and 8/2017-IT
(Rates) dated 28-6-2017 amended on 22-8-2017 and 13-10-2017.
The words 'with operator' have been inserted w.e.f. 1-10-2019.
The service falls under heading 9966.
26.3-8 Services of transport of passengers by road or renting of motor vehicle, other than
above
In case of services other than above, the GST rates are as follows -
 482

Transport of passengers in motor vehicle, where fuel cost is not included - 18% [9%
CGST plus 9% SGST/UTGST or 18% IGST] [service head 9964] - Sr No. 8(vii) of
Notification 11/2017-CT(R).
Renting of motor vehicle with operator, where fuel cost is not included - 18% [9%
CGST plus 9% SGST/UTGST or 18% IGST] [service head 9966] - Sr No. 10(iii) of
Notification 11/2017-CT(R).
Renting of motor vehicle without operator, where fuel cost is not included - Same
rate as applicable to supply of like goods [service head 9973] - Sr No. 17(viia) of
Notification 11/2017-CT(R).

Detailed wording is as follows -

Transport of passengers with operator where fuel is supplied by recipient of service - If fuel
is supplied by recipient of service, the GST rate will be 18% (9% CGST and 9% SGST) or 18%
IGST for transport of passengers. This is the residual rate of tax - Sr No. 8(vii) of Notification
Nos. 11/2017-CT (Rates) and 8/2017-IT (Rates) dated 28-6-2017 amended on 22-8-2017 and
13-10-2017.
The service falls under heading 9964.
Same rate applies for renting of motor vehicle with operator where cost of fuel is not
included [service head 9966] - Sr No. 10(iii) of Notification 11/2017-CT(R).
Renting or leasing of motor vehicle without operator - If such leasing or renting of motor
vehicle is without operator, the GST rate will be same as applicable to supply of like goods
involving transfer of title in goods - Sr No. 17(viia) of Notification Nos. 11/2017-CT (Rates)
and 8/2017-IT (Rates) dated 28-6-2017 amended on 1-10-2019. The service would fall under
heading 9973.
Besides CGST/SGST/UTGST or IGST, GST Compensation Cess will also be payable.
Till 1-10-2019, this service could fall under heading 9966 and GST rate was 18% as per Sr No.
10(iii) of Notification Nos. 11/2017-CT (Rates) and 8/2017-IT (Rates) dated 28-6-2017 as
existing upto 1-10-2019.
26.3-9 Reverse charge w.e.f. 1-10-2019 when service supplier is not body corporate and
service recipient is body corporate
If the supplier of renting of motor vehicle is not a body corporate and recipient of service is
a body corporate, where the cost of fuel is included in the consideration charged, the
recipient of service (which is a body corporate) is liable to pay GST @ 5%.
The exact wording as amended w.e.f. 31-12-2019 is as follows -
Category of supply of service - Services provided by way of renting of any motor vehicle
designed to carry passengers where the cost of fuel is included in the consideration charged
from the service recipient, provided to a body corporate - - Supplier of service - any person,
other than a body corporate who supplies the service to a body corporate and does not issue
an invoice charging central tax at the rate of 6% CGST (plus 6% SGST/UTGST) to the service
recipient - - Recipient of service (person liable to pay GST under reverse charge) - any body
corporate located in the taxable territory will be liable to pay GST.
 483

The earlier wording during 1-10-2019 to 31-12-2019 was clumsy and absurd. Hence, CBI&C
vide Circular No. 130/49/2019- GST dated 31-12-2019 has clarified that the aforesaid
provision will apply even for the period 1-10-2019 to 31-12-2019.
Earlier faulty wording upto 31-12-2019 - In case of Services provided by way of renting of
a motor vehicle provided to a body corporate by any person other than a body corporate,
paying 2.5% CGST plus 2.5% SGST/UTGST (or 5% IGST) on renting of motor vehicles with
input tax credit only of input service in the same line of business, the body corporate located
in the taxable territory receiving the service is liable to pay GST under reverse charge w.e.f.
1-10-2019.
Really, if the supplier is supplying service with 5% GST, where was the question of reverse
charge? What was really implied was that if a person (other than a body corporate) supplies
service of renting of a motor vehicle to a body corporate, he (the supplier) should not charge
GST in his tax invoice and the recipient of service (body corporate) should pay GST @ 5%
under reverse charge.
It is good that after three months, the department has realized the mistake and made
corrections, as stated in CBI&C Circular No. 130/49/2019- GST dated 31-12-2019 [better late
than never]
26.3-10 Toll charges and annuity paid for access to road or bridge is exempt from GST
Service by way of access to a road or a bridge on payment of toll charges is exempt from GST
- Sr No. 23 Notification Nos. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-
2017, effective from 1-7-2017.
Service by way of access to a road or a bridge on payment of annuity is exempt from tax - Sr
No. 23A Notification Nos. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017
amended w.e.f. 13-10-2017.
[These services are classified under heading 9967 in the exemption notification]
Service exempted even if toll collected by sub-contractor - The exemption is to toll charges,
irrespective of provider or recipient of service. Hence, the exemption is available even when
toll amount is collected by sub-contractor - Ankit Tandon and Enterprises and Tollways (P.)
Ltd. In re (2018) 69 GST 889 = 97 taxmann.com 324 (AAR-Maharashtra).
Toll charges paid by transporter of goods/passengers - In Premier Vigilence & Security (P.)
Ltd. In re (2018) 99 taxmann.com 79 (AAR-WB), the taxable person was providing service of
transport of cash in specially built vehicles. He was paying toll charges at on highways and
recovering the same from customer. It was held that the applicant is not acting as pure
agent. Hence, value of service will include toll charges also [There can be different view, if
the contract is only for transport of goods or persons].
26.4 Transport of passengers by water
The local water transport service falls under heading 996415 and long distance water
transport service falls under group 996424.
The general GST rate is 18%.
 484

Service of transportation of passengers in inland waterways is exempt from GST -

Notification No. 12/2017-CT (Rates) and 9/2017-IT (Rates) both dated 28-6-2017, effective
from 1-7-2017.
26.5 Transport of passengers by air
Air transport services falls under group 99642.
In following cases, the rate is 5% (2.5% CGST and 2.5% SGST) or 5% IGST - (a) economy class
(b) embarking from or terminating in regional connectivity scheme airport. ITC of service is
available but not of goods.
Transport of passengers by air in other than economy class is 12%. There is no restriction on
availment of input tax credit.
Exemption to air transport from and to airports in North East - Transport of passengers,
with or without accompanied belongings, by air, embarking from or terminating in an airport
located in the State of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland,
Sikkim, or Tripura or at Bagdogra located in West Bengal is exempt from GST - Notification
No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-
2017.
Forfeiture by airlines for cancellation or no-show by passengers - Airlines forfeit the ticket
amount if passenger does not show up. They also charge heavy amount for cancellation of
ticket. In Air France KLM v. Ministere des Finances et des Competes publics (C-250/14
decision dated 23-12-2015 (ECJ), it has been held that the transaction is subject to Vat. This
decision fully applies in Indian context, for forfeiture or cancellation charges, as this activity
comes under 'tolerating an act or situation', which is deemed service as per para 5(e) of
Schedule II of CGST Act, read with section 7(1)(d) of CGST Act.
Concessional rate for travel for religious pilgrimage by specified organisations - Religious
pilgrimage for Haj, Umbra and Kailash Mansarovar are often organised by charter air flights.
Since that travel cannot be termed as 'economy class', 5% rate is not applicable. The rate as
applicable to renting of aircraft applies, which is very high. Hence, transportation of
passengers, with or without accompanied baggage, by air, by non-scheduled air transport
service or charter operations, engaged by specified organisations [(a) Kumaon Mandal Vikas
Nigam Ltd. (Uttarakhand) (b) Haj Committee] in respect of religious pilgrimage facilitated by
the Government of India, under bilateral arrangement has been reduced to 5% IGST (2.5%
CGST plus 2.5% SGST/UTGST) w.e.f. 1-1-2019, subject to non-availment of ITC - Sr No. 8(iva)
of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 as
amended w.e.f. 1-1-2019.
26.5-1 PSF and UDF charged by airport operators
CBI&C circular No. 115/34/2019-GST dated 11-10-2019 states as follows -
Passenger Service Fee (PSF) is charged by airport licensees (airport operators) under rule 88
of Aircraft Rules, 1937. PSF is collected from embarking passengers.
User Development Fee (UDF) is levied under rule 89 of Aircraft Rules, 1937. This is collected
by authority which manages the airport. UDF is collected from embarking passengers at the
airport.
 485

PSF and UDF are collected by airlines at the time of issue of ticket. UDF is remitted to Airports
Authority of India or DAIL, MAIL etc. PSF is remitted to Airport Operator (AAI, DAIL, MAIL
etc.)
Thus, the airlines collect these amounts from passengers and hand them over to respective
authorities. These are separately collected by airlines in their tax invoices as 'pure agent' of
supplier of service (Airport Operators). The airlines are not liable to pay GST on these
amounts.
The registered passengers, who are ultimate recipients of airport services, may take ITC of
GST paid on PSF and UDF on the basis of pure agent's invoice issued by airlines [seems
doubtful as the PSF and UDF charged are inclusive of GST. Further, the GST payable by airport
operators on these amounts is not indicated separately and does not appear in the GSTR-1
invoice issued by airlines. Hence, it is not clear how the registered passenger can take ITC,
in absence of any tax invoice by airport operators].
The airport operator (AAI, MAIL, DAIL etc.) shall pay GST on PSF and UDF collected them by
passengers through airlines. The amounts collected may be taken as inclusive of GST.
Airlines receive collection charges from airport operator (AAI, DAIL, MAIL etc.). The airlines
are liable to pay GST on these charges under forward charge.
26.5-2 Services of booking of air travel tickets
Really, the air travel agents are liable to pay GST on their commission only. However,
normally they charge gross ticket amount without indicating commission separately. Hence,
for them following composition scheme is available.
The value of supply of services in relation to booking of tickets for travel by air provided by
an air travel agent, shall be deemed to be an amount calculated at the rate of five per cent
of the basic fare in the case of domestic bookings, and at the rate of ten per cent of the basic
fare in the case of international bookings of passage for travel by air.
For the purposes of this sub-rule, the expression "basic fare" means that part of the air fare
on which commission is normally paid to the air travel agent by the airline - Rule 32(3) of
CGST and SGST Rules, 2017.
26.5-3 Provision under GST for issue of invoice by air travel agents
The ticketing system has been changed by airlines from 1-7-2017. Now, at least in case of
corporate clients, the tax invoice is issued in name of traveller but with GSTIN of the
company, enabling company to avail Input Tax Credit (ITC). Even in case of other clients, the
invoice issued indicates GST amount.
In such situation, the Air Travel Agents can pay GST on basis of rule 32. This rule is actually
meant for IATA Agents. However, the rule does not specifically say so. Hence, any travel
agent can pay GST on above basis. In that case, they can avail ITC of GST charged by IATA
Agent and in effect, they will not be required to pay GST.
Alternatively, they can charge GST on their commission and take ITC of GST charged to them
by IATA Agent.
26.5-4 Services to Government relating to transport of passengers from and to regional
connectivity airport i.e. subsidy given to develop small airports
 486

Services provided to the Central Government, by way of transport of passengers with or

without accompanied belongings, by air, embarking from or terminating at a regional
connectivity scheme airport, against consideration in the form of viability gap funding are
exempt from GST. - - This exemption will not apply on or after the expiry of a period of three
years (earlier words were -one year) from the date of commencement of operations of the
regional connectivity scheme airport as notified by the Ministry of Civil Aviation - Sr No. 16
of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017,
effective from 1-7-2017. [The words in italics substituted for 'one year' w.e.f. 25-1-2018].
Thus, in this case, GST is not payable under reverse charge in respect of viability gap funding
provided by Government to the supplier of services of passenger transport by air to and from
such airports.
The list of airports and date of commencement of operations under RCS-UDAN has been
given in Notification No. GSR 757(E) dated 7-8-2018.
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Goods Transport Services

27.1 Service of transportation of goods
Service classification heading for Goods Transport Services is 9965. The groups in this
heading are Land transport services of goods (99651), water transport services of goods
(99652) and Air and space transport services of goods (99653).
Heading for Rental services of transport vehicles with or without operators is 9966.
Heading for support service is 'Supporting services in transport' is 9967. Groups in this
heading are Cargo handling services (99671), storage and warehousing services (99672),
Supporting services for railway transport (99673), Supporting services for road transport
(99674), Supporting services for water transport (99675), Supporting services for air or space
transport (99676) and Other supporting transport services (99679).
27.1-1 Multimodal transportation of goods within India
In case of multimodal transportation of goods, tax rate is IGST 12% [or CGST 6% plus
SGST/UTGST 6%]. Input Tax Credit is available - Notification No. 11/2017-CT (Rate) and No.
8/2017-IT (Rate) both dated 28-6-2017 as inserted w.e.f. 27-7-2018.
This concessional rate applies only for multimodal transport within India - Explanation 2 to
item (vi) Sr No. 9 inserted w.e.f. 1-1-2019. During 27-7-2018 to 1-1-2019, the concessional
rate was applicable to service of multimodal transport even when destination was out of
India. [Other argument is that since it is only an explanation, it is applicable with
retrospective effect].
Meaning of Multimodal Transportation - "Multimodal transportation" means carriage of
goods by at least two different modes of transport from the place of acceptance of goods to
the place of delivery of goods by a multimodal transporter;
Mode of Transport - "Mode of transport" means carriage of goods by road, air, rail, inland
waterways or sea;
Multimodal transporter - "Multimodal transporter" means a person who,- (A) enters into a
contract under which he undertakes to perform multimodal transportation against freight;
and (B) acts as principal, and not as an agent either of the consignor, or consignee or of the
carrier participating in the multimodal transportation and who assumes responsibility for
the performance of the said contract.
27.1-2 Transportation of goods other than multimodal transportation or other than by
road, air or water
In case of transportation of goods other than multimodal transportation or other than by
road, air or water, the tax rate is IGST 18% [or CGST 9% plus SGST/UTGST 9%]. Input Tax
Credit is available - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated
28-6-2017 as inserted w.e.f. 27-7-2018.
The tax rates for transportation of goods by air, water and road are discussed below.
27.2 Goods Transport by Road
Classification heading for land transport services of goods by road is 9965.
 488

Services by way of transportation of goods by road except the services of(i) a goods
transportation agency (ii) a courier agency are exempt from GST - Notification No. 12/2017-
CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Thus, all transport of goods by road is exempt except in case of GTA and courier services.
Meaning of 'Goods Transport Agency' - "Goods transport agency" means any person who
provides service in relation to transport of goods by road and issues consignment note, by
whatever name called - para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT
(Rate) both dated 28-6-2017, effective from 1-7-2017.
Courier Agency - "Courier agency" means any person engaged in the door-to-door
transportation of time-sensitive documents, goods or articles utilising the services of a
person, either directly or indirectly, to carry or accompany such documents, goods or articles
- para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-
2017, effective from 1-7-2017.
Rate of GST - The GST rate in case of service supplied by GTA on transportation of goods
(including used household goods for personal use) is 5% (CGST 2.5% and SGST 2.5%) or IGST
5%,. ITC of input services or goods is not available to GTA - Notification No. 11/2017-CT
(Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Note that the condition of non-availment of ITC is applicable where GTA himself is liable to
pay tax and not where the recipient is liable to pay GST under reverse charge. Thus, once
the recipient pays GST @ 5% (2.5% plus 2.5%) on reverse charge basis, he can avail its input
tax credit.
Option to pay GST @ 12% under forward charge - The GTA has option to pay GST @ 12%
[6% plus 6%] under forward charge. In that case, the GTA can avail Input Tax Credit. Since
the GTA himself will be paying tax, the recipient is not liable to pay GST under reverse charge
[amendment w.e.f. 22-8-2017].
GTA who are having their own vehicles and having huge Input Tax Credit on capital goods
may find the option useful. This option may also be suitable for freight forwarders who are
providing composite services of packing, clearing and transportation from source to
destination basis.
Except these, I don't think any GTA will go for this option.
Value to include diesel supplied free by customer - In Navodit Agarwal, In re (2019) 104
taxmann.com 420 (AAR-Chhattisgarh), the appellant was providing goods transport service
of cement. The recipient of service was supplying diesel free to the appellant (transporter of
goods). It was held that cost of free diesel is includible in value of goods transport service,
as diesel is important and integral part of business process of transport of goods. [This can
be justified on facts of the situation as GST rate of 5% is fixed considering this cost.
Otherwise, normally, GST is payable only on what is supplied].
Transporting vehicles of vehicle manufacturer by road is GTA service - Transporting
vehicles of vehicle manufacturer by road is GTA service - K.M. Trans Logistics (P.) Ltd.,In re
[2020] 79 GST 144 = 110 taxmann.com 331 (AAR-Rajasthan).
27.2-1 Reverse charge in respect of GTA services
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In case of services of Goods Transport Agency (GTA), the service recipient is liable in most of
the cases, as per Notification No. 13/2017-CT (Rates) and 10/2017-IT (Rates) both dated 28-
6-2017, effective from 1-7-2017, except where the GTA opts to pay tax under forward charge
@ 12% [6% plus 6%] [amendment as shown in italics inserted w.e.f. 22-8-2017]
Person paying freight to GTA is liable to pay tax under reverse charge - The person who
pays or is liable to pay freight for the transportation of goods by road in goods carriage,
located in the taxable territory shall be treated as the person who receives the service for
the purpose of this notification.
Exemption to service provided by GTA to unregistered person (other than where reverse
charge applies) - In case of services supplied to unregistered person by GTA (other than
where reverse charge applies), the service is exempt w.e.f. 13-10-2017.
In case where service is provided by GTA to factory, society, company, partnership firm or
registered person, the recipient is liable to pay tax. Where GTA provides services to
unregistered person, service is exempt.
This provision (of reverse charge by registered person) is not applicable where Government
department, local authority or Government Agency is registered under GST only for
purposes of TDS under section 51 of CGST Act - proviso to Sr No. 1 of Notification Nos.
13/2017-CT (Rates) and 10/2017-IT (Rates) both dated 28-6-2017 inserted w.e.f. 1-1-2019.
In other words, GTA is not liable to pay GST under forward charge for services supplied to
Government department, local authority or Government Agency. They will be treated as
unregistered person for purpose of the exemption to GTA services, even if they are
registered under GST only for purposes of TDS under GST. If the Government department,
local authority or Government Agency is registered under GST for purposes other than TDS,
they will be liable to pay GST under reverse charge if they receive GTA services.
Thus, after 13-10-2017, the GTA itself is never liable to pay tax, except where the GTA opts
to pay tax under forward charge @ 12% [6% plus 6%].
Till 13-10-2017, GTA was liable to pay GST in following cases - (a) when recipient of service
is unregistered individual person (b) transportation of household goods when the freight is
paid by unregistered individual person (c) Services supplied to person located outside
taxable territory (like transport to Bhutan, Nepal, Bangladesh) where the recipient is paying
freight.
Statutory wording - The statutory provisions are as follows :
In case of supply of Services by a goods transport agency (GTA) who has not paid tax @ 12%
[6% plus 6%], in respect of transportation of goods by road to-(a) any factory registered
under or governed by the Factories Act, or (b) any society registered under the Societies
Registration Act, 1860 or under any other law for the time being in force in any part of India;
or (c) any co-operative society established by or under any law; or (d) any person registered
under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act
or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act;
or (e) any body corporate established, by or under any law ("Body Corporate" has the same
meaning as assigned to it in section 2(11) of the Companies Act, 2013) or (f) any partnership
firm whether registered or not under any law including association of persons [It includes
 490

LLP] or (g) any casual taxable person located in taxable territory, the recipient of service
located in taxable territory is liable to pay GST, - Notification No. 13/2017-CT (Rates) and
10/2017-IT (Rates) both dated 28-6-2017, effective from 1-7-2017 [The words in italics
inserted w.e.f. 22-8-2017].
Mere bill is not consignment note - In Nandganj Sihori Sugar Co. v. CCE (2014) 46 GST 570
= 47 taxmann.com 92 = 79 VST 330 (CESTAT), it was held that consignment note issued by
GTA represents its liability to - (a) transport consignment handed over to it to destination
(b) undertake delivery of same to consignee and (c) temporarily store till delivery. Mere bill
issued for transportation of goods cannot be treated as a Consignment Note.
27.2-2 Whether SGST and CGST is payable of IGST payable under Reverse charge if
transporter is from out of State
There are divergent views.
The issue is discussed in chapter 'Reverse Charge'. The safe view seems to be to pay CGST
and SGST/UTGST.
27.2-3 Service provided by person who does not issue consignment note is not taxable
If driver of goods carriage is self-employed either by taking vehicle on rent from other or as
owner of one or two vehicles, he does not issue any consignment note. He has direct
contract with consignor/consignee. He himself receives freight from consignor/consignee.
He would not be liable to service tax.
Only GTA which issues a consignment note is liable to service tax.
Finance Minister Shri P. Chidambaram, in his Budget Speech on 8-7-2004 (para 149 of
speech), had stated as follows, '58 services have been brought under the net so far. I propose
to add some more this year. These are business exhibition services, airport services, services
provided by transport booking agents, transport of goods by air, survey and exploration
services, opinion poll services, - - - - -. I may clarify that there is no intention to levy service
tax on truck owners or truck operators'.
Thus, intention of Government is to tax only services provided by transport booking agents.
This aspect should be kept in mind while interpreting various provisions in the Act and Rules.
In CCE v. Kanaka Durra Agro Oil Products P Ltd. (2009) 22 STT 435 = 2009-TIOL-1123 = 34 VST
214 (CESTAT), it has been confirmed that there is no liability to pay service tax on the
recipient of the service in cases of transportation undertaken by the individual truck
operators/lorry owners and not by Goods Transport Agencies - same view in
Lakshminarayana Mining Co. v. CST (2010) 24 STT 61 = 34 VST 220 (CESTAT) * Shanti Fortune
v. CCE (2010) 24 STT 464 (CESTAT SMB) * Bellary Iron v. CCE (2010) 24 STT 557 = 35 VST 107
(CESTAT) * KMB Granites v. CCE (2010) 25 STT 141 (CESTAT SMB) * Wood Bridge Tea Factory
v. CCE (2010) 25 STT 263 (CESTAT SMB) * MSPL Ltd. v. CCE (2010) 27 STT 400 = 46 VST 132
(CESTAT) * Salem Coop Sugar Mills v. CCE (2010) 25 STT 320 (CESTAT) * Ultra Tech Cement
v. CCE (2010) 29 STT 114 (CESTAT) * Bazpur Cooperative Sugar Factory v. CCE (2012) 36 STT
444 = 23 taxmann.com 428 (CESTAT) * Mahi Agro Products v. CC (2013) 38 STT 521 = 30
taxmann.com 159 (CESTAT).
Legislature did not intend the small transporters to be brought to the ambit of law - Kisan
Sahkari Chini Mills v. CCE (2012) 37 STT 98 = 25 taxmann.com 194 = 52 VST 299 (CESTAT).
 491

In Birla Ready Mix v. CCE (2013) 39 STT 257 = 28 taxmann.com 201 = 59 VST 518 (CESTAT),
it was held that provision of section 65(50b) (which defines Goods Transport Agency) has to
be read independent of rule 4B of Service Tax Rules (which states that GTA should issue a
consignment note). Goods Transport Operator is different from Goods Transport Agency.
Mere log book maintained by operators is not consignment note. Unless consignment note
is issued, it is not a GTA service.
Issue of Bills by individual truck owners is not consignment note. The transporter is not GTA.
Hence, service tax is not payable - Kisan Sahkari Chinni Mills Ltd. v. CCE (2014) 46 GST 509 =
47 taxmann.com 98 (CESTAT) * Nandganj Sihori Sugar Co. v. CCE (2014) 46 GST 570 = 47
taxmann.com 92 = 79 GST 330 (CESTAT).
In Northern Coal Fields v. CCE (2016) 53 GST 138 = 64 taxmann.com 168 (CESTAT), assessee
was providing service of transport of coal within mines. No consignment note was issued.
Hence, it was held that it is not GTA service and not taxable - same view in Northern Coal
Fields v. CCE (2018) 67 GST 1 = 92 taxmann.com 219 (CESTAT).
However, in K.M. Trans Logistics (P.) Ltd., In re [2020] 117 taxmann.com 609 (AAAR -
Rajasthan), it was held that consignment note is only a document by which responsibilities
and rights are reduced in writing and its non-issuance does not affect rights of parties, hence
GST on services provided by Goods Transport Agency cannot be avoided by mere non-
issuance of consignment note [Really, in that case, the words 'who issues a consignment
note' in statutory becomes redundant ad otiose. This is clearly against principles of
interpretation of statute].
Charging freight in invoice is not GTA service - In Shreenath Mhasoba Sakhar Karkhana v.
CCE (2017) 59 GST 407 = 77 taxmann.com 216 (CESTAT), assessee paid charges for
transportation of sugarcane from fields to factory and deducted the same from sale bills of
farmers. It was held that service tax is not payable (as it is not GTA service, though these
words were not used in order of Tribunal).
Hiring vehicles on monthly basis for transport of goods per Km basis is not GTA service -
Hire their vehicles at a fixed rate on kilometer basis to transport their goods to distributors
is not GTA service as vehicles were hired on monthly basis and charges were not based upon
destination but on kms. travelled - Dinshaws Dairy Foods v. CCE [2018] 93 taxmann.com 139
(CESTAT)
27.2-4 Input Tax Credit of GST paid on GTA service is available to recipient
It was confirmed in para 2.4 of CBE&C Circular No. 97/8/2007-ST dated 23-8-2007 that
assessee can avail Cenvat credit of service tax paid on transportation of goods.
Consignor/consignee should pay service tax by cash. This principle applies to GST also.
27.2-5 Exemptions in respect of goods transport of specified goods
Services provided by a goods transport agency, by way of transport in a goods carriage of
following are exempt from GST -(a) agricultural produce (b) goods, where consideration
charged for the transportation of goods on a consignment transported in a single carriage
does not exceed Rs. 1,500 (c) goods, where consideration charged for transportation of all
such goods for a single consignee does not exceed rupees seven hundred and fifty (d) milk,
salt and food grain including flour, pulses and rice (e) organic manure (f) newspaper or
 492

magazines registered with the Registrar of Newspapers (g) relief materials meant for victims
of natural or man-made disasters, calamities, accidents or mishap; or (h) defence or military
equipment - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-
2017, effective from 1-7-2017.
27.2-6 When would the exemption limit of Rs. 750 and when the limit of Rs. 1,500 has to
be taken into consideration
The aforesaid exemption notification specifies two different amounts - Rs. 750 and Rs. 1,500.
The exemption limit of Rs. 750 is kept so that a consignment is not split, e.g. if total bill is Rs.
2,100, goods transport agency may split one consignment into three consignments. He will
make three invoices of Rs. 700 each and then avoid tax. Hence, 'individual consignment' has
been defined as all goods transported in a goods carriage for a consignee.
In CCE v. Suibramania Siva Coop Soc (2015) 49 GST 132 = 52 taxmann.com 339 (Mad HC DB),
it was held that the limit of Rs. 1,500 applies to all consignments to all consignees while limit
of Rs. 750 applies to 'single consignee'. Thus, in case of single consignee, the exemption limit
of Rs. 750 is applicable.
Exemption Limit of Rs. 1,500 applies in case of full load i.e. there may be more than one
consignment to more than one consignee, but total freight for all consignments together in
one trip should not exceed Rs. 1,500. However, if there is only one consignment, then the
exemption is available only if the freight is less than Rs. 750 - Bellary Iron v. CCE (2010) 24
STT 557 = 35 VST 107 (CESTAT).
[Comment - Though the first part of the decision is correct, the second part of the decision
is arguable. The reason is that exemption is available if any one of the conditions as specified
above [earlier Notification No. 34/2004-ST] is satisfied. The first condition is that gross
amount charged in consignments transported in a goods carriage does not exceed Rs. 1,500.
It can be argued that as per General Clauses Act, plural includes singular and hence the
exemption should be available if there is only one consignment and the charges do not
exceed Rs. 1,500].
27.2-6A Exemption to service provided to Government etc. even if they are registered
under GST for TDS purposes
Services provided by a goods transport agency, by way of transport of goods in a goods
carriage by road, to, - (a) a Department or Establishment of the Central Government or State
Government or Union territory; or (b) local authority; or (c) Governmental agencies, which
has taken registration under the Central Goods and Services Tax Act, 2017 only for the
purpose of deducting tax under section 51 of CGST Act and not for making a taxable supply
of goods or services, are exempt - Sr. No. 21B of Notification No. 12/2017-CT (Rate) and No.
9/2017-IT (Rate) both dated 28-6-2017, inserted w.e.f. 1-1-2019.
These agencies are not liable for payment of GST on GTA service under reverse charge. Thus,
neither GTA nor the Government Agencies are liable to pay GST.
27.2-7 Exemption to supply of services to transit cargo to Nepal and Bhutan
Supply of services associated with transit cargo to Nepal and Bhutan (landlocked countries)
has been exempted. - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017 as amended on 29-9-2017.
 493

27.2-8 Services provided to unregistered person are exempt except services supplied to
factory, society etc.
Services provided by a goods transport agency to an unregistered person, including an
unregistered casual taxable person, other than the following recipients, namely: - (a) any
factory registered under or governed by the Factories Act, 1948 or (b) any Society registered
under the Societies Registration Act, 1860 or under any other law for the time being in force
in any part of India; or (c) any Co-operative Society established by or under any law for the
time being in force; or (d) any body corporate established, by or under any law for the time
being in force; or (e) any partnership firm whether registered or not under any law including
association of persons (f) any casual taxable person registered under the Central Goods and
Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and
Services Tax Act or the Union Territory Goods and Services Tax Act - - Notification No.
12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 as amended on 13-10-
2017.
Thus, after 13-10-2017, GTA is never liable to pay tax.
27.2-9 Exemption to service of giving vehicles on hire to GTA
Services by way of giving on hire to a goods transport agency, a means of transportation of
goods is exempt from GST - Sr No. 22(b) of Notification Nos. 12/2017-CT (Rate) and No.
9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Thus, there is no GST on vehicles given to GTA on hire (as many GTA do not have their own
vehicles).
This hire may be with operator (under heading 9966) or without operator (under heading
9973). This distinction has been made w.e.f. 1-10-2019. Even earlier, the exemption was
available in both the cases.
There is no GST payable when goods transport vehicle is provided by one person (who is
GTA) to another GTA. Further, a taxable person can be Goods Transport Agency (GTA) and
also can provide services of giving goods transport vehicle on hire basis to another GTA -
Saravana Perumal In re (2020) 78 GST 275 = 113 taxmann.com 288 (AAR-Kar.).
(Really, there cannot be two 'GTA' for one consignment, as only one consignment note can
be issued for one consignment. Thus, person giving goods transport vehicle to other is 'GTO'
[Goods Transport Operator] and not 'GTA' [Goods Transport Agency]. That service is exempt
from GST. Person who is issuing consignment note is the only 'GTA').
In fact, in Liberty Translines In re [2020] 117 taxmann.com 570 (AAR - Maharashtra), it was
held that there cannot be two consignment notes for one consignment. Person who is
providing goods transport service to GTA is not GTA and not liable to pay tax - view
confirmed in appeal in Liberty Translines, In re [2020] 120 taxmann.com 9 (AAAR-
Maharashtra).
In contrary decision, in Ishan Resins and Paints Ltd. In re (2020) 78 GST 282 = 113
taxmann.com 424 (AAR-WB), it was held that the service falls under 997311. It amounts to
transfer of right to use goods and taxable under Sr No. 17(iii) of Notification 11/2017-CT
(Rate) dated 28-6-2017. ITC is available [There can be two view on the issue].
 494

GTA can provide service through third party transporters also - In Posco India Steel
Distribution Center (P.) Ltd., In re [2020] 117 taxmann.com 754 (AAR - Maharashtra),
applicant was engaged in providing transportation services to 'POSCO' group of companies.
It issued consignment notes, but, actual transportation is done through third party
transporters. It was held that applicant can still be considered as Goods Transport Agency
(GTA) and, thus, services rendered by applicant are classifiable under Heading No. 9965.
27.2-10 GST on outward freight charged in tax invoice in case of FOR contracts
In case of FOR basis contracts, the supplier arranges transport. In that case, he pays GST
under reverse charge on outward freight. He then charges outward freight in the tax invoice.
In such case, the outward freight charged is part of value of goods and GST is payable on
value including outward freight. The rate is same as applicable to goods, as this is a
composite supply as per section 2(30) of CGST Act.
It is not correct to charge freight separately and charge GST @ 5% [2.5% plus 2.5%] as the
service of supplier of goods is not Goods Transport Agency Service at all.
27.2-11 Tax Invoice of Goods Transport Agencies
In case of goods transport agency (GTA) supplying taxable services in relation to
transportation of goods by road in a goods carriage, the GTA shall issue a tax invoice or any
other document in lieu thereof, by whatever name called, containing (a) the gross weight of
the consignment (b) name of the consignor and the consignee (c) registration number of
goods carriage in which the goods are transported (d) details of goods transported (e) details
of place of origin and destination (f) GSTIN of the person liable for paying tax whether as
consignor, consignee or goods transport agency, and (f) other information as prescribed
under rule 46 of CGST Rules, 2017 - Rule 54(3) of CGST and SGST Rules, 2017.
27.3 Transport of goods by rail
Rail transport service of goods falls under tariff (service code) 996512.
The GST rate is 5% (CGST 2.5% and SGST 2.5%) or IGST 5%. ITC of input service is available
but not of input goods.
Service of goods transport by vessel or rail within India exempt - Services by way of
transportation by rail or a vessel from one place in India to another of the following goods is
exempt from GST - (a) relief materials meant for victims of natural or man-made disasters,
calamities, accidents or mishap (b) defence or military equipments (c) newspaper or
magazines registered with the Registrar of Newspapers (d) railway equipments or materials
(e) agricultural produce (f) milk, salt and food grain including flours, pulses and rice; and (g)
organic manure - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated
28-6-2017, effective from 1-7-2017.
There is parallel exemption to goods transport in vessel.
27.4 Water transport service of goods
Water transport service of goods falls under group 99652.
The GST rate is 5% (CGST 2.5% and SGST 2.5%) or IGST 5%. ITC of input service is available
but not of input goods. However, ITC of GST paid on ships, vessels including bulk carriers is
available.
 495

Exemption to transport of goods by inland waterways - Transport of goods by inland

waterways is exempt from GST - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate)
both dated 28-6-2017, effective from 1-7-2017.
Service of goods transport by vessel within India exempt - Services by way of transportation
by rail or a vessel from one place in India to another of the following goods is exempt from
GST - (a) relief materials meant for victims of natural or man-made disasters, calamities,
accidents or mishap (b) defence or military equipments (c) newspaper or magazines
registered with the Registrar of Newspapers (d) railway equipments or materials (e)
agricultural produce (f) milk, salt and food grain including flours, pulses and rice; and (g)
organic manure - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated
28-6-2017, effective from 1-7-2017.
There is parallel exemption to goods transport by rail.
27.4-1 Inland waterways
"Inland waterway" means national waterways as defined in clause (h) of section 2 of the
Inland Waterways Authority of India Act, 1985 (82 of 1985) or other waterway on any inland
water, as defined in clause (b) of section 2 of the Inland Vessels Act, 1917 (1 of 1917).
27.4-2 Meaning of 'National Waterway'
As per Explanation to section 65(105)(zzzzl), the meaning of the words 'national waterway'
will be as given in clause (h) of section 2 of the Inland Waterways Authority of India Act,
1985.
Now, in addition, The National Waterways Act, 2016 has been passed. This Act has been
notified and made effective on 11-4-2016.
Total 111 National Waterways have been declared under this Act.
Section 2(h) of Inland Waterways Authority of India Act, 1985 (as amended by The National
Waterways Act, 2016) defines the words 'national waterway' as follows :—
'National waterway' means the inland waterway declared by section 2 of the National
Waterways Act, 2016 to be a national waterway.
Explanation - If Parliament declares by law any other waterway to be a national waterway,
then from the date on which such declara tion takes effect, such other waterway— (i) shall
be deemed also to be a national waterway within the meaning of this clause; and (ii) the
provisions of this Act shall, with necessary modi fications (including modification for
construing any reference to the commencement of this Act as a reference to the date afore
said), apply to such national waterway.
Earlier definition - Section 2(h) of Inland Waterways Authority of India Act, 1985 had defined
the words 'national waterway' as follows :—
'National waterway' means the inland waterway declared by section 2 of the National
Waterway (Allahabad - Haldia Stretch of the Ganga-Bhagirathi-Hooghly River) Act, 1982 (49
of 1982), to be a national waterway. Explanation - If Parliament declares by law any other
waterway to be a national waterway, then from the date on which such declara tion takes
effect, such other waterway— (i) shall be deemed also to be a national waterway within the
meaning of this clause; and (ii) the provisions of this Act shall, with necessary modi fications
 496

(including modification for construing any reference to the commencement of this Act as a
reference to the date afore said), apply to such national waterway.
In pursuance to the said Act, the Parliament has declared some of the routes as the national
waterways. It is worth noting that the Ganga-Bhagirathi-Hooghly between Allahabad - Haldia
(1620 km) in UP, Bihar, Jharkhand and West Bengal, the Sadiya-Dhubri stretch of river
Brahmaputra (891 km) in Assam and the Kollam - Kottapu ram stretch of West Coast Canal
along with Champakara and Udyog mandal Canals (205 km) in Kerala have so far been
declared as national Waterways and are being developed for navigation by Inland
Waterways Authority of India (IWAI).
The details of various 'national waterways' declared earlier was as follows:
National Waterway 1 - Fairway - LAD of 3m in Haldia-Farakka, 2m in Farakka-Varanasi and
1.5m in Varanasi-Allahabad. Terminals - Fixed terminals at Haldia, Kolkata, Pakur, Farakka
and Patna. Floating terminals at Haldia, Kolkata, Diamond Harbour, Katwa, Tribeni,
Shantipur, Behrampur, Jangipur, Farakka, Rajmahal, Sahibganj, Manihari, Bhagalpur,
Semaria, Doriganj, Ballia/Buxer, Ghazipur/Kaithi, Varanasi, Chunar and Allahabad.
National Waterway 2 - Fairway - LAD of 2m from Dhubri to Dibrugarh and 1.5m from
Dibrugarh to Silghat. Terminals - Low level fixed terminal at Pandu. Floating terminals at
Dhubri, Jogighopa, Tejpur, Silghat, Jamuguri, Neamati & Dibrugarh.
National Waterway 3 - Fairway LAD of 2m. Terminals - Fixed terminals at Aluva, Viakom,
Kayam Kulam, Kottapuram, Maradu, Chratala, Trikkunnapuzha, Kollam and Alappuzha.
The two new National Waterways, i.e., 4 and 5, are as under :
(i) The Kakinada-Puducherry stretch of Canals and the Kaluvelly Tank, Bhadrachalam -
Rajahmundry stretch of River Godavari and Wazirabad - Vijaywada stretch of River
Krishna (NW-4, 1095 Km); and
(ii) The Talcher - Dhamra Stretch of river Brahmani, Geonk hali - Charbatia stretch of East
Coast Canal, Charbatia-Dhamra stretch of Matai river and Mangalgadi-Paradip stretch
of Mahanadi delta rivers (NW-5, 623 km).

Now, 111 National Waterways have been declared under National Waterways Act, 2016
w.e.f. 12-4-2016.
27.4-3 Meaning of 'Inland water'
Section 2 of the Inland Vessels Act, 1917 Act defines the words 'inland water' as follows :—
'inland water' means— (i) any canal, river, lake or other navigable water within a State (ii)
any area of any tidal water deemed to be the inland water as defined by the Central
Government under section 70 (iii) waters declared by the Central Government to be smooth
and partially smooth waters under clause (41) of section 3 of the Merchant Shipping Act,
1958;
Section 3(ga) of the Inland Vessels Act, 1917 defines the words 'tidal water' as follows - "tidal
water" has the meaning assigned to it in clause (49) of section 3 of the Merchant Shipping
Act, 1958.
 497

Section 3(49) of the Merchant Shipping Act, 1958 defines the words 'tidal water' as follows
- 'tidal water' means any part of the sea and any part of a river within the ebb and flow of
the tide at ordinary spring tides and not being a harbour.
Arabian Sea is not 'inland water' and hence no exemption - In Siddhi Marine Services LLP In
re (2020) 80 GST 413 = 117 taxmann.com 348 (AAR-Gujarat), it was held that waterway in
'Arabian sea' is not 'inland water'. Hence, service in that area is not exempt - same decision
in Shreeji Shipping In re (2020) 80 GST 589 = 117 taxmann.com 779 (AAR-Gujarat).
Transportation of goods from Port to anchoring point is taxable - Services in relation to
transportation of goods from Magdalla Port, Surat to General Lighterage Area (Anchoring
Point of Mother Vessel) or vice versa, is neither covered in definition of 'national waterways'
nor covered in definition of 'other waterway on any inland water'. It is not exempt - Shree
Sagar Stevedores (P.) Ltd., In re [2021] 125 taxmann.com 4 (AAR - Gujarat).
27.4-4 Inward ocean transport from out of India
In case of inward ocean freight i.e. service supplied by person located in non-taxable
territory to a person located in non taxable territory for transportation of goods by vessel
from outside India upto customs station is India, the IGST rate is 5%, subject to non-
availment of ITC on input goods [ITC of tax paid on input services, and tax paid on ships,
vessels and bulk carriers purchased can be taken]
SGST and CGST cannot apply.
Reverse charge in case of CIF contracts - In case of CIF contracts of goods, the ocean freight
is paid by foreign supplier of goods to foreign shipping company. In case of service of inward
ocean transport supplied by a person outside India, the importer in India receiving the
service is liable to pay GST under reverse charge.
The statutory wording is as follows -
In case of services supplied by a person located in non- taxable territory by way of
transportation of goods by a vessel from a place outside India up to the customs station of
clearance in India, Importer, as defined in section 2(26) of the Customs Act, 1962(52 of
1962), located in the taxable territory is liable to pay tax (under reverse charge) - Notification
No. 10/2017-IT (Rate) dated 28-6-2017, effective from 1-7-2017.
GST payable under reverse charge even if customs duty and IGST paid on CIF value at the
time of import - GST is payable by importer under reverse charge even if customs duty and
IGST paid on CIF value - Bahi Paper Mills Ltd. In re [2018] 68 GST 553 = 94 taxmann.com 70
(AAR - Uttarakhand). - E-DP Marketing (P.) Ltd., In re [2019] 107 taxmann.com 3 (AAR -
Madhya Pradesh)
GST is payable under reverse charge on ocean freight in case of CIF Contracts - Chambal
Fertilisers & Chemicals Ltd., In re [2018] 97 taxmann.com 457 (AAR- Rajasthan).
Whether IGST payable or CGST and SGST/UTGST payable? - There are divergent views and
each view has its own merit. In my view, safe course is to pay IGST as it is import of service.
The issue is discussed in chapter 'Reverse charge'.
IGST is payable under reverse charge on ocean freight in case of CIF Contracts - Chambal
Fertilisers & Chemicals Ltd., In re [2018] 71 GST 147 = 97 taxmann.com 457 (AAR-
 498

RAJASTHAN) * M K Agro Tech P Ltd. In re (2020) 78 GST 251 = 110 taxmann.com 324 (AAR-
Karn).
Rate at which GST payable under reverse charge on inward ocean freight - The IGST rate
of 5% is subject to condition that input tax credit of input goods is not availed. Otherwise
the general GST rate is 18%.
As per CBI&C circular No. 206/4/2017-ST dated 13-4-2017, since the foreign shipping line is
not registered under GST, it cannot avail the concessional rate of 5%. In that case. GST is
payable under reverse charge @ 18%.
However, this view does not seem to be correct. In SRF Ltd v. CC (2015) 50 GST 445 = 56
taxmann.com 407 = 318 ELT 607 (SC), Assessee imported Nylon Filament Yarn. The yarn was
exempt from excise duty if no Cenvat credit was taken. Since the goods were imported, said
condition could not be fulfilled. It was held that if an imported article is one which has been
manufactured or produced, then it must be presumed, for purpose of CVD, that such an
article can likewise be manufactured or produced in India. Actual manufacture in India is not
required. Hence, assessee was eligible for exemption from CVD.
Applying principle of this judgment, the GST should be payable @ 5%.
Mode of calculation GST payable on ocean freight w.e.f. 1-7-2017 in case of CIF Contracts
- Usually, when contract with foreign supplier is on CIF basis, the Indian importer is not aware
of exact amount of freight and insurance.
As per Explanation 4 to Notification No. 8/2017-CT dated 28-6-2017 (corrigendum dated 30-
6-2017), where the value of taxable service provided by a person located in non-taxable
territory to a person located in non-taxable territory by way of transportation of goods by a
vessel from a place outside India up to the customs station of clearance in India is not
available with the person liable for paying integrated tax, the same shall be deemed to be
10% of the CIF value (sum of cost, insurance and freight) of imported goods.
Thus, the ocean freight should be taken as 10% of CIF Value of the goods.
The provision of making liable importer liable to pay tax on inward ocean freight invalid -
Section 5(3) of CGST Act provides that a recipient of service can be made liable to pay tax on
reverse charge basis. Section 2(98) of CGST Act which defines 'reverse charge' also clarifies
that only recipient of service can be made liable to pay service tax under reverse charge. In
case of CIF contract, the contract for transport of goods is between foreign supplier and
foreign shipping company. Payment for ocean freight from foreign country to India is made
by foreign supply. In that case, how an importer in India can be treated as 'recipient of
service'? The recipient of service of ocean freight is foreign supplier and not Indian importer,
though he may be importer of goods.
In view of this, validity of the provision of making importer in India liable to pay tax under
reverse charge is highly doubtful.
In Mohit Minerals (P.) Ltd.v.Union of India [2020] 78 GST 519 = 113 taxmann.com 436
(Gujarat HC DB), imposition of GST on ocean freight in case of CIF contract has been held
invalid, as service recipient is out of India - followed in Gokul Agro Resources Ltd. v. Union of
India [2020] 116 taxmann.com 1 = 80 GST 164 (Gujarat HC DB).
 499

27.4-5 Outward ocean freight in CIF contracts exempt from GST from 25-1-2018 to 30-9-
2021
In case of CIF contracts entered into by Indian exporter, the outward ocean freight is paid by
Indian exporter to Indian shipping company. In that case, the place of supply of service is the
location of recipient of service (i.e. Indian exporter), as per section 12(8)(a) of IGST Act. In
that case, the shipping company in India was liable to pay tax @ 5% [IGST - 5% or CGST @
2.5% plus SGST/UTGST @ 2.5%] upto 25-1-2018.
Now, Services by way of transportation of goods by a vessel from customs station of
clearance in India to a place outside India are exempt from tax from 25-1-2018. This
exemption will cease on 30-9-2021 - Sr No. 19B of Notification No. 12/2017-CT (Rate) and
No. 9/2017-IT (Rate) both dated 28-6-2017 amended w.e.f. 1-10-2020 [earlier it was
amended on 25-1-2018 and further amended on 26-7-2018 and 1-10-2019].
27.5 Air transport service of goods
Air transport service of goods falls under group 99653.
The tax rate is 18% [IGST - 18% or CGST @ 9% plus SGST/UTGST @ 9%]
Inward air transport service from out of India is exempt - Air transport of goods from a
place out of India upto the customs station of clearance in India is exempt from GST -
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective
from 1-7-2017.
27.5-1 Outward air freight in CIF contracts exempt from GST upto 30-9-2021
In case of CIF contracts entered into by Indian exporter, the outward air freight is paid by
Indian exporter to Indian airline company. In that case, the place of supply of service is the
location of recipient of service (i.e. Indian exporter), as per section 12(8)(a) of IGST Act. In
that case, the Indian airline company in India was liable to pay tax @ 18% [IGST - 18% or
CGST @ 9% plus SGST/UTGST @ 9%] upto 25-1-2018.
Now, Services by way of transportation of goods by an aircraft from customs station of
clearance in India to a place outside India are exempt from tax from 25-1-2018. This
exemption will cease on 30-9-2021 - Sr No. 19A of Notification No. 12/2017-CT (Rate) and
No. 9/2017-IT (Rate) both dated 28-6-2017 amended w.e.f. 1.10-2020 [earlier it was
amended on 25-1-2018 and further amended on 26-7-2018 and 1-10-2019].
27.6 Transport of petroleum products through pipeline
Transport of natural gas, petroleum crude, motor spirit (commonly known as petrol), high
speed diesel or aviation turbine fuel through pipeline falls under heading 9965. [words in
italics inserted w.e.f. 25-1-2018].
The GST rate is 5% [IGST 5% or CGST 2.5% plus SGST/UTGST - 2.5%]. Input tax credit is not
available - Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-
2017, effective from 13-10-2017.
If input tax credit is availed, GST rate will be 18% [IGST 18% or CGST 9% plus SGST/UTGST -
9%].
27.7 Cargo handling services
Cargo handling services fall under group 99671.
 500

Cargo is understood to denote goods which are ready for transportation, whereas packing
is a stage prior. Thus, mere packing is not 'cargo handling' - Signode India v. CCE (2017) 4 SCC
613.
 501

Financial and related services

28.1 Banking and insurance services
Service classification heading for Financial and related services is 9971. The groups in this
head are - Financial services (except investment banking, insurance and pension) (99711),
Investment Banking Service (99712), Insurance and pension (99713), Reinsurance (99714),
Auxiliary financial services (99715), Insurance and pensions auxiliary services (99716) and
services of holding financial assets (99717).
FAQs issued by CBI&C - CBI&C has also issued FAQs on banking sector, Insurance and stock
brokers sector on 27-12-2018.
These FAQs broadly state statutory provisions. Highlights of some important FAQs have been
included in this book at appropriate places.
28.2 Services of Banking, FI and NBFC
Banking services fall under heading 9971.
The main service supplied by Banks is of course payment of interest to depositors.
Section 2(102) of CGST Act which defines 'services' states that "Services" means anything
other than money - - but includes activities relating to the use of money - -.
Interest is for 'use of money' and hence is 'service'. However, interest is 'exempted service',
as per following exemption notification.
Services by way of extending deposits, loans or advances in so far as the consideration is
represented by way of interest or discount (other than interest involved in credit card
services) is exempt from GST - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate)
both dated 28-6-2017, effective from 1-7-2017.
"Interest" means interest payable in any manner in respect of any moneys borrowed or debt
incurred (including a deposit, claim or other similar right or obligation) but does not include
any service fee or other charge in respect of the moneys borrowed or debt incurred or in
respect of any credit facility which has not been utilized.
Interest received on short term loans given is exempt from GST - Shreenath Polyplast P Ltd.
In re (2018) 68 GST 228 = 93 taxmann.com 178 (AAR - Gujarat).
Invoice discounting or cheque discounting charges are in nature of interest and not taxable.
However, if service fee or documentation fee or other amount is charged, GST will apply on
those amounts - FAQ No. 43 issued by CBI&C on banking sector on 27-12-2018.
Interest income is exempt from GST even if loan given to related parties, question of 'related
party transaction' does not arise - Gujarat State Financial Services Ltd. In re (2019) 76 GST
383 = 108 taxmann.com 538 (AAR-Gujarat).
Interest will be considered in 'aggregate turnover' for purpose of 10/20/40 lakh exemption
limit - Interest on loans is exempt supply and hence will be considered in 'aggregate
turnover' for purpose of exemption of 10/20/40 lakh limit - same view in Anil Kumar
Agrawal, In re [2020] 116 taxmann.com 428 (AAR - Karn).
Interest on deposits in PPF, bank accounts, loans and advances will be considered for
calculating 'aggregate turnover for exemption of 10/20/40 lakhs (as interest is exempt
 502

supply) - Shree Sawai Manoharlal Rathi In re (2020) 81 GST 32 = 117 taxmann.com 497 (AAR-
Gujarat).
Interest is not exempt supply for rules 42 and 43 i.e. proportionate reversal of ITC is not
required - Interest on loans, deposits and borrowings are exempt, though it is supply of
service. However, it is not 'exempt supply' for purposes of rules 42 and 43 of CGST Rules.
Thus, reversal of proportionate ITC under rules 42 & 43 of CGST Rules is not required. The
exact wording in rules is as follows -
For the purposes of rules 42 and 43 of CGST Rules, it is hereby clarified that the aggregate
value of exempt supplies shall exclude the value of services by way of accepting deposits,
extending loans or advances in so far as the consideration is represented by way of interest
or discount, except in case of a banking company or a financial institution including a non-
banking financial company, engaged in supplying services by way of accepting deposits,
extending loans or advances -Explanation (b) to rule 43(2) of CGST Rules, inserted w.e.f. 23-
1-2018.
Since it is only clarification, it should apply with retrospective effect from 1-7-2017.
Service charges or administrative charges recovered in addition to interest on a loan,
advance or a deposit would be subject to tax - The services of loans, advances or deposits
are exempt in so far as the consideration is represented by way of interest or discount. Any
charges or amounts collected over and above the interest or discount amounts would
represent taxable consideration - Para 4.14.3 of CBI&C's 'Taxation of Services : An Education
Guide' published on 20-6-2012.
Charges for prepayment of loan, reset charges are not taxable - Foreclosure charges
collected by banks and non-banking financial companies on premature termination of loans
are not leviable to service tax as banking and other financial services- Commissioner of
Service Tax v. Repco Home Finance Ltd. [2020] 117 taxmann.com 755 (Chennai - CESTAT 3
member LB).
In my view, this charge can come under 'tolerating an act or situation' and should be subject
to GST.
Earlier, in Housing & Development Corporation Ltd. (HUDCO) v. CST (2012) 34 STT 129 = 17
taxmann.com 14 = 51 VST 260 (CESTAT), assessee was levying following charges (a) Pre-
payment of loan and (b) Reset charges (for restructuring of loan like converting from fixed
interest loan to floating interest loan). It was held that this is not additional interest. The
charge is for value addition obtained by borrower. It is service and service tax is payable
[After 1-7-2012, this activity can come under 'tolerating an act or situation' which is a
'declared service'].
Penal interest for late payment of instalment is not 'tolerating an act or situation' - CBI&C,
vide circular No. 102/21/2019-GST dated 28-6-2019 has clarified that Penal interest for late
payment of instalment is not 'tolerating an act or situation'. It is exempt if charged by finance
company (as interest) and taxable as part of value of goods (if charged by seller himself).
In Infrastructure Development Finance Co. Ltd. v. ACIT (2019) taxmann.com 205 (Mad HC), it
has been held that liquidated damages recovered from borrowers in case of default in case
 503

of payment of interest and other dues (which was 2.10%) , was really 'interest'. [Decision
under section 10(23G) of Income Tax Act but principle can apply to GST].
In a contrary view, it was held that Receipt of penal charges by finance companies on delayed
payment of EMIs would be receipt of amounts for tolerating act of their customers for having
delayed/defaulted on their EMI payments and would be taxable as supply as per Sr. No. 5(e)
of Schedule II of CGST Act - Bajaj Finance Ltd., In re [2018] 99 taxmann.com 236 (AAR -
Maharashtra). - confirmed in Bajaj Finance Ltd., In re [2020] 77 GST 119 = 108 taxmann.com
1 (AAAR - Maharashtra).
No GST on delayed payment charges recovered from clients by stock broker - A stock
broker, who is engaged in business of purchasing and selling of shares on behalf of clients
on Stock Exchange platform, is not liable to pay GST on delayed payment charges collected
from clients - SPFL Securities Ltd., In re [2019] 109 taxmann.com 109 (AAAR-Uttar Pradesh).
[The applicant had relied on FAQ No. 80 issued by CBI&C on banking sector on 27-12-2018,
where it was clarified that GST is not payable on delayed payment charges for debit for
settlement obligation or margin trading, as this is in nature of loan and advances and interest
is not taxable].
There is exactly contrary view in Indo Thai Securities Ltd. In re (2019) 111 taxmann.com 104
(AAR - MP), where it has been held the additional amount for delayed payment which is
termed as interest, late fee or penalty is part of stock broking service and is includible in
value for GST purposes.
In my view, if interest is charged, there should be no GST, but some amount in nature of
penalty is charged, GST should be leviable on these amounts.
Penal charges for delayed payment of EMI is subject to GST - Receipt of penal charges by
finance companies on delayed payment of EMIs would be receipt of amounts for tolerating
act of their customers for having delayed/defaulted on their EMI payments and would be
taxable as supply as per Sr. No. 5(e) of Schedule II of CGST Act - Bajaj Finance Ltd., In re
[2018] 99 taxmann.com 236 (AAR - Maharashtra) - same view in FAQ No. 45 issued by CBI&C
on banking sector on 27-12-2018.
Cheque bouncing charges - Cheque Bounce charges collected for dishonour of EMI cheques
for repayment of loans by its customers would be 'tolerating an act or situation' and would
be treated as 'supply' as per Sr. No. 5(e) of Schedule II of CGST Act - Bajaj Finance Ltd., In re
[2018] 100 taxmann.com 396 (AAR - Maharashtra).
Exemption to services provided to account holders under Jan Dhan Yojana - Services
provided by a banking company to Basic Saving Bank Deposit (BSBD) account holders under
Pradhan Mantri Jan Dhan Yojana are exempt w.e.f. 1-1-2019 - Sr No. 27A of Notification No.
12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, inserted w.e.f. 1-1-2019.
Assignment or sale of debt not taxable - Assignment or sale of secured or unsecured debt
is actionable claim and not taxable - FAQ No. 40 issued by CBI&C on banking sector on 27-
12-2018.
Sale, purchase acquisition or assignment of secured debt - Sale, purchase acquisition or
assignment of secured debt is in nature of derivative, hence surety. It is not subject to GST -
FAQ No. 41 issued by CBI&C on banking sector on 27-12-2018.
 504

Gold (metal) loan - GST is payable by Bank on Gold (metal) loan. GST is payable on interest
also - FAQ Nos. 57 to 60 issued by CBI&C on banking sector on 27-12-2018.
Sale of re-possessed asset - GST is payable on sale of re-possessed assets - FAQ No. 63 issued
by CBI&C on banking sector on 27-12-2018.
28.2-1 Foreign Exchange Conversion services
The value of supply of services in relation to purchase or sale of foreign currency, including
money changing, shall be determined by the supplier of service as follows -
(a) For a currency, when exchanged from, or to, Indian Rupees (INR), the value shall be
equal to the difference in the buying rate or the selling rate, as the case may be, and
the Reserve Bank of India (RBI) reference rate for that currency at that time,
multiplied by the total units of currency:
(b) In case where the RBI reference rate for a currency is not available, the value shall
be 1% of the gross amount of Indian Rupees provided or received by the person
changing the money:
(c) In case where neither of the currencies exchanged is Indian Rupee, the value shall be
equal to 1% of the lesser of the two amounts the person changing the money would
have received by converting any of the two currencies into Indian Rupee on that day
at the reference rate provided by RBI - Rule 32(2)(a) of CGST and SGST Rules, 2017.

The taxable person can opt for composition scheme as detailed below.
28.2-2 Optional Composition scheme for payment of tax on exchange of foreign currency
A person supplying the services may exercise option to ascertain value in terms of rule
32(2)(b) for a financial year. Such option shall not be withdrawn during the remaining part
of that financial year - third proviso to Rule 32(2)(a) of CGST and SGST Rules, 2017.
The optional scheme under rule 32(2)(b) of CGST and SGST Rules, 2017 is as follows -
At the option of supplier of services, the value in relation to supply of foreign currency,
including money changing, shall be calculated as follows -
(i) 1% of the gross amount of currency exchanged for an amount up to one lakh rupees,
subject to a minimum amount of Rs. 250.
(ii) Rs. 1,000 plus and half of a per cent of the gross amount of currency exchanged for
an amount exceeding one lakh rupees and up to ten lakh rupees; and
(iii) Rs. 5,500 and one tenth of a per cent of the gross amount of currency exchanged for
an amount exceeding ten lakh rupees, subject to maximum amount of sixty thousand
rupees.

28.2-3 Sale or purchase of foreign exchange among banks or dealers is exempt

Service of inter se sale or purchase of foreign currency amongst banks or authorized dealers
of foreign exchange or amongst banks and such dealers is exempt - Notification No. 12/2017-
CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
28.2-4 Exemption to GST on bank charges for cashless transactions upto Rs. 2,000
 505

Services by an acquiring bank, to any person in relation to settlement of an amount upto

two thousand rupees in a single transaction transacted through credit card, debit card,
charge card or other payment card service.
"Acquiring bank" means any banking company, financial institution including non-banking
financial company or any other person, who makes the payment to any person who accepts
such card - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-
2017, effective from 1-7-2017.
28.2-5 Commission charged by foreign bank for remitting money to Indian Bank
In Theme Exports (P.) Ltd. v. CST, Delhi [2018] 94 taxmann.com 217 (CESTAT), assessee was
engaged in export of garments and realised sale proceeds through banking channel and for
providing such service foreign bank deducted certain amount and remitted balance amount
to assessee's bank account, It was held that assessee could not be treated as recipient of
banking and other financial services (as really the Bank in India is recipient of service).
28.2-6 Bank, FI, NBFC liable to pay GST under reverse charge in respect of services received
from recovery agent
In case of services supplied by a recovery agent to a banking company or a financial
institution or a non-banking financial company, the recipient of service i.e. banking company
or a financial institution or a non-banking financial company, located in the taxable territory
is liable to pay GST under reverse charge - Notification Nos. 13/2017-CT (Rates) and 10/2017-
IT (Rates) both dated 28-6-2017, effective from 1-7-2017.
28.2-7 Bank and NBFC liable to pay GST under reverse charge in respect of services
received from Direct Selling Agent (DSA) w.e.f. 27-7-2018
In case of services supplied by a individual Direct Selling Agent (DSAs) other than a body
corporate, partnership or LLP to bank or NBFC, the recipient of service i.e. banking company
or a non-banking financial company (NBFC), located in the taxable territory Notification is
liable to pay GST under reverse charge - Notification Nos. 13/2017-CT (Rates) and 10/2017-
IT (Rates) both dated 28-6-2017, amended w.e.f. 27-7-2018.
In my opinion, safe view is to pay CGST and SGST/UTGST, even when DSA is out of State. See
discussions in chapter 'Reverse Charge'.
28.2-8 Banking company liable to pay GST on services of business facilitator under reverse
charge w.e.f. 1-1-2019
Banking company located in taxable territory is liable to pay GST under reverse charge in
respect of services provided by business facilitator (BF) to a banking company w.e.f. 1-1-
2019.
In my opinion, safe view is to pay CGST and SGST/UTGST. See discussions in chapter 'Reverse
Charge'.
28.2-9 Locker service provided by Banks
Banks provide locker service. It is in effect, renting of locker.
The tax rate on the supply of locker w.e.f. 15-11-2017 is 18% (9% CGST plus 9% SGST/UTGST),
In case of leasing, the GST rate will be same as applicable to supply of like goods involving
transfer of title in goods. Since rate on furniture has been reduced from 28% to 18% w.e.f.
 506

15-11-2017, same rate should apply to hire of lockers also - Sr. Nos. 15 and 17 of Notification
Nos. 11/2017-CT (Rates) and 8/2017-IT (Rates) dated 28-6-2017, effective from 1-7-2017.
The tax rate on the supply of locker during 1-7-2017 to 14-11-2017 was 28% (14% CGST plus
14% SGST/UTGST), In case of leasing, the GST rate will be same as applicable to supply of
like goods involving transfer of title in goods. The rate was 28% during 1-7-2017 to 14-11-
2017 - Sr. No. 15 and 17 of Notification Nos. 11/2017-CT (Rates) and 8/2017-IT (Rates) dated
28-6-2017, effective from 1-7-2017 as existing upto 15-11-2017.
Hence, GST rate of 28% was applicable for such leasing or renting of locker upto 15-11-2017.
28.2-10 Services supplied by RBI and SEBI
Services supplied by RBI and SEBI are exempt from GST - Notification No. 12/2017-CT (Rates)
and 9/2017-IT (Rates) both dated 28-6-2017, effective from 1-7-2017.
Services supplied to RBI and SEBI are not exempt from GST.
Reverse charge in respect of Supply of services by the members of Overseeing Committee
to RBI - In case of supply of services by the members of Overseeing Committee to Reserve
Bank of India, the RBI is liable to pay tax under reverse charge - Notification No. 10/2017-IT
(Rates) both dated 28-6-2017 amended w.e.f. 13-10-2017.
[RBI is made liable to pay tax. Is it a sign of worsening relations between Government and
RBI?]
Services received by RBI from out of India in relation to foreign exchange - Services
received by RBI from out of India in relation to management of foreign exchange reserves is
exempt [This exemption is under IGST and not under CGST as only IGST can apply to this
transaction].
This exemption was only to ensure that RBI is not liable to pay GST under reverse charge.
But now, RBI is also being made liable to pay tax.
28.2-11 Guarantees provided by Government against guarantee commission are exempt
from tax
Services supplied by Central Government, State Government, Union territory to their
undertakings or Public Sector Undertakings (PSUs) by way of guaranteeing the loans taken
by such undertakings or PSUs from the financial institution are exempt from GST. This falls
under service heading 9971 - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate)
both dated 28-6-2017 as inserted w.e.f. 27-7-2018.
Earlier, MF(DR)(TRU) circular No. 34/8/2018-GST dated 1-3-2018 had clarified that the
service provided by Central Government/State Government to any business entity including
PSUs by way of guaranteeing the loans taken by them from financial institutions against
consideration in any form including Guarantee Commission is taxable.
28.3 Supply of money is neither goods nor services
Money has been specifically excluded from definition of 'goods' and 'service' - see section
2(102) of CGST Act which defines 'service' and section 2(52) of CGST Act which defines
'goods'.
Section 2(102) of CGST Act defines 'services' as follows - "Services" means anything other
than goods, money and securities but includes activities relating to the use of money or its
 507

conversion by cash or by any other mode, from one form, currency or denomination, to
another form, currency or denomination for which a separate consideration is charged.
Thus, service of conversion of foreign exchange into Rupees and vice versa would be subject
to GST.
28.3-1 Dividend, loans, borrowings, profit distribution among partners not taxable under
GST
Supply of money is neither covered in goods nor services.
"Money" means the Indian legal tender or any foreign currency, cheque, promissory note,
bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or
electronic remittance or any other instrument recognized by the Reserve Bank of India when
used as a consideration to settle an obligation or exchange with Indian legal tender of
another denomination but shall not include any currency that is held for its numismatic value
- section 2(112) of CGST Act.
Supply of money can cover the following - dividend, loans, borrowings, profit distribution
among partners etc.
Thus, such 'supply' will be outside GST net. However, interest is for use of money and shall
be liable to GST, unless exempted.
28.3-2 Issue of Commercial Paper (CP) and Certificate of Deposit (CD), Demand Drafts, LC
Commercial Paper ('CP') and Certificate of Deposit ('CD') (on the understanding of being in
the nature of promissory notes), issuance of drafts or letters of credit etc. are transactions
in money.
However, the related activity, for which a separate consideration is charged, would not be
treated as a transaction of money and would be chargeable to tax if other elements of
taxability are present. Tax would be levied on service charges normally charged for various
transactions in money including charges for making drafts, letter of credit issuance charges,
service charges relating to issuance of CDs/CPs etc. - Para 4.14.1 of CBE&C's 'Taxation of
Services : An Education Guide' published on 20-6-2012.
28.3-3 Services by way of extending deposits, loans or advances
Para 4.14.2 of CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012
states as follows -
The negative list entry covers any such service wherein moneys due are allowed to be used
or retained on payment of interest or on a discount. The words used are 'deposits, loans or
advances and have to be taken in the generic sense. They would cover any facility by which
an amount of money is lent or allowed to be used or retained on payment of what is
commonly called the time value of money which could be in the form of an interest or a
discount. This entry would not cover investments by way of equity or any other manner
where the investor is entitled to a share of profit.
Illustrations of such services are -
Fixed deposits or saving deposits or any other such deposits in a bank or a financial
institution for which return is received by way of interest.
 508

Providing a loan or overdraft facility or a credit limit facility in consideration for

payment of interest.
Mortgages or loans with a collateral security to the extent that the consideration for
advancing such loans or advances are represented by way of interest.
Corporate deposits to the extent that the consideration for advancing such loans or
advances are represented by way of interest or discount.

Service charges or administrative charges recovered in addition to interest on a loan,

advance or a deposit would be subject to tax - The services of loans, advances or deposits
are exempt in so far as the consideration is represented by way of interest or discount. Any
charges or amounts collected over and above the interest or discount amounts would
represent taxable consideration - Para 4.14.3 of CBE&C's 'Taxation of Services : An Education
Guide' published on 20-6-2012
Charges for prepayment of loan, reset charges are taxable - In Housing & Development
Corporation Ltd. (HUDCO) v. CST (2012) 34 STT 129 = 17 taxmann.com 14 = 51 VST 260
(CESTAT), assessee was levying following charges (a) Pre-payment of loan and (2) Reset
charges (for restructuring of loan like converting from fixed interest loan to floating interest
loan). It was held that this is not additional interest. The charge is for value addition obtained
by borrower. It is service and service tax is payable [After 1-7-2012, this activity can come
under 'tolerating an act or situation' which is a 'declared service'].
28.3-4 Invoice discounting or cheque discounting charges
Invoice discounting or cheque discounting or any other similar form of discounting is covered
only to the extent consideration is represented by way of discount as such discounting is
nothing else but a manner of extending a credit facility or a loan - Para 4.14.5 of CBE&C's
'Taxation of Services : An Education Guide' published on 20-6-2012.
Cheque discounting charges are nothing but interest on receivables - Cadbury India v. CCE
(2014) 47 GST 77 = 48 taxmann.com 78 (CESTAT).
28.3-5 Transactions in repos and reverse repos
Section 45U(c) of the RBI Act, 1934 defines 'repos' as 'an instrument for borrowing funds by
selling securities with an agreement to repurchase the securities on a mutually agreed future
date at an agreed price which includes interest for the funds borrowed'.
Section 45U(d) of the RBI Act, 1934 defines 'reverse repos' as 'an instrument for lending
funds by buying securities with an agreement to resell the securities on a mutually agreed
future date at an agreed price which includes interest for the funds lent'.
Repos and reverse repos are financial instruments of short term call money market that are
normally used by banks to borrow from or lend money to RBI. The margins, called the repo
rate or reverse repo rate in such transactions are nothing but interest charged for lending or
borrowing of money. Thus they have the characteristics of loans and deposits for interest.
However they are more appropriately excluded from the definition of service itself being the
sale and purchase of securities, which are goods - Para 4.14.6 of CBE&C's 'Taxation of
 509

Services : An Education Guide' published on 20-6-2012. This is also confirmed in FAQ No. 38
issued by CBI&C on banking sector on 27-12-2018.
28.3-6 Subscription to or trading in Commercial Paper (CP) or Certificates of Deposit (CD)
Para 4.14.7 of CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012
states as follows -
Commercial Paper ('CP') and Certificate of Deposit ('CD') are understood as unsecured
money market instruments which may be issued in the form of a promissory note or in a
dematerialized form through any of the depositories approved by and registered with SEBI.
CPs are normally issued by highly rated companies, Primary Dealers and Financial
Institutions at a discount to the face value. CDs can be issued by Scheduled Commercial
Banks (excluding RRBs and Local Area Banks) and All - India Financial Institutions (FIs)
permitted by RBI.
Since these are instruments for lending or borrowing money wherein consideration is
represented by way of a discount, issue or subscription to CPs and CDs would be covered in
the negative list entry relating to 'services by way of extending deposits, loans or advances
so far as consideration is represented by way of interest or discount'. It may also be borne
in mind that promissory note is included in the definition of money in the Act as given in
clause (33) of section 65B.
However if some service charges or service fees or documentation fees or broking charges
or such like fees or charges are charged, the same would be considerations for provision of
service and chargeable to service tax.
This view is reiterated in FAQ No. 39 issued by CBI&C on banking sector on 27-12-2018.
28.3-7 Forward contracts in commodities and currencies
Para 4.14.8 of CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012
clarifies as follows—
A forward contract is an agreement, executed to purchase or sell a pre-determined amount
of a commodity or currency at a pre-determined future date at a pre-determined price. The
settlement could be by way of actual delivery of underlying commodity/currency or by way
of net settlement of differential of the forward rate over the prevailing market rate on the
settlement date.
In a forward contract effectively two contracts are entered into, one for purchase and other
for sale at a future date at a pre-determined price. These contracts would be in the nature
of transfer in title in goods (in case the forward contract relates to a commodity) or
transaction only money (in case the forward contract relates to transaction and money).
Therefore, forward contracts in commodities or currencies would not fall in the ambit of
definition of 'service'. For transactions in money, Explanation 2 to clause (44) of section 65B
should also be kept in mind.
However if some service charges or service fees or documentation fees or broking charges
or such like fees or charges are charged, the same would be considerations for provision of
service and chargeable to service tax.
This is also confirmed in FAQs on Banking Sector S No. 37 issued by CBI&C on 27-12-2018.
 510

Forward contract for sale of cotton where contracts culminate into and entail performance
either by way of actual delivery of goods or settlement by pay out of differential sum would
fall within purview of securities and would not be chargeable to GST. However, where such
contracts are settled with other part to contract by way of payment of differential forward
rate and rate fixed by applicant using his discretion, these would not fall within purview of
'securities' and would be chargeable to GST, as 'securities' include derivatives - Louis Dreyfus
Co. India (P) Ltd. In re (2018) 70 GST 638 = 98 taxmann.com 323 (AAR - Punjab).
28.3-8 Future contracts
Future contracts are in the nature of financial derivatives, price of which is depended on the
value of underlying stocks or index of stocks or certain approved currencies and the
settlement happens normally by way of net settlement with no actual delivery.
Since future contracts are in the nature of contracts of difference based on the prices of
underlying stocks or index of stocks or approved currencies, they would be outside to the
ambit of definition of 'service' as being transactions only in money or transfer of title in
derivatives. For details please refer to point No. 2.6.8 (of CBEC Education Guide dated 20-6-
2012) - Para 4.14.9 of CBE&C's 'Taxation of Services : An Education Guide' published on 20-
6-2012.
This is also confirmed in FAQs on Banking Sector S No. 36 issued by CBI&C on 27-12-2018.
28.3-9 Money transfer service provided to foreign entity by Indian service provider taxable
Foreign Money Transfer Service Operator (MTSO) (like Western Union) provide service of
transferring money from outside India to Indian recipient in India. This is similar to Money
Order service. The facility is used by persons outside India for remitting money from outside
to India to their relatives in India.
Remitter located outside India (say A) approaches Money Transfer Service Operator (MTSO)
(say B) located outside India for remitting money to a beneficiary in India (say E). A pays
money to B. For this service, B receives fee/commission from A.
B appoints agents in India (say C) (who is usually a Bank or post office or some financial
entity) for delivery of money to E. C is paid fee/commission from B for providing this service.
C may deliver money directly to E or C may appoint sub-agent (say D) for this purpose.
Usually no fee is charged from E but sometimes, some fee/charges may be recovered from
E also.
It has been clarified vide CBE&C circular No. 180/06/2014-ST dated 14-10-2014 that tax is
payable on the commission or fee.
28.3-10 Collection charges and processing charges for import/export documents
Normally, exporter in India submits the documents for collection of payment to his Banker
in India. The Indian Bank sends these documents to foreign bank for collection. The foreign
Bank collects the proceeds from the foreign importer and remits the amount to Indian Bank
after deducting their collection charges. The Bank in India also deducts its Bank charges
(service charges) and credits net amount to the creditor of exporter in India.
The transactions between Bank in India and foreign bank are undertaken as per 'Uniform
Rules for Collection of Commercial paper URC 522' and 'Uniform Customs and Practice for
 511

Documentary Credits (UCP 600). Both are issued by International Chamber of Commerce
(ICC) and are followed by all Banks.
Thus, there is implied contract between Bank in India and foreign Bank for collection of
amounts due under the documents. The Indian exporter does not know which is the foreign
Bank and often even does not know how much charges are recovered by the foreign bank.
Hence, it has been clarified by the bank in India is recipient of service of the foreign bank
and will be liable to pay service tax under reverse charge - Commissioner of Service tax -I,
Mumbai Trade Notice No. 20/2013-14-ST-1 dated 10-2-2014.
I fully agree with whatever has been stated in aforesaid trade notice.
28.3-11 Agency fees paid to foreign banks for arranging finance
Agency fees paid to foreign banks for arranging finance is liable to service tax under reverse
charge - Tata Steel v. CST (2015) 63 taxmann.com 247 (CESTAT).
In other words, place of supply of service is India. This decision should apply in GST also.
28.3-12 Priority Sector Lending Certificates (PSLC) - tax payable under reverse charge
Priority Sector Lending Certificates (PSLCs) are tradeable certificates issued against priority
sector loans of banks so as to enable banks to achieve their specified target and sub-targets
for priority sector lending through purchase of these instruments in the event of a shortfall
and at the same time incentivizing the surplus banks to lend more to these sectors. Priority
Sector Lending Certificates (PSLC) are tradeable like duty credit scrips and are 'goods' -
MF(DR)(TRU) circular No. 34/8/2018-GST dated 1-3-2018.
The chapter heading of PSLC is 'Any Chapter', Tax is payable under reverse charge basis by
recipient of goods i.e. person purchasing the PSLC w.e.f. 28-5-2018 - Notification No. 4/2017-
CT (Rate) dated 28-6-2018 amended on 28-5-2018.
GST on PSLCs for the period 1-7-2017 to 27-5-2018 will be paid by the seller bank on forward
charge basis and GST rate of 12% will be applicable on the supply - CBI&C Circular No.
62/36/2018-GST dated 12-9-2018.
IGST payable on trading of PSLC on e-Kuber portal of RBI - In case of Trading of PSLC on e-
Kuber portal of RBI, IGST will be payable as it will be treated as supply of goods in the course
of inter-state trade or commerce. However, in case of transactions prior to 8-3-2019 (date
of the circular), if CGST/SGST was paid, it is not required to pay IGST again - CBI&C circular
No. 93/12/2019-GST dated 8-3-2019.
28.4 Other financial and related services
Financial and related services fall under heading 9971. There is some overlapping between
services covered under heading 9971 and 'Leasing or rental services with or without
operator' covered under heading 9973.
It appears that financial leasing would get covered under heading 9971 while operating lease
would get covered under heading 9973.
28.4-1 Financial Leasing
GST is payable on financial lease transaction - FAQ No. 47 issued by CBI&C on banking sector
on 27-12-2018.
 512

The entire transaction is subject to GST and not only interest.

Issues relating to operating lease, hire purchase, financial lease etc. are discussed in earlier
chapter and hence are not discussed.
28.4-2 Commission received by Foreman of Chit Fund
Services provided by foreman of a chit fund in relation to chit are subject to GST @ 12% (6%
CGST plus 6% SGST) - Sr No. 13(i) Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate)
dated 28-6-2017, effective from 1-7-2017.
Chit Fund is Non-Banking Finance Company (NBFC). However, the control is exercised by
respective State Government and not RBI.
"Chit" means a transaction whether called chit, chit fund, chitty, kuri, fraternity fund,
Rotating Savings and Credit Institutions or by any other name by or under which a person
enters into an agreement with a specified number of persons that every one of them shall
subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical
instalments over a definite period and that each such subscriber shall, in his turn, as
determined by lot or by auction of by tender or in such other manner as may be specified in
the chit agreement, be entitled to the prize amount.
A transaction is not a chit within the meaning of this clause, if in such transaction,-(i) some
alone, but not all, of the subscribers get the prize amount without any liability to pay future
subscriptions; or (ii) all the subscribers get the chit amount (now gross chit amount) by turns
with a liability to pay future subscriptions - section 2(b) of Chit Funds Act, 1982 - words in
italics inserted w.e.f. 1-1-2020.
Foreman of chit fund shall have the same meaning as is assigned to the term 'foreman' in
section 2(j) of the Chit Funds Act.
"Foreman" means the person who under the chit agreement is responsible for the conduct
of the chit and includes any person discharging the functions of the foreman under section
39 - section 2(j) of Chit Funds Act, 1982.
Interest/penalty/late fee taxable @ 12% - Interest/penalty collected for delay in payment
of monthly subscription of chit fund by members has to be classified under Heading No. 9971
as 'financial and related services'. It is composite supply - Ushabala Chits (P.) Ltd., In re [2020]
117 taxmann.com 827 (AAR - AP) [really, interest should not be subject to GST].
What is chit fund - Chit Funds Act, 1982 regulate and control activities of the chit fund
companies. Validity of the statute has been upheld in Sriram Chit Funds v. UOI 1993 (Supp
4) SCC 226 = AIR 1993 SC 2063
In Shriram Chit Funds v. UOI AIR 1993 SC 2063 = 1993 (Supp 4) SCC 226 (SC 3 member bench),
various obligations of foreman were noted, as follows—
(a) The Chit Funds Act, in pith and substance, deals with special contract and
consequently falls within entry 7 of list III of the 7th Schedule to the Constitution of
India.
(b) A chit fund transaction is not a case of borrowing, nor is it a loan transaction. If a
subscriber advances any amount, he does so only to one of the members.
 513

(c) The funds of the chit fund belong to the entire lot of subscribers.
(d) The amounts are in deposit which the stakeholder only holds a trust for the benefit
of the members of the fund.
(e) The foreman acts only as a person to bring together the subscribers and he is subject
to certain obligations with a view to protecting the subscribers from any mischief or
fraud committed by him by using the position.
(f) Commission is payable to the foreman for the service rendered by him as he does
not lend money belonging to him.

In Bangalore Turf Club v. Regional Director, ESIC (2014) 9 SCC 657 [SC 3 member bench],
features of chit fund were enumerated as follows—
(i) Chit funds are a special form of contract contemplated by Schedule VII List III Entry 7
to the Constitution of India.
(ii) The foreman acts as person to bring together the subscribers.
(iii) The amounts are paid to the subscribers as per the chit and in accordance with the
provisions of the Chit Funds Act.
(iv) The agreement between the parties that is entered as per section 6 of the Chit Funds
Act, only provides for distribution of the chit amount. This agreement is treated as
contract between the subscribers and the foreman, and it is the foreman who brings
the subscribers together.
(v) The foreman is paid commission, in accordance with the Chit Funds Act, for the
services rendered by foreman as he does not lend money belonging to him.
(vi) There is no debtor-creditor relationship per se. There is no promise to repay an
existing debt, but to pay in discharge of a contractual obligation, The price amount is
not received as a loan, but as right by virtue of the terms of the contract between the
parties.

[In this case, it was held that activities of chit fund is 'shop' for purpose of ESIC Act].
In CIT v. Bilahari Investment (2008) 299 ITR 1 = 168 Taxman 95 (SC), relevance of completed
transaction method was considered, with particular reference to chit transactions - followed
in Shriram Chits v. ACIT (2013) 213 Taxman 356 = 29 taxmann.com 1 (Mad HC DB), where it
was held that completed contract method is appropriate for chit funds (and not
proportionate completion method).
In State of Kerala v. Mar Appraem Kuri Co. Ltd. (2012) 114 SCL 47 = 22 taxmann.com 101 (SC
5 member Constitution Bench), State of Kerala had passed Kerala Chitties Act, 1975. Later,
Central Government passed Chit Funds Act, 1982. In was held that since Central Act covers
entire field relating to chits, the State law has become void and impliedly repealed, even if
the Central Act has not been made applicable in Kerala.
Chit funds are of two types - (a) Simple Chit Funds (b) Business Chit Funds.
 514

Reserve Bank of India has clarified that the business of a chit fund is to mobilize cash from
the subscribers and effectively cause movement of such cash to keep it working and,
therefore, the activity of chit funds is in the nature of cash management.
Simple Chit Funds - In this case, members agree to contribute to the fund a certain amount
at regular interval. Lots are drawn periodically and the member, whose name appears, gets
the periodical collection. No separate amount is charged from the members. In the case of
Simple Chit Funds, no consideration is paid or received for the services provided and,
therefore, the question of levy of service tax does not arise.
Business Chit Funds - In this case, there is a promoter known as foreman who draws up the
terms and conditions of the scheme and enrols subscribers. Every subscriber has to pay his
subscription in regular instalments. The foreman charges a separate amount for the services
provided. Some States prescribe a ceiling limit for the amount to be charged by such
promoter for the services provided. Commission amount is retained by the promoter as
consideration for providing the services in relation to chit fund. In the case of Business Chit
Funds, cash management service is provided for a consideration and, therefore, leviable to
service tax under "banking and other financial services".
Chit dividend paid to members is not interest - Chit dividend paid by chit fund company to
members of chit fund is not interest. TDS on interest is not required - CIT v. Avenue Super
Chits P Ltd. (2015) 232 Taxman 332 = 58 taxmann.com 366 (Karn HC DB).
Chit fund is not cash management or fund management service - Chit fund is not cash
management or fund management service - UOI v. Margadarshi Chit Funds (2017) 83
taxmann.com 116 = 62 GST 8 = 3 GSTL 3 (SC).
28.4-3 Services of Asian Development Bank (ADB) and International Finance Corporation
(IFC) are not taxable
Asian Development Bank (ADB) has been given complete immunity from taxes including TDS
under ADB Act, 1966. Similar protection is available to International Finance Corporation
(IFC) under IFC Act, 1966. This to honour international agreements. These prevail over Indian
laws. Hence, ADB and IFC are not liable to pay GST or deduct TDS. The exemption is only to
IFC and ADB and not to any entity appointed by or working on behalf of ADB and IFC - CBI&C
circular No. 83/02/2019-GST dated 1-1-2019.
28.4-4 Service of lending of securities
Services of lending of securities under Securities Lending Scheme, 1997 ("Scheme") of SEBI
is taxable. This service should fall under service code 997119.
This service is subject to reverse charge w.e.f. 1-10-2019.
Service is supplied by Lender i.e. a person who deposits the securities registered in his name
or in the name of any other person duly authorised on his behalf with an approved
intermediary for the purpose of lending under the scheme of SEBI [entry inserted w.e.f. 1-
10-2019].
Security as such is neither goods nor service. The securities are temporarily lent by lender to
the borrower. The lending fee charged from borrower of securities is the consideration and
GST is payable on that amount - para 4 of CBI&C circular No. 119/38/2019-GST dated 11-10-
2019.
 515

The intermediary gets commission or fee. It is taxable under forward charge.

Transaction in securities which involves disposal of securities is not a supply in GST and hence
not taxable. However, facilitation or arranging transactions in securities is taxable w.e.f. 1-
7-2017. The amendment to definition of 'service' w.e.f. 1-2-2019 (by adding explanation,
which stated that 'service' includes facilitating or arranging transactions in securities) is only
clarificatory - para 4.1 of CBI&C circular No. 119/38/2019-GST dated 11-10-2019.
Reverse charge on service of lending of securities - IGST is payable under reverse charge by
borrower i.e. a person who borrows the securities under the Scheme through an approved
intermediary of SEBI [entry inserted w.e.f. 1-10-2019].
Liability for past period - Till 1-10-2019, the service was taxable under forward charge. If
supplier of service has to issue tax invoice, he may request SEBI to get information about
recipient of service i.e. borrower of securities - para 5.1 of CBI&C circular No. 119/38/2019-
GST dated 11-10-2019 [doubtful if SEBI will oblige].
IGST payable and not CGST plus SGST/UTGST - IGST. is payable on service of lending of
securities and not CGST plus SGST/UTGST. However, if for past period, CGST and
SGST/UTGST was paid, the lender is not required to pay IGST again - para 5.1 of CBI&C
circular No. 119/38/2019-GST dated 11-10-2019.
No reason has been given for the view that IGST should be paid on this transaction. The only
possible justification is that if IGST is paid, it is within control of Central Government.
Otherwise, I cannot imagine how this transaction is inter-State transaction simply because
the supplier of service is not known.
GST Rate - IGST @ 18%. Only IGST is payable under reverse charge.
28.5 Insurance services
Insurance service falls in heading 9971. The GST rate is 18% (9% CGST and 9% SGST) or 18%
IGST.
Time of supply of insurance service - Time of supply of insurance service is when new policy
is issued. In case of renewal, time of supply is when notice of renewal is issued - FAQ No. 70
issued by CBI&C on banking sector on 27-12-2018.
Insuring employees/their relatives and recovering part premium from employees is not
supply of insurance service - In Jotun India P Ltd. In re (2019) 76 GST 691 = 110 taxmann.com
184 (AAR - MH), applicant was taking group insurance policy for parents of employees and
was recovering 50% of premium from employees. It was held that insuring employees/their
relatives and recovering part premium from employees is not supply of insurance service
and is not in course of business of applicant. Hence, no GST is payable on amount recovered
from employees - following decision in Posco India Pune Processing Centre P Ltd. In re (2019)
102 taxmann.com 21 (AAR - MH).
[Really, even incidental activity can be taxed as definition of 'business' is very wide].
28.5-1 Exemption to service of general insurance under specified schemes
Services of general insurance under following scheme are exempt - Notification No.
12/2017-CT (Rates) and 9/2017-IT (Rates) both dated 28-6-2017, effective from 1-7-2017.
Services of general insurance business provided under following schemes—
 516

(a) Hut Insurance Scheme;

(b) Cattle Insurance under Swarnajayanti Gram Swarozgar Yojana (earlier known as
Integrated Rural Development Programme);
(c) Scheme for Insurance of Tribals;
(d) Janata Personal Accident Policy and Gramin Accident Policy;
(e) Group Personal Accident Policy for Self-Employed Women;
(f) Agricultural Pump set and Failed Well Insurance;
(g) Premia collected on export credit insurance;
(h) Restructured Weather Based Crop Insurance Scheme (RWCIS) [Till 22-8-2017, the
words were - Weather Based Crop Insurance Scheme or the Modified National
Agricultural Insurance Scheme], approved by the Government of India and
implemented by the Ministry of Agriculture.
(i) Jan Arogya Bima Policy;
(j) Pradhan Mantri Fasal Bima Yojana (PMFBY) [Till 22-8-2017, the words were as follows
- National Agricultural Insurance Scheme (Rashtriya Krishi Bima Yojana)].
(k) Pilot Scheme on Seed Crop Insurance;
(l) Central Sector Scheme on Cattle Insurance;
(m) Universal Health Insurance Scheme;
(n) Rashtriya Swasthya Bima Yojana;
(o) Coconut Palm Insurance Scheme;
(p) Pradhan Mantri Suraksha Bima Yojana
(q) Niramaya Health Insurance Scheme implemented by the Trust constituted under the
provisions of the National Trust for the Welfare of Persons with Autism, Cerebral
Palsy, Mental Retardation and Multiple Disabilities Act, 1999.
(r) Bangla Shasya Bima [Inserted w.e.f. 1-10-2019]

Reinsurance service of aforesaid insurance schemes is exempt w.e.f. 25-1-2018 - Services

by way of reinsurance of the insurance schemes specified in serial number 35 or 36 or 40 are
exempt w.e.f. 25-1-2018 - Sr No. 36A of Notification No. 12/2017-CT (Rate) and No. 9/2017-
IT (Rate) both dated 28-6-2017 inserted w.e.f. 25-1-2018 and amended on 26-7-2018.
Services provided to Government under any insurance scheme - Services provided to the
Central Government, State Government, Union territory under any insurance scheme for
which total premium is paid by the Central Government, State Government or Union
Territory. These services fall under heading 9971. Re-insurance is also exempt - Sr No. 40 of
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017.
 517

Concessional rate of 12% for service of third party insurance of goods carriage - In case of
service of third party insurance of goods carriage [as defined in section 2(14) of Motor
Vehicles Act], the Concessional rate of GST is 12% IGST (or 6% CGST plus 6% SGST) w.e.f. 1-
1-2019 - Sr No. 15(vi) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both
dated 28-6-2017 amended on 1-1-2019.
28.5-2 Exemption to specified life insurance schemes
Services of life insurance business provided under following schemes is exempt from GST -
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective
from 1-7-2017.
(a) Janashree Bima Yojana;
(b) Aam Aadmi Bima Yojana;
(c) Life micro-insurance product as approved by the Insurance Regulatory and
Development Authority, having maximum amount of cover of two lakh rupees - Sr
No. 36(c) of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated
28-6-2017. The words in italics substituted w.e.f. 25-1-2018. Earlier, the limit was Rs.
50,000.
(d) Varishtha Pension Bima Yojana;
(e) Pradhan Mantri Jeevan Jyoti Bima Yojana;
(f) Pradhan Mantri Jan Dhan Yojana;
(g) Pradhan Mantri Vaya Vandan Yojana

Reinsurance service of aforesaid insurance schemes is exempt w.e.f. 25-1-2018 - Services

by way of reinsurance of the insurance schemes specified in serial number 35 or 36 or 40 are
exempt w.e.f. 25-1-2018 - Sr No. 36A of Notification No. 12/2017-CT (Rate) and No. 9/2017-
IT (Rate) both dated 28-6-2017 inserted w.e.f. 25-1-2018 and amended on 26-7-2018.
28.5-3 Exemption to certain life insurance services under Government schemes
Following services are exempt from GST - Notification No. 12/2017-CT (Rate) and 9/2017-IT
(Rate) both dated 28-6-2017, effective from 1-7-2017.
National Pension Scheme - Services of life insurance business provided by way of annuity
under the National Pension System regulated by the Pension Fund Regulatory and
Development Authority of India under the Pension Fund Regulatory and Development
Authority Act, 2013 are exempt - Sr No. 28 of Notification No. 12/2017-CT (Rate) and No.
9/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 25-1-2018.
Defence group insurance scheme - Services of life insurance business provided or agreed to
be provided by the Army, Naval and Air Force Group Insurance Funds to members of the
Army, Navy and Air Force, respectively, under the Group Insurance Schemes of the Central
Government is exempt - Sr No. 29 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT
(Rate) both dated 28-6-2017 .
 518

Naval Group insurance service to Coast Guard - Services of life insurance provided or
agreed to be provided by the Naval Group Insurance Fund to the personnel of Coast Guard
under the Group Insurance Schemes of the Central Government is exempt w.e.f. 25-1-2018
- Sr No. 29A of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-
6-2017 inserted w.e.f. 25-1-2018.
Life Insurance Services provided by Central Armed Police Forces exempt w.e.f. 1-10-2019 -
Services of life insurance provided or agreed to be provided by the Central Armed Police
Forces (under Ministry of Home Affairs) Group Insurance Funds to their members under the
Group Insurance Schemes of the concerned Central Armed Police Force are exempt from
GST w.e.f. 1-10-2019 - Sr No. 29B of Notification Nos. 12/2017-CT (Rate) and No. 9/2017-IT
(Rate) both dated 28-6-2017 inserted w.e.f. 1-10-2019.
Services by ESIC - Services supplied by ESIC are exempt - Sr No. 30 of Notification No.
12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017.
Services of EPF - Services of Employees Provident Fund Organisation under EPF Act are
exempt - Sr No. 31 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated
28-6-2017 .
Services by Coal Mining PF Organisation exempt - Services by Coal Mines Provident Fund
Organisation to persons governed by the Coal Mines Provident Fund and Miscellaneous
Provisions Act, 1948 are exempt. These fall under heading 9971 or 9991 - Notification No.
12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 as inserted w.e.f. 27-7-
2018.
Services by National Pension System to its members exempt - Services by Coal Mines
Provident Fund Organisation to persons governed by the Coal Mines Provident Fund and
Miscellaneous Provisions Act, 1948 are exempt. These fall under heading 9971 or 9991 -
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 as
inserted w.e.f. 27-7-2018.
Services of IRDA - Services of IRDA are exempt - Sr No. 32 of Notification No. 12/2017-CT
(Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 .
Insurance services by Government to individuals are exempt - Services provided by
Government to individual are exempt from tax. Hence, insurance services provided by
Government to individuals is exempt from tax - MF(DR) circular No. 16/16/2017-GST, dated
15-11-2017.
Services of insurance supplied to Government - Services provided to Central Government,
State Government, Union Territory, under any insurance scheme where total premium is
paid by Central Government, State Government, Union Territory is exempt. The service falls
under heading 9971. Re-insurance service is also exempt - Notification No. 12/2017-CT
(Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 as inserted w.e.f. 27-7-2018.
28.5-4 Insurance company liable to pay GST under reverse charge in case of services
received from insurance agent
In case of services supplied by an insurance agent to any person carrying on insurance
business, any person carrying on insurance business (obviously insurance company), located
in the taxable territory receiving the service is liable to pay GST under reverse charge -
 519

Notification No. 13/2017-CT (Rates) and 10/2017-IT (Rates) both dated 28-6-2017, effective
from 1-7-2017.
"Insurance agent" shall have the same meaning as assigned to it in section 2(10) of the
Insurance Act, 1938.
28.5-5 Value of supply of services in relation to life insurance
The value of supply of services in relation to life insurance business shall be as follows (if the
premium includes risk premium plus investment portion)
(a) the gross premium charged from a policy holder reduced by the amount allocated
for investment, or savings on behalf of the policy holder, if such amount is intimated
to the policy holder at the time of supply of service.
(b) in case of single premium annuity policies other than (a), ten per cent of single
premium charged from the policy holder; or
(c) in all other cases, twenty five per cent of the premium charged from the policy holder
in the first year and twelve and a half per cent of the premium charged from policy
holder in subsequent years - Rule 32(4) of CGST and SGST Rules, 2017.

Tax on entire premium if the policy is only to cover the risk - If the entire premium paid by
the policy holder is only towards the risk cover in life insurance, GST is payable on entire
premium amount [as such policy does not have any investment portion. It has only risk
portion] - proviso to Rule 32(3) of CGST and SGST Rules, 2017.
28.6 Services of collection agents and business facilitators and business correspondents
"Business facilitator (BF) or business correspondent (BC)" means an intermediary appointed
under the business facilitator model or the business correspondent model by a banking
company or an insurance company under the guidelines issued by the Reserve Bank of India
- para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-
2017, effective from 1-7-2017.
RBI has issued circular No. DBOD.No.BL.BC. 58/22.01.001/2005-06 dated 25-1-2006 in
respect of BF and BC.
BF and BC get service charges from Bank and not from customer.
Banking company located in taxable territory is liable to pay GST under reverse charge in
respect of services provided by business facilitator (BF) to a banking company w.e.f. 1-1-
2019. Bank can recover service charges from customer, for which Banks will charge GST from
customer - para 3 CBI&C circular No. 86/05/2019-GST dated 1-1-2019.
In case of services of business correspondents, they themselves are liable to pay GST.
The business correspondents are also liable to pay GST under reverse charge in respect of
services provided by an agent of business correspondent to them. This reverse charge is
applicable w.e.f. 1-1-2019.
Exemption to services provided by collection agents - Following services of collection agents
are exempt - Sr Nos. 37 and 38 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT
(Rate) both dated 28-6-2017, effective from 1-7-2017.
These services fall under heading 9971 or 9991.
 520

Services by way of collection of contribution under the Atal Pension Yojana.

Services by way of collection of contribution under any pension scheme of the State
Governments.
Services by business facilitator or a business correspondent to a banking company
with respect to accounts in its rural area branch;
Services by any person as an intermediary to a business facilitator or a business
correspondent.
Service by business facilitator or a business correspondent to an insurance company
in a rural area.
Services provided to the Central Government, State Government, Union territory
under any insurance scheme for which total premium is paid by the Central
Government, State Government or Union Territory.

Meaning of rural area - If the branch of bank is located in rural area as per RBI guidelines,
the service will be exempt - para 4 CBI&C circular No. 86/05/2019-GST dated 1-1-2019.
28.6-1 Services by an intermediary of financial services in IFSC to customer located outside
India exempt w.e.f. 25-1-2018
Services by an intermediary of financial services located in a multi services SEZ with
International Financial Services Centre (IFSC) status to a customer located outside India for
international financial services in currencies other than Indian rupees (INR) is exempt from
tax - Sr No. 39A of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated
28-6-2017 inserted w.e.f. 25-1-2018.
This service falls under heading 9971.
Meaning of intermediary of financial services in IFSC - For the purposes of this exemption,
the intermediary of financial services in IFSC is a person,- (i) who is permitted or recognised
as such by the Government of India or any Regulator appointed for regulation of IFSC; or (ii)
who is treated as a person resident outside India under the Foreign Exchange Management
(International Financial Services Centre) Regulations, 2015; or (iii) who is registered under
the Insurance Regulatory and Development Authority of India (International Financial
Service Centre) Guidelines, 2015 as IFSC Insurance Office; or (iv) who is permitted as such by
Securities and Exchange Board of India (SEBI) under the Securities and Exchange Board of
India (International Financial Services Centres) Guidelines, 2015.
28.7 Stock Broker Services
Stock broker services fall under service code 997512.
CBI&C has issued FAQs on banking, insurance and stock broker service on 27-12-2018.
It is clarified in FAQ that GST is payable on brokerage but not on stamp duty and securities
transaction tax recovered from customer.
GST is not payable on delayed payment charges for debit for settlement obligation or margin
trading, as this is in nature of loan and advances and interest is not taxable - FAQ No. 80
issued by CBI&C on banking sector on 27-12-2018.
 521

A stock broker, who is engaged in business of purchasing and selling of shares on behalf of
clients on Stock Exchange platform, is not liable to pay GST on delayed payment charges
collected from clients - SPFL Securities Ltd., In re [2019] 109 taxmann.com 109 (AAAR-Uttar
Pradesh).
Stock broker is intermediary and in case of foreign clients, place of supply is India. Hence,
CGST and SGST/UTGST will be payable - FAQ No. 85 issued by CBI&C on banking sector on
27-12-2018.
Margin money received is in nature of deposit and GST is not payable, unless the margin
money is applied for his service charges - FAQ No. 87 issued by CBI&C on banking sector on
27-12-2018.
If sub-broker gets only commission, he is not agent of main broker - FAQ No. 83 issued by
CBI&C on banking sector on 27-12-2018.
28.8 Real Estate Service
Renting or leasing services fall under group 99721. The GST rate is 18% (9% CGST and 9%
SGST). Since place of supply is location of immovable property, IGST is not leviable.
Limited coverage of real estate services in GST - The definition of 'service' is very wide at it
covers anything other than 'goods'. However, para 5 of Schedule III of CGST Act States that
activity of sale of land and subject to para 5(b) of Schedule II, sale of buildings is neither
supply of goods nor supply of services.
Para 5(b) of Schedule II covers sale of a flat or commercial premises in a complex.
As per Entry No. 49 of List II of Seventh Schedule to Constitution, 'taxes on lands and
buildings' is a State subject.
Though Constitution grants concurrent powers to Union and State to levy GST, these are
subject to recommendation of GST Council. Thus, GST on land and buildings can be imposed
only to the extent recommended by GST Council.
In respect of land and buildings, the CGST Act and SGST Act makes some 'deeming provisions'
in Schedule II of CGST Act.
Thus, excluding those 'deemed supply' provisions, GST cannot be imposed on other
transactions relating to land and buildings.
Leasing of industrial units for 99 years of developed plots is taxable under heading 9972 -
Leasing of developed industrial plots in food park for 99 years is subject to GST under
heading 9972 @ 18% [9% CGST plus 9% SGST] - Greentech Mega Food Park (P.) Ltd. In re
(2019) 75 GST 149 = 107 taxmann.com 263 (AAR - Maharashtra).
No separate tax for supply of land or undivided share of land as part of composite supply
of flats - When a builder sales flat to buyer, he also transfers to him undivided share of land
by way of lease or sub-lease. The service falls under heading 9972.
In such cases, the value of service for GST is Nil, if the amount charged for such lease or sub-
lease is one-third of total amount charged for composite supply or less than one-third of
total amount charged - Sr. No. 16(ii) of Notification Nos. 11/2017-CT (Rates) and 8/2017-IT
(Rates) dated 28-6-2017 inserted w.e.f. 25-1-2018.
 522

The detailed wording is quite clumsy, but its essence is that such supply of land by way of
leasing may be during (a) construction of complex (b) low cost housing under specified
scheme or (c) Construction of residential or commercial apartments [amendment w.e.f. 1-
4-2019].
Renting of Immovable Property - "Renting in relation to immovable property" means
allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or
partly, in an immovable property, with or without the transfer of possession or control of
the said immovable property and includes letting, leasing, licensing or other similar
arrangements in respect of immovable property - para 2 of Notification No. 12/2017-CT
(Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Electricity and water charges collected from tenant on actual basis not subjected to GST -
In Gujarat Narmada Valley Fertilisers & Chemicals Ltd. In re (2021) 123 taxmann.com 380
(AAR-Gujarat), the rental agreement provided that electricity charges will be payable by
lessee on basis of actual usage. Sub-meter was placed. It was held that the charges collected
are reimbursable in nature and would be covered within scope of 'pure agent' and would
not be subject to GST.
In exactly contrary view, in E-Square Leisure P Ltd. In re (2019) 104 taxmann.com 121 (AAR -
Maharashtra), it was held that GST is payable on electricity and water charges collected from
tenant on actual basis. The amount collected is not as 'pure agent'. Renting is main supply
and supply of electricity, water, fuel are in nature of ancillary supply. All these are inter-
dependent. It is a 'composite supply'
[In my view, if rent agreement clearly states that renting is of immovable property only and
electricity and water charges is responsibility of tenant, it can be argued that electricity and
water charges on actual basis are not part of renting service, but a view is clearly possible
that it is a composite supply. Thus, this is a borderline case].
Property tax collected from tenant includible in value - Property tax collected from tenant
is includible value of rental income - Midcon Polymers (P.) Ltd., In re [2020] 120 taxmann.com
24 = 83 GST 533 (AAR - Karnataka) - view confirmed in appeal in Midcon Polymers (P.) Ltd.,
In re [2021] 123 taxmann.com 408 (AAAR-Karnataka), where it was held that notional
interest on security deposit is not required to be added in taxable value of services.
In my view, this would be so only if bill of property tax is in name of society and society is
collecting tax on pro-rata basis from members. However, if bill of property tax is in name of
individual tenant and society or RWA is only helping him in payment of property tax, this
should not be includible.
Mere renting of space is not service of storage and warehousing of goods - In storage and
warehousing service, loading, unloading and stacking in storage area, inventory of goods,
security arrangement and insurance service is supplied. In service of renting of space, such
service is not supplied. Hence, mere renting of space is not service of storage and
warehousing of goods - Rishi Shipping In re (2018) 68 GST 395 = 94 taxmann.com 147 (AAR-
Gujarat).
 523

Hiring of godown for storage of goods is renting - Hiring of godown for storage of goods is
renting of immovable property, liable for GST @ 18% - Karnataka Food and Civil Suppliers
Corporation In re (2019) 110 taxmann.com 403 (AAR - Karnataka).
Surrender of tenancy rights - Surrender of tenancy rights is subject to GST. However,
surrender of tenancy rights of residential property is not subject to tax - CBI&C Circular No.
44/18/2018-CGST dated 2-5-2018 [This issue arises in States where statutory protection is
available to tenants].
This is really 'tolerating an act or situation' though CBI&C circular does not specifically say
so.
Renting for agricultural purposes is exempt - Leasing of land for coffee plantation is for
agricultural purposes. It falls under 9986 and is exempt from tax - Cochin Plantations Ltd. In
re (2018) 70 GST 806 = 99 taxmann.com 55 (AAR - Kerala).
Brokerage services relating to renting of building - Brokerage services relating to renting
of building is eligible input service for renting of commercial property. The service falls under
heading 9972 (really 99621 appears to be more appropriate) -Adwitya Spaces P Ltd. In re
(2018) 70 GST 477 = 98 taxmann.com 316 (AAR - Tamil Nadu).
28.8-1 Renting for residential purposes is exempt from tax
The service falls under service code 9963 or 9972. Service by way of renting of residential
dwelling for use as residence is exempt - Sr. No. 12 of Notification No. 12/2017-CT (Rate)
and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
In Borbheta Estate (P.) Ltd., In re [2019] 106 taxmann.com 386 (AAR-West Bengal),
residential unit was given to company (Larsen and Toubro Ltd.). It was used as residence of
employee. It was held that no GST is payable on such renting.
Renting for residential purposes requires some sort of permanency. Renting of rooms for
temporary use is not covered under Entry 12 of the notification 12/2017-CT (Rate) - Acharya
Shree Mahashraman Chaturma Pravas Vyavastha Samiti Trust In re (2020) 77 GST 254 = 110
taxmann.com 282 (AAR - Karn).
Exemption only when renting directly for residential purposes and not when given in bulk
for further renting - Building constructed for providing hostel accommodation to students
is not for 'residential dwelling' - Taghar Vasudeva Ambrish, In re [2020] 120 taxmann.com
104 (AAAR-Karnataka) - confirming Taghar Vasudeva Ambrish, In re [2020] 116
taxmann.com 373 (AAR - Karnataka) - similar view in Sri DMS Hospitality P Ltd. In re [2020]
78 GST 511 = 110 taxmann.com 333 (AAR-Karnataka), where it was held that the service falls
under service code 997212.
In Taghar Vasudeva Ambrish In re (2020) 81 GST 574 = 116 taxmann.com 373 (AAR), entire
residential complex consisting of 42 rooms was given on rent to a company for further
renting to others for residential use. It was held that GST is payable @ 18% on entire amount
charged to the company - view confirmed in appeal in Taghar Vasudeva Ambrish In re (2021)
83 GST 150 = 120 taxmann.com 104 (AAAR).
Lodge house is not residential dwelling - Building constructed for purpose of running a lodge
house and giving the building on rent is a commercial activity. Supply of such services are
classifiable as 'rental or leasing services involving own or leased non-residential property'
 524

under SAC 9977212. Lodge house is not a 'Residential Dwelling'. There is exemption on its
leasing - Lakshmi Tulasi Quality Fuels, In re [2020] 117 taxmann.com 942 (AAR - Andhra
Pradesh)
28.8-2 Renting of precincts of a religious place exempt upto limit
Renting of precincts of a religious place meant for general public, owned by charitable or
religious trust are exempt from GST.
However, this exemption does not apply to - (i) renting of rooms where charges are one
thousand rupees or more per day; (ii) renting of premises, community halls,
kalyanmandapam or open area, and the like where charges are ten thousand rupees or more
per day (iii) renting of shops or other spaces for business or commerce where charges are
ten thousand rupees or more per month - Notification No. 12/2017-CT (Rate) and No.
9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Meaning of 'general public' - "General public" means the body of people at large sufficiently
defined by some common quality of public or impersonal nature - Definition clause 2(zc) of
Notification No. 12/2017-CT (Rates) and 9/2017-IT (Rates) both dated 28-6-2017, effective
from 1-7-2017.
Public Place - Public Place means any place intended to be used by or accessible to the
public and includes any public conveyance. It is not necessary that it must be public property.
Even if it is a private property, it is sufficient that the place is accessible to the public - Gaurav
Jain v. UOI AIR 1997 SC 3021 - quoted and followed in JGS Enterprises v. CCE (2018) 66 GST
599 = 92 taxmann.com 2 (CESTAT).
The word 'precincts' has very broad meaning - CBE&C vide circular No. 200/10/2016-ST
dated 6-9-2016 had clarified that the word 'precincts' has very broad meaning. All
immovable property located in the immediate vicinity and surrounding of the religious place
and owned by religious place or under same management as the religious place may be
considered as 'precincts' of the religious place.
The word 'precinct' has to be given broad meaning. It means surrounding region or area. -
South Eastern Coalfields v. CCE (2006) 200 ELT 357 (SC).
28.8-3 Renting Service supplied jointly by co-owners
A building co-owned by two people is given on rental basis. Issue is whether the exemption
available to both of them separately or the GST is payable as AOP?
In my view, each person is separate supplier of service and can claim separate exemption, if
property is inherited. If property is specifically purchased jointly for providing renting
services or for business purposes, the turnover will be clubbed for purpose of exemption
available to small suppliers of service, as they will be treated as AOP or BOI.
In Dinesh K Patwa v. CST (2012) 37 STT 375 = 25 taxmann.com 515 (CESTAT), a view has been
held that each co-owner is eligible for separate exemption available to small service
providers - similar order in Smt. K D Chaudhary v. CST (2012) 37 STT 425 = 26 taxmann.com
339 (CESTAT) * Manju Champaklal Bafna v. CST (2014) 43 GST 691 = 42 taxmann.com 320
(CESTAT) * Dilip Parikh v. CST (2014) 43 GST 447 = 41 taxmann.com 311 (CESTAT) * Sanjay K
Motwani v. CST (2014) 46 GST 183 = 46 taxmann.com 98 (CESTAT).
 525

Same view under GST in Elambrancheri Khaldoon In re (2018) 70 GST 469 = 98 taxmann.com
159 (AAR - Kerala).
28.8-4 Reverse charge in respect of service of renting of immovable property supplied by
Government
In case of services supplied by the Central Government, State Government, Union territory
or local authority by way of renting of immovable property to a person registered under the
CGST Act. Person receiving the service is liable to pay tax under reverse charge w.e.f. 25-1-
2018, if he is registered under the CGST Act, 2017 - Sr. No. 5A of Notification No. 13/2017-
CT (Rate) and 10/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 25-1-2018.
Till 25-1-2018, the Central Government, State Government, Union territory or local authority
supplying service by way of renting of immovable property was liable to pay tax in all cases.
After 25-1-2018, the Central Government, State Government, Union territory or local
authority supplying service by way of renting of immovable property only when the recipient
is not registered under CGST Act.
 526

Leasing or rental services and licensing services

29.1 Hire and licensing services
Service Accounting Code Heading for Leasing or rental services (*) without operator is 9973.
Groups in this heading are - Leasing and rental of machinery (99731), Leasing and rental
services concerning other goods (99732) and licensing services for right to use IPR and other
products. [* - The words 'with or' have been deleted w.e.f. 1-10-2019].
Thus, after 1-10-2019, heading 9973 will cover leasing or rental services of goods without
operator.
Rental services of transport vehicles with operator will be classified under heading 9966,
w.e.f. 1-10-2019.
Rental and leasing services of immovable property falls under heading 9972.
29.2 Leasing or renting of land and building is 'supply of service'
Any lease, tenancy, easement, licence to occupy land is a supply of services - para 2(a) of
Schedule II of CGST Act.
Any lease or letting out of the building including a commercial, industrial or residential
complex for business or commerce, either wholly or partly, is a supply of services - para 2(b)
of Schedule II of CGST Act.
Leasing of land for 99 years is subject to GST - HazariBagh Builders (P.) Ltd., In re [2020] 117
taxmann.com 797 (AAR - Rajasthan).
Leasing of Residential building for purpose of business - Leasing of Residential building for
purpose of business will be supply of service and subject to GST.
In Taghar Vasudeva Ambrish In re (2020) 81 GST 574 = 116 taxmann.com 373 (AAR), entire
residential complex consisting of 42 rooms was given on rent to a company for further
renting to others for residential use. It was held that GST is payable @ 18% on entire amount
charged to the company. - view confirmed in appeal in Taghar Vasudeva Ambrish In re (2021)
83 GST 150 = 120 taxmann.com 104 (AAAR).
Renting of immovable property is supply of service - Renting of immovable property is
supply of service - para 5(a) of Schedule II of CGST Act.
This seems to be duplication, as this activity is already covered in paras 2(a) and 2(b)of
Schedule II of CGST Act.
Leasing of vacant land for agricultural purposes is exempt - Renting or leasing of vacant
land with or without a structure incidental to its use for agricultural produce are exempt
[Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017,
effective from 1-7-2017.]
Leasing of land for coffee plantation is for agricultural purposes. It falls under 9986 and is
exempt from tax - Cochin Plantations Ltd. In re (2018) 70 GST 806 = 99 taxmann.com 55 (AAR
- Kerala).
Lease rent charged for water channel for fish farming - Lease rent charged by municipality
for land i.e. water channel used for fish farming falls within meaning of "services relating to
rearing of all life forms of animals - by way of renting or leasing of vacant lands" falls under
heading 9986 eligible for GST exemption as per Sl. No. 54 of Notification No. 12/2017-Central
 527

Tax (Rate), dated 28-6-2017 - George Jacob, In re [2020] 119 taxmann.com 10 (AAR -
KERALA).
Leasing of industrial units for 99 years of developed plots is taxable under heading 9972 -
Leasing of developed industrial plots in food park for 99 years is subject to GST under
heading 9972 @ 18% [9% CGST plus 9% SGST] - Greentech Mega Food Park (P.) Ltd. In re
(2019) 75 GST 149 = 107 taxmann.com 263 (AAR - Maharashtra).
Assignment of lease rights is not 'leasing', it is transfer of rights to assignee - Assignment
of lease rights is not 'leasing', it is transfer of rights to assignee. It is not transfer of land. It is
service under 'miscellaneous service' under heading 999792 and taxable @ 18% under Sr
No. 35 of Notification No. 11/2017-CT (Rates) dated 28-6-2017 - Enfield Apparels Ltd. In re
(2020) 82 GST 109 = 118 taxmann.com 339 (AAR - WB).
GST Compensation Cess on service of hiring of motor vehicles - (a) In case of supply of
service of transfer of right to use goods on which GST Compensation Cess is applicable -
same rate of cess as applicable on supply of similar goods (mainly applicable to motor
vehicles) - Notification No. 2/2017 - Compensation Cess (Rate) dated 28-6-2017.
29.2-1 Leasing of land by Government to governmental authority or governmental entity
Services by the Central Government, State Government, Union territory or local authority to
governmental authority or government entity, by way of lease of land is subject to Nil rate
of GST - Sr No. 16(i) of Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) dated 28-6-
2017 inserted w.e.f. 25-1-2018.
Plots given on lease by Govt. entity to Municipal Corporation for construction of public
amenities exempt from GST - Plots given on lease by Govt. entity to Municipal Corporation
for construction of public amenities exempt from GST under Sr. No. 3 of Notification No.
12/2017-CT(Rate) dated 28-6-2017 in respect of transfer of services by way of lease of vacant
plots to PMC Commissioner's residence and PMC Mayor's residence will be taxable at rate
of 18% under Chapter Heading 9972, Sr. No. 16, clause (iii) of Notification No. 11/2017-
CT(Rate) dated 28-6-2017- City & Industrial Development Corporation of Maharashtra Ltd
(CIDCO)., In re [2019] 106 taxmann.com 257 (AAR - Maharashtra).
29.2-2 Supply of land or undivided share of land as part of composite supply of flats
When a builder sales flat to buyer, he also transfers to him undivided share of land by way
of lease or sub-lease. The service falls under heading 9972.
In such cases, the value of service for GST is Nil, if the amount charged for such lease or sub-
lease is one-third of total amount charged for composite supply or less than one-third of
total amount charged - Sr. No. 16(ii) of Notification No. 11/2017-CT (Rate) and 8/2017-IT
(Rate) dated 28-6-2017 inserted w.e.f. 25-1-2018.
The detailed wording is quite clumsy, but its essence is that such leasing of land may be
during (a) construction of complex (b) low cost housing scheme, or (c) residential complex
for Government, Local Authority, Governmental Authority or Governmental Entity.
29.2-3 Surrender of tenancy rights
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Surrender of tenancy rights is subject to GST. However, surrender of tenancy rights of

residential property is not subject to tax - CBI&C Circular No. 44/18/2018-CGST dated 2-5-
2018.
[This issue arises in States where statutory protection is available to tenants].
29.3 Leasing or rental services of goods without operator
Leasing or rental services of goods without operator fall under heading 9973 w.e.f. 1-10-
2019.
Till 1-10-2019, the heading 9973 was covering Leasing or rental services of goods with or
without operator.
After 1-10-2019, heading 9973 will cover leasing or rental services of goods without operator
only.
Rental services of transport vehicles with operator will be classified under heading 9966,
w.e.f. 1-10-2019.
The transfer of right can be - (a) to use any goods for any purpose (whether or not for a
specified period) for cash, deferred payment or other valuable consideration [Schedule II Sr.
No. 5(d) of CGST Act] (b) in goods or in undivided share in goods without the transfer of title
in goods [Schedule II Sr. No. 1(b) of CGST Act]
The (a) part can cover operating lease. The (b) part can cover financial lease and hire
purchase (depending on nature of agreement).
GST rates as applicable w.e.f. 1-10-2019 on leasing of goods without operator - In case of
leasing or renting of goods, the GST rate will be same as applicable to supply of like goods
involving transfer of title in goods - Sr No. 17(viia) of Notification Nos. 11/2017-CT (Rates)
and 8/2017-IT (Rates) dated 28-6-2017, as amended on 1-10-2019.
If GST rate on goods is 28% (like motor vehicle), same rate applies to leasing of such goods.
If the goods attract GST Compensation Cess, that will also be payable.
Leasing or rental services of goods without operator, other than above - In case of leasing
or rental services of goods, (*) without operator, the GST rate will be 18% IGST (or 9% CGST
plus 9% SGST/UTGST) w.e.f. 1-1-2019 - Sr No. 17(viii) of Notification Nos. 11/2017-CT (Rates)
and 8/2017-IT (Rates) dated 28-6-2017, as amended on 1-10-2019 [* - The words were 'with
or' upto 1-10-2019].
No item may get covered under this residuary clause, as all goods are already covered at Sr
No. 17(viia) of Notification No. 11/2017-CT (Rates) and 8/2017-IT (Rates) dated 28-6-2017.
Renting of e-bikes/bicycles without operator falls 9973 - Renting of e-bikes/bicycles
without operator is classifiable under Heading No. 9973 - Leasing or rental services without
operator and rate of tax under Sl. No. 17(viia) of Notification No. 11/2017 Central Tax (Rate),
dated 28-6-2017 will be same rate of tax as applicable on supply of like goods involving
transfer of title in goods - Yulu Bikes (P.) Ltd., In re [2021] 125 taxmann.com 147 (AAAR-
Karnataka) [reversing decision in Yulu Bikes (P.) Ltd., In re [2020] 120 taxmann.com 188 = 84
GST 159 (AAR - Karnataka), where it was (indeed incorrectly) held that renting of e-
bikes/bicycles without operator by assessee could not be classified under SAC 9973. It will
be classified under 9966]
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GST Compensation Cess on service of hiring of motor vehicles - (a) In case of supply of
service of transfer of right to use goods on which GST Compensation Cess is applicable -
same rate of cess as applicable on supply of similar goods (mainly applicable to motor
vehicles. (b) In case of all other services - Nil - Notification No. 2/2017-Compensation Cess
(Rate) dated 28-6-2017.
Service of giving motor vehicle on hire on rental basis is renting of motor vehicle and not
passenger transport service - Service of giving motor vehicle on hire on rental basis is
renting of motor vehicle classifiable under 9966 (without operator). ITC is not available on
motor vehicle. It is not a 'passenger transport service' under heading 9964 - Mohana Ghosh
In re (2019) 74 GST 288 = 106 taxmann.com 108 (AAR-West Bengal) and Mohana Ghosh In
re (2019) 75 GST 211 = 106 taxmann.com 380 (AAR-West Bengal).
In Andhra Pradesh State Road Transport Corporation, In re [2020] 117 taxmann.com 975
(AAR - AP), the applicant, State Transport Corporation, giving Non-Air Conditioned Buses on
contract for occasions of marriages, functions etc, for transportation of employees and
students of other organizations/Department, etc., It was held that these services are not
covered under contract carriage service, but rental services. It fits under Serial No 10 of
Notification no.11/2017-CT (Rate) dated 28-6-2017 (heading 9966 - Rental services of
vehicle with operator). Rate of tax on rental services where cost of fuel is included in
consideration charged from service recipient is 5%/12% subject to satisfying conditions. In
case conditions are not satisfied, applicant has to pay GST at 18%.
Leasing of motor vehicl e - in Narsing Transport In re (2019) 194 taxmann.com 86 (AAR-MP),
applicant was providing motor vehicle on lease rent to various companies under lease
agreement. It was held that this is for 'further supply' and ITC is available.
29.3-1 Leasing of motor vehicles without operator purchased and leased prior to 1-7-2017
In case of leasing of motor vehicle without operator purchased and leased prior to 1-7-2017,
the GST rate is 65% of rate as applicable on supply of the goods involving transfer of title in
goods. This exemption is valid upto 1-7-2020 only - Sr. Nos. 15(v) and 17(vi) of Notification
Nos. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017, amended on 13-10-
2017.
Sr. No. 15(v) should cover financial lease and Sr. No. 17(vi) operating lease.
The words 'without operator' have been inserted w.e.f. 1-10-2019. Earlier, such leasing could
be with or without operator.
The GST Compensation Cess will also be 65% of applicable rate on supply of the motor
vehicle involving transfer of title in motor vehicle. This exemption is valid upto 1-7-2020 only
- Notification No. 6/2017-CC (Rate) dated 13-10-2017.
29.3-2 Exemption to renting of vehicles to state transport undertaking or GTA
Services by way of giving on hire - (a) to a state transport undertaking, a motor vehicle meant
to carry more than twelve passengers; or (b) to a goods transport agency, a means of
transportation of goods or (c) Service by way of giving on hire motor vehicle for transport of
students, faculty and staff, to a person providing services of transportation of students,
faculty and staff to an educational institution providing services by way of pre-school
education and education upto higher secondary school or equivalent is exempt from GST -
 530

Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective
from 1-7-2017. [clause (c) added w.e.f. 25-1-2018].
This service falls under heading 9966.
This service falls under heading 9966 if given with operator and under heading 9973 if given
without operator. The exemption is available in both the cases, as Sr. No. 22 applies to both
9966 and 9972.
29.3-3 Time Charter of Vessels for transport of goods with or without operator
Service of Time Charter of Vessels for transport of goods with operator falls under heading
9966 w.e.f. 1-10-2019.
Service of Time Charter of Vessels for transport of goods without operator falls under
heading 9973 w.e.f. 1-10-2019.
Till 1-10-2019, headings 9966 and 9973 covered both 'with operator' and 'without operator'.
The words 'without operator' have been inserted w.e.f. 1-10-2019.
GST Rate on time charter of vessels with operator for transport of goods - The tax rate is
5% [5% IGST or 2.5% CGST plus 2.5% SGST/UTGST] w.e.f. 25-1-2018 - Sr No. 10(ii) of
Notification Nos. 11/2017-CT (Rates) and 8/2017-IT (Rates) dated 28-6-2017.
This rate continues even after 1-10-2019.
GST Rate on time charter of vessels without operator for transport of goods - The tax rate
was 5% [5% IGST or 2.5% CGST plus 2.5% SGST/UTGST] w.e.f. 25-1-2018 and upto 30-9-2019
- Sr No. 17(vii) of Notification No. 11/2017-CT (Rates) and 8/2017-IT (Rates) dated 28-6-2017
inserted w.e.f. 25-1-2018. This clause has been omitted w.e.f. 1-10-2019.
Thus, after 1-10-2019, the GST rate on time charter of vessels without operator for transport
of goods will be same as applicable on supply of like goods involving transfer of title in goods
vide Sr. No. 17(viia) of Notification Nos. 11/2017-CT (Rates) and 8/2017-IT (Rates) dated 28-
6-2017.
Hiring of tug is subject to GST @ 5% - In Ocean Sparkle Limited, In re [2020] 117
taxmann.com 915 (AAR - AP), it has been that 'Tug' let out by applicant on charter basis is
classifiable under Heading No. 9966 attracting IGST at rate of 5%. Tug is not a machinery,
equipment or tools independently but has to be considered as a vessel.
29.3-4 IGST on goods imported on lease
CBI&C circular No. 113/32/2019-GST dated 11-10-2019 has clarified as follows.
Goods imported for operating lease on temporary basis, aircrafts, aircraft engines and other
aircraft parts are exempt from IGST under Sr. No. 547A of Notification No. 50/2017-Customs
dated 30-6-2017. Bond should be executed at the time of import. IGST will be payable on
supply of service (i.e. lease rent). The goods imported under operating lease cannot be
imposed. These should be re-exported within three months from expiry of period of
operating lease. IGST is payable on goods if these conditions are not fulfilled.
Similarly, rigs and ancillary items imported for oil or gas exploration and production taken
on lease by importer after import have been exempted vide Sr. No. 557A of Notification No.
50/2017-Customs dated 30-6-2017. Similarly, all goods, vessels, ships (other than motor
vehicles) imported under the lease, for use after import are exempt from IGST under Sr. No.
 531

557B of Notification No. 50/2017-Customs dated 30-6-2017. Bond should be executed at the
time of import. IGST will be payable on supply of service (i.e. lease rent). The goods imported
under operating lease cannot be imposed. These should be re-exported within three months
from expiry of period of operating lease. IGST is payable on goods if these conditions are not
fulfilled.
29.4 Transfer of right to use goods
Transfer of the right to use any goods for any purpose (whether or not for a specified period)
for cash, deferred payment or other valuable consideration is 'supply of service' - clause 5(f)
of Schedule II of CGST Act.
This would cover operating lease i.e. giving goods on hire.
These words were used in Central Sales Tax Act and State Vat Acts also.
In Great Eastern Shipping Co. Ltd. v. State of Karnataka (2020) 78 GST 98 = 114 taxmann.com
187 (SC), it was held that Chartered Party Agreement (where vessel is exclusively made
available with master and personnel to customer) is 'transfer of right to use goods' [In this
case, tug (towing vessel) was given to Port Trust with employees for exclusive use of Port
Trust].
Hire without transfer of right to use goods - Hire without transfer of right to use goods was
'supply of tangible goods for use' as defined in service tax law and service tax was payable.
Now, GST will apply.
In CST v. Adani Gas Ltd. (2020) 118 taxmann.com 567 (SC), assessee had installed SKID
equipment at customer's place to measure quantity of gas supplied to customer. The
ownership of equipment continued with assessee but 'gas connection charges' were
recovered from customer. It was held that use of goods need not be accompanied by control
and possession. Service tax (now GST) will apply.
29.4-1 'Transfer' implies exclusive possession to transferee
What is taxable is 'transfer of right to use' and not 'right to use'.
In Bharat Sanchar Nigam Ltd. v. UOI (2006) 3 SCC 1 = 152 Taxman 135 = 3 STT 245 = 146 STC
91 = 3 VST 95 = 282 ITR 273 = AIR 2006 SC 1383 = 2 STR 161 (SC 3 member bench), in
concurring judgment (para 97 of SCC, para 87 of STT and Taxman, para 98 of STC), it was
observed, 'To constitute a transaction for the transfer of the right to use the goods, the
transaction must have following attributes - (a) there must be goods available for delivery
(b) there must be a consensus ad idem as to the identity of goods (c) the transferee should
have a legal right to use the goods - consequently all legal consequences of such use
including any permissions or licences required therefor should be available to transferee (d)
for the period during which the transferee has such legal right, it has to be the exclusion to
the transferor - this is the necessary concomitant of the plain language of the statute viz. A
'transfer of the right to use' and not merely a licence to use the goods.
In Great Eastern Shipping Co. Ltd. v. State of Karnataka (2020) 78 GST 98 = 114 taxmann.com
187 (SC), it was held that Chartered Party Agreement (where vessel is exclusively made
available with master and personnel to customer) is 'transfer of right to use goods' [In this
case, tug (towing vessel) was given to Port Trust with employees for exclusive use of Port
Trust].
 532

The transaction is taxable only when exclusive possession of goods and right to enjoy them
freely for contracted period is given. If owner retains effective control with him, there is no
'transfer of right to use goods'.
29.4-2 Meaning of 'transfer of right' to use goods
The word 'transfer' as used in 'Transfer of Property', 'Transfer of Shares' indicates that after
such 'transfer', the transferor loses possession of or right over the goods transferred (may
be temporarily or permanently) and transferor gets exclusive rights over the article or thing
transferred.
Mere transfer of right to use for consideration is sufficient. Transfer of goods itself is not
necessary - Aggarwal Brothers v. State of Haryana (1999) 9 SCC 182 = 113 STC 317 (SC) [In
this case, appellants used to supply shuttering to builders and contractors or hire] - - quoted
in Sri Jay Kumar Bardia v. State of Assam (2007) 5 VST 210 (Gau HC), also quoted with
approval in State of Orissa v. Asiatic Gases (2007) 5 SCC 766 = 7 VST 531 (SC).
In 20th Century Finance Corporation Ltd. v. State of Maharashtra 2000 AIR SCW 2514 =
(2000) 6 SCC 12 = 119 STC 182 = AIR 2000 SC 2436 (SC 5 member bench - 3 v. 2 order), it was
held that if situs of sale has not been fixed or covered by any legal fiction, situs of sale would
be where the property in goods passes, namely where the contract is entered into. [Thus,
place where right to use goods is transferred (i.e. where agreement to transfer right is
executed) is relevant for purpose of taxability, and not the place where goods are
transferred] - followed in Sandan Vikas (India) Ltd. v. State of Haryana (2013) 59 VST 160
(P&H HC DB) * Sandan Vikas (India) Ltd. v. State of Haryana (2013) 59 VST 165 (P&H HC DB).
'Transfer' is different from 'allowed to use' or 'permitted to use' or 'right to access' -
'Transfer' implies some exclusiveness to the transferee. For example, if a person boards a
bus, can it be said that the bus owner has 'transferred' right to use bus to the passenger?
The bus owner has only 'allowed' or 'permits' or 'allows access to' the use of bus to the
passenger on non-exclusive basis.
Regarding taxability of 'Hire of goods', it has been consistently held that hire is taxable only
when exclusive possession is transferred to the hirer, as per case law below.
29.4-3 GST is payable whether possession or control is transferred or not transferred
GST is payable on hire service or operating lease, whether or not possession and control is
transferred. Hence, earlier case law under CST Act and State Vat Act is no more relevant.
Highlights of some earlier case law are given below just for academic purposes.
Sometimes, goods [e.g. furniture, utensils, machinery, mattresses etc.] are given on hire.
These are returned after prescribed period and hire charges are paid. This is 'transfer of right
to use for consideration'.
29.5 Leasing of aircraft for operating scheduled air transport service
Leasing or renting of aircraft by operator for operating scheduled air transport or air cargo
services is subject to GST.
GST Rate w.e.f. 1-10-2019 - The GST rate w.e.f. 1-10-2019 for leasing or renting of aircraft
without operator will be same as applicable to supply of like goods involving transfer of title
 533

in goods - Sr No. 17(viia) of Notification Nos. 11/2017-CT (Rate) and 8/2017-IT (Rate) dated
28-6-2017.
This service will fall under heading 9973.
In case of rental services of aircraft with operator, the service would fall under heading 9966
and GST rate will be 18% - Sr No. 10(iii) of Notification Nos. 11/2017-CT (Rate) and 8/2017-
IT (Rate) dated 28-6-2017.
GST Rate applicable during 25-1-2018 to 30-9-2019 - The GST rate was 5% (2.5% CGST and
2.5% SGST) or 5% IGST GST during 25-1-2018 to 30-9-2019. ITC on services was available but
not on goods. - Sr Nos. 15(iv) and 17(v) of Notification Nos. 11/2017-CT (Rates) and 8/2017-
IT (Rates) dated 28-6-2017 as existing upto 30-9-2019. These entries have been omitted
w.e.f. 1-10-2019.
This covered both financial lease and operating lease and lease or renting with operator or
without operator.
29.6 Permission by Government to operate telecom tower or use radio frequency
spectrum on receiving license fee
Service of permission to operate telecom towers is covered under heading 9971 or 9991.
Licensing services for right to use natural resources (other than minerals) including
telecommunication spectrum fall under service code 997337.
Permission by Government to operate telecom tower or use radio frequency spectrum is
exempt [This exemption is required, as otherwise, the telecom companies would be required
to pay GST under reverse charge].
Services provided by the Central Government, State Government, Union territory or local
authority by way of allowing a business entity to operate as a telecom service provider or
use radio frequency spectrum during the period prior to the 1st April, 2016, on payment of
licence fee or spectrum user charges, as the case may be - Notification No. 12/2017-CT (Rate)
and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
In Pioneer Partners, In re [2018] 97 taxmann.com 511 (AAR - Haryana), Applicant was
engaged in business of mining of Red Boulder, Soft Boulder and GSB in State of Haryana. It
was held that services provided by State of Haryana for right to use minerals including its
exploration and evaluation, is included in group 99733 under heading 9973. The services
attracts same rate of tax as on supply of like goods involving transfer of title in goods.
Recipient of such services, i.e., applicant, is liable to discharge tax liability on such services
provided to it by Government on reverse charge basis.
29.7 Leasing by IRFC to Indian Railways
Services of leasing of assets (rolling stock assets including wagons, coaches, locos) by the
Indian Railways Finance Corporation to Indian Railways is exempt.
The service falls under heading 9973 and group 99731.
29.7-1 Leasing of Communication Satellite Transponders
Communication Satellite Transponders are appropriately classifiable under heading 8803 90
00 and any leasing of such transponders would be covered under Entry No. 17 of Notification
No. 11/2017-Central Tax (Rate), dated 28-6-2017. GST is taxable to GST @ 5% (5% IGST or
 534

2.5% CGST plus 2.5% SGST) - Antrix Corporation Ltd., In re [2019] 109 taxmann.com 374 (AAR
- Karnataka) - same view in New Space India Ltd. In re (2020) 81 GST 491 = 116 taxmann.com
391 (AAR-Karn).
Now, the service is exempt from GST w.e.f. 16-10-2020.
29.8 Leasing of mines of petroleum crude or natural gas
Licensing services for right to use minerals including its exploration and evaluation fall under
service code 997337.
Leasing of mines of petroleum crude or natural gas - Service of leasing of mines of
petroleum crude or natural gas is a taxable service. The partial exemption is available as
explained below.
The intra-State supply and inter-State of services by way of grant of license or lease to
explore or mine petroleum crude or natural gas or both is exempt from so much of the CGST
or IGST as is leviable on the consideration paid to the Central Government in the form of
Central Government's share of profit petroleum as defined in the contract entered into by
the Central Government in this behalf - Notification No. 5/2017-CT (Rate) and No. 5/2017-IT
(Rate) both dated 25-1-2018.
Since the exemption is to the extent of Centre's share of profits, it is possible that State
Governments may not grant parallel exemption. Hence, relevant notification of State
Government will have to be seen.
29.9 Royalty for mining
The service falls under 997337 and GST rate is 18% w.e.f. 1-1-2019.
Earlier, the GST rate was same, as applicable to goods which were mined.
In Aravali Polyart (P.) Ltd., In re [2019] 103 taxmann.com 382 (AAR- Rajasthan), applicant
was engaged in business of mining of soapstone and dolomite in the State of Rajasthan and
royalty on given minerals on behalf of the State Government was being collected by ERCC
Contractor from the applicant in relation to mining lease. It was held that the activity
undertaken by the applicant is classifiable under Heading 9973 (Leasing or rental services,
with or without operator), as mentioned in the annexure at Serial No. 257 (Licensing services
for the right to use minerals including its exploration and evaluation) sub-heading 997337 of
Notification No. 11/2017-CT (Rate), dated 28-6-2017. The applicant is liable to discharge tax
liability under reverse charge mechanism. It was also held that the activity undertaken by
the applicant attracts 18% GST (9% CGST + 9% SGST). - view confirmed in Aravali Polyart (P.)
Ltd., In re [2019] 108 taxmann.com 373 (AAAR- Rajasthan).
In Wolkem Industries Ltd. In re (2019) 74 GST 154 = 104 taxmann.com 418 (AAR - Rajasthan),
it has been held that GST is payable on royalty/fees paid to obtain license for mining and
exploration of natural recourses @ 18%. The service code is 997337. Tax is payable under
reverse charge.- same view in Sainik Mining & Allied Services Ltd., In re [2021] 124
taxmann.com 352 (AAR - Haryana).
Royalty paid in respect of Mining Lease granted to applicant by State Government is a part
of consideration payable for licensing services for right to use minerals including exploration
and evaluation falling under Heading No. 9973 which is taxable at rate applicable on supply
 535

of like goods involving transfer of title in goods upto 31-12-2018 and taxable at 9% CGST and
9% SGST from 1-1-2019 onwards under residual entries of Sl. No. 17 of Notification No.
11/2017-Central Tax, dated 28-6-2017 - NMDC Ltd. In re [2021] 124 taxmann.com 304 (AAR
- Karnataka).
Royalty paid to State Govt. for extraction of sand, gravels, stone boulders etc., from river
bed attracts 18% GST w.e.f. 1-1-2019 in residual entry 17(viii). GST is payable under RCM
(reverse charge)- Uttarakhand Forest Development Corporation, In re [2020] 82 GST 436 =
117 taxmann.com 524 (AAR- Uttarakhand).
Royalty paid to Govt. for mining of stones is classified under heading 9973; 18% GST is
payable under RCM - Giriraj Quarry Works, In re [2020] 119 taxmann.com 267 (AAR -
Gujarat).
In JSW Steel Ltd. In re [2020] 79 GST 270 = 110 taxmann.com 286 (AAR-Karn), the applicant
was required to pay royalty to Government for mining of iron ore. In addition, he was
required to District Mineral Foundation Trust and National Mineral Exploration Trust. It was
held that GST is payable under reverse charge @ 18% on these amounts also - same view in
NMDC Ltd., In re [2019] 73 GST 834 = 105 taxmann.com 266 (AAR - Chhattisgarh) * NMDC
Ltd. In re [2020] 79 GST 286 = 110 taxmann.com 284 (AAR-Karn) * Naren Rocks and Mines P
Ltd. In re [2020] 79 GST 312 = 110 taxmann.com 280 (AAR-Karn).
Service of right to use minerals including its exploration and evaluation falls under heading
997337. The GST rate is 18% w.e.f. 1-1-2019 - Kuldeepn Singh Butola In re (2020) 81 GST 399
= 116 taxmann.com 159 (AAR-Uttarakhand).
Royalty paid to Government for quarrying minerals (Blacktrap in this case) is taxable @ 18%
under sub-heading 997337, under RCM. Even if 'blacktrap' material attracts 5% GST rate- Raj
Quarry Works In re (2020) 80 GST 469 = 117 taxmann.com 423 (AAR - Guj).
Licensing services for right to use minerals (iron ore in this case) including its exploration and
evaluation received by applicant is taxable at rate of 18 per cent [9 per cent CGST and 9 per
cent SGST] under heading 997337 w.e.f. 1-1-2019 - Penguin Trading and Agencies Ltd., In re
[2019] 111 taxmann.com 138 = (2020) 77 GST 654 (AAAR - Odisha).
In Vinayak Stone Crusher, In re [2019] 107 taxmann.com 273 (AAR- RAJASTHAN), it has been
held that Licensing services for right to use minerals including its exploration and evaluation
provided by State of Rajasthan to applicant for which royalty is being paid is classifiable
under 997337 and rate of GST on said service is 18%.
Licensing services for right to use minerals including its exploration and evaluation received
by applicant is taxable at rate of 18 per cent [9 per cent CGST and 9 per cent SGST] under
heading 997337 - Penguin Trading and Agencies Ltd., In re [2019] 111 taxmann.com 138
(AAAR - Odisha).
In a contrary decision, in NMDC Ltd., In re [2019] 73 GST 834 = 105 taxmann.com 266 (AAR -
Chhattisgarh), it has been held that royalty paid in respect of mining lease is classifiable
under Heading No. 997337 attracting GST at same rate as applicable for supply of like goods
involving transfer of title in goods under reverse charge basis. It was also held that
contributions made to District Mineral Foundation and National Mineral Exploration Trust
are liable to GST under reverse charge basis - same view in NMDC Ltd. In re (2019) 110
 536

taxmann.com 473 (AAR-MP). [However, there is change in provision w.e.f. 1-1-2019 and
hence GST rate should be 18% w.e.f. 1-1-2019].
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Software and IPR Services

30.1 Leasing of software and transfer of IPR is leasing of goods
Temporary or permanent transfer of IPR falls in service classification section 7 and heading
9973, which covers renting and leasing services.
The provisions relating to software and IPR are confusing and conflicting.
Software in physical form is 'goods' and has classification in Customs Tariff and GST Tariff
heading 8523 80 20.
Software service in non-physical form comes under service group 9973, Licensing services
for right to use computer software and data bases falls under service tariff 997331.
IPR is also 'goods' but license to use IPR is 'service'.
30.2 Intellectual property related services
Temporary transfer or permitting the use or enjoyment of any Intellectual Property Right
(IPR) is 'supply of service' - para 5(c) of Schedule II of CGST Act.
[It was a 'declared service' as per section 66E(c) of Finance Act, 1994 relating to service tax].
Thus, both 'temporary transfer' or 'permitting use or enjoyment' of IPR are subject to GST.
Permanent transfer of IPR is 'supply of goods' as IPR is 'property'.
Patents, designs, copyright, trade marks etc. are 'IPR'.
30.2-1 Meaning of intellectual property
Interestingly, the term 'Intellectual Property Right' (IPR) has not been defined in GST Law.
MF(DR) circular No. B2/8/2004-TRU dated 10-9-2004 states as follows - Intellectual property
emerges from application of intellect, which may be in the form of an invention, design,
product, process, technology, book, goodwill etc. In India, legislations are made in respect
of certain Intellectual Property Rights (i.e. IPRs) such as patents, copyrights, trademarks and
designs.
Permission to allow brand name - In 'brand licensing arrangement', the brand owner merely
provides technical services and grants permission for use of the brand name. Property, risk
and reward of product manufactured rests with the licensee/manufacturer and not the
brand name owner. In such case, the Brand Owner is providing 'Intellectual property Service'
to licensee/manufacturer and the brand owner will be liable to pay service tax (now GST).-
CBE&C letter No. 249/1/2006-CX.4 dated 27-10-2008 [20 STT 16 (St)] [clarification in respect
of alcoholic liquor, but principle applies in all cases].
In Hero Honda Motors v. CST (2012) 35 STT 417 = 21 taxmann.com 117 = 54 VST 300
(CESTAT), assessee had given permission to oil companies to use his trade mark on oils,
lubricants and greases manufactured by the oil companies. It was held that this is IPR service.
30.2-2 Transfer of IPR of goods
Temporary or permanent transfer or permitting use or enjoyment of Intellectual Property
Right (IPR) in respect of goods (other than software) falls under service heading 9973.
GST rate of IPR (Other than software) - Temporary transfer of IPR (other than software) is
service. The GST rate is 12% (6% CGST and 6% SGST/UTGST) or 12% IGST.
 538

Permanent transfer of IPR (other than software) is 'goods' and GST rate is 12% [6% CGST plus
6% SGST/UTGST] or 12% IGST. The HSN classification is 'Any Chapter'- Sr. No. 243 of Schedule
II of Notification No.1/2017-CT (Rate) and 1/2017-IT (Rate) both dated 28-6-2017 inserted
w.e.f. 15-11-2017.
30.2-3 IPR can be 'goods'
Any movable property is 'goods'. Thus, IPR can be 'goods'.
Sale of Copyright - In Bharat Sanchar Nigam Ltd. v. UOI (2006) 3 SCC 1 = 152 Taxman 135 =
3 STT 245 = 145 STC 91 = 282 ITR 273 = AIR 2006 SC 1383 = 3 VST 95 = 2 STR 161 (SC 3
member bench), it was also observed that incorporeal right of copyright could be regarded
as 'goods'. In CIT v. Sun TV Ltd. (2007) 161 Taxman 351 (Del HC DB), it has been held that
right to telecast TV program in foreign countries is 'sale of goods'.
Trade mark - Trade mark is intangible goods - SPS Jayam & Co. v. Registrar, TNTST (2004)
137 STC 117 (Mad HC DB) * Malabar Gold v. CTO (2013) 38 STT 606 = 30 taxmann.com 606
= 58 VST 191 (Ker HC).
In CST v. Duke and Sons (1999) 112 STC 370 (Bom HC DB), it was held that transfer of
intangible property like trade mark by mere permission in writing is 'transfer of right to use
goods' and is taxable. Trade mark itself or right therein need not be transferred.
Technical knowhow is not IPR service - Providing technical knowhow or technical assistance
is not IPR service - Dharampal Satyapal Sons v. CST (2017) 62 GST 71 = 83 taxmann.com 156
(CESTAT).
30.2-4 Reverse charge in respect of Copyright services
Licensing services for right to use intellectual property falls under group 99733.
Services of authors, composers and other artists (except performing artists) are in tariff
999631. This will not include copyright services as these IPR services are specifically covered
in heading 99733.
GST Rate - IGST @ 12% or CGST 6% plus SGST/UTGST - 6% - Sr No. 17(i) of Notification Nos.
11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017.
Reverse charge in case of services of music composer, photographer or Artist - In case of
supply of services by a music composer, photographer, artist or the like by way of transfer
or permitting the use or enjoyment of a copyright covered under section 13(1)(a) of the
Copyright Act, 1957 relating to original dramatic, musical or artistic works to a music
company, producer or the like, Music company, producer or the like, located in the taxable
territory is liable to pay GST under reverse - Sr. No. 9 of Notification Nos. 13/2017-CT (Rates)
and 10/2017-IT (Rates) both dated 28-6-2017, as amended w.e.f. 1-10-2019.
Till 1-10-2019, this entry applied to authors also. However, now, w.e.f. 1-10-2019, he has
been given option to pay GST under forward charge as explained at Sr No. 9A below [entry
inserted w.e.f. 1-10-2019 - word 'author' was omitted from Sr No. 9 w.e.f. 1-10-2019]
Reverse charge in case of services of author w.e.f. 1-10-2019 - In case of supply of services
by an author by way of transfer or permitting the use or enjoyment of a copyright covered
under section 13(1)(a) of the Copyright Act, 1957 relating to original literary works to a
publisher, the Publisher located in the taxable territory is liable to pay GST under reverse
 539

charge - Sr No. 9A of Notification Nos. 13/2017-CT (Rates) and 10/2017-IT (Rates) both dated
28-6-2017, as inserted w.e.f. 1-10-2019.
However, the author can opt for payment of GST under forward charge. The Author has to
make declaration before 31-10-2019 and make required declaration in tax invoice issued by
him [entry inserted w.e.f. 1-10-2019]. Till 1-10-2019, there was no such option and reverse
charge was applicable in all cases.
[The option may be useful to persons who provide services other than copyright services
and have substantial input tax credit, which might otherwise go waste].
Reverse charge in case of services of author, music composer, photographer, artist upto 1-
10-2019 - As per Sr No. 9 of Notification Nos. 13/2017-CT (Rates) and 10/2017-IT (Rates)
both dated 28-6-2017 (as existing during 1-7-2017 to 1-10-2019), GST is payable under
reverse charge by recipient of service. The provisions were as follows - In case of supply of
services by an author, music composer, photographer, artist or the like, by way of transfer
or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section
(1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or
artistic works to a publisher, music company, producer or the like, the publisher, music
company, producer or the like, located in the taxable territory is liable to pay GST [separate
provisions have been made for services by author w.e.f. 1-10-2019].
30.2-5 Copyright service of authors
Author has copyright in the work produced by him. He gives this right to others (usually
publisher of book) temporarily or permanently, for which he gets remuneration, which is
normally termed as 'royalty'.
Copyright is one of Intellectual Property Rights (IPR). Other important IPRs are designs,
patents and trade marks.
As per Black's Law Dictionary, Copyright is the right of literary property as recognised and
sanctioned by positive law. It is an intangible, incorporeal right granted by statute to author
or originator of certain literary or artistic productions, whereby he is invested for a specified
period, with the sole and exclusive privilege or multiplying copies of the same and publishing
and selling them.
Copyright is an exclusive right to reproduce or authorise another to reproduce artistic,
dramatic, literary or musical works by Copyright Act. It also extends to sound broadcasting.
Cinematograph films and television broadcasts including cable television. [Oxford Concise
Dictionary of Law, 2nd Edition].
Copyrights covered under section 13(1) of the Copyright Act - Section 13(1) of Copyright Act
provides that copyright subsists in (a) original literary, dramatic, musical and artistic work
(b) cinematograph films and (c) sound recording.
Work - The term 'work' means (i) a literary, dramatic, musical or artistic work (ii) a
cinematograph film (iii) sound recording [section 2(y) of Copyright Act].
Literary - This word is not defined in Copyright Act. As per concise Oxford Dictionary,
'literary' means 'of, constituting or occupied with books or literature or literature or written
composition, especially of the kind value for quality or form'.
 540

Literary work - The term 'literary work' has not been exhaustively defined in the Copyright
Act. As per section 2(o) of Copyright Act, the term 'Literary Work' includes computer
programmes, tables and compilations including computer databases. Thus, the definition of
'literary work' is inclusive and not exhaustive. However, it is well settled that the term
'literary work' is very broad.
Question papers, instructions regarding evaluation and solutions to questions are 'literary
work' and subject to copyright - Institute of Chartered Accountants of India v. Shaunak H
Satya (2011) 8 SCC 781 = 13 taxmann.com 28 = 109 SCL 200 (SC).
Head-notes in law journal have copyright as it requires skill and judgment in greater
measure. However, the judgment of Court is in public domain - Eastern Book Co. v. D B
Modak AIR 2008 SC 809.
In Sham Lal Paharia v. Gaya Prasad - AIR 1971 All HC 182, it was held that a compilation
derived from common source falls within ambit of literary work, if he uses his own labour
and exertion.
In Hafiz v. Abdurahiman 1999(3) KLT 384 (Ker HC), it was held that translating a work (Quran
in this case), spending brain, labour and skill amounts to literary work and the translating
author will acquire right over the translation though not over the original work.
Literary work - Something intended to afford either information and instruction, or pleasure,
in the form of literary enjoyment - Law Lexicon, P Ramanatha Aiyer - second edition.
Section 80QQB of Income Tax Act which provides for deduction in respect of royalty to
authors specifically excludes guides, magazines, newspapers, text books for schools etc. This
itself means that there is copyright in guides, magazines, newspapers, text books for schools
etc. and but for the specific exclusion, deduction under section 80QQB of Income Tax Act
would have been available [If there was no copyright in guides, magazines, newspaper,
textbooks etc. there was no need to exclude them].
In the International Copyrights Act, 1886, 'unless the context otherwise requires, 'literary
and artistic work' means every book, print, lithograph, article of sculpture, dramatic piece,
musical composition, painting, drawing, photograph and other work of art to which the
Copyright Acts or the International copyright Acts, as the case require, extend - Law Lexicon,
P Ramanatha Aiyer - second edition [It seems the Act referred to is UK Act. It is certainly not
Indian Act].
Thus, the inevitable conclusion is that 'literary work' does not mean only novels, stories and
dramas. It includes almost any book written by author.
Work of author is 'literary work' - On basis of aforesaid discussions, it can be safely said that
any work of author in the form of book, article in magazine etc. on any topic is 'literary work'.
The term 'literary work' covers not only novel, drama, story etc. but also articles, law book,
text book etc. on any subject.
30.2-6 Cartoon characters is artistic work
Cartoon characters is 'artistic work' and has copyright under section 2(c) of the Copyright
Act. Licensing of such cartoons is not subject to service tax - ESPN Software India P Ltd. v.
CST (2014) 48 GST 784 = 51 taxmann.com 218 = 70 VST 205 (CESTAT).
 541

Logo has copyright, it is not a trade mark? - In T T Krishnamachari v. CST (2018) 67 GST 221
= 92 taxmann.com 346 (CESTAT), it was held that company logo is like cartoon character and
has copyright. It is not a trade mark [seems border line case indeed].
30.2-7 Distinction between 'copyright' and 'copyrighted article'
There is distinction between 'copyright' and 'sale of copyrighted article' - CIT v. Vinzas
Solutions (2017) 245 Taxman 280 = 77 taxmann.com 279 (Mad HC DB).
30.3 Technical know-how and license fees for use of trade mark
Licensing for the right to use research and development products falls under service code
997335.
Licensing services for the right to use trademark and franchises falls under service code
997336.
Temporary transfer or permitting the use or enjoyment of any intellectual property right is
'supply of service' as per item 5(c) of Schedule II of CGST Act.
These are subject to tax @ 18% IGST or 9% CGST plus 9% SGST/UTGST.
30.3-1 Royalty and license fee on imported goods
While valuing imported goods under section 14 of Customs Act, additions are required to be
made as per Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
Rule 10(1)(c) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007
provides that royalties and license fees related to imported goods that the buyer is required
to pay, directly or indirectly, as a condition of sale of the goods being valued, to the extent
that such royalties and fees are not included in the price actually paid or payable, are
required to be added in assessable value.
The royalty, license fee or other payment for process is to be added even if the goods may
be subjected to such process after importation of the goods - Explanation to rule 10(1)].
There was no parallel explanation in earlier rule 9(1).
Such royalty and license fees payable to foreign party is 'import of service' and IGST will be
payable.
This will be double taxation.
Hence, Notification No. 6/2018-IT (Rate) dated 25-1-2018 provides that exemption will be
granted to IGST to the extent of aggregate of duties of customs leviable under section 3(7)
of the Customs Tariff Act on the consideration declared under section 14(1) of Customs Act
towards royalty and license fees included in the transaction value as specified in Rule
10(1)(c) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
As per section 3(7) of Customs Tariff Act (introduced w.e.f. 1-7-2017), any article being
imported into India shall be liable to pay Integrated Goods and Services Tax (IGST) at such
rate as is leviable under section 5 of IGST Act, 2017, on a like article on its supply in India, on
the value of imported article on value as determined under section 3(8) of Customs Tariff
Act.
Thus, if IGST was paid on royalty and license fees as duty of customs while importing the
goods, further IGST will not be payable.
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30.4 Franchise Service

Licensing services for the right to use trademark and franchises falls under service code
997336.
"Franchise" as an agreement by which the franchisor grants representational rights to
franchisee to sell or manufacture goods or provide service or undertake any process
identified with the franchisor, by any symbol such as a trademark, service mark, trade name
or logo - (para 23.2 of MF(DR) circular No. B1/6/2005-TRU dated 27-7-2005).
License Production Agreements where principal allows production of goods bearing his
brand name by another person would be covered under the purview of service tax under
this category. Similarly, if rights are granted for rendering services identified with the
principal on his behalf, such services by the principal to the service recipient would be
taxable. Details of franchisees may be obtained from Yellow Pages, website
http://franchiseindia.com and other advertisements. Field formations may undertake a
survey and suitably advise the potential taxpayers' (para 23.3 of MF(DR) circular No.
B1/6/2005-TRU dated 27-7-2005).
Some well known examples of franchise are - Coca-Cola, Pepsi, NIIT, Aptech, McDonald etc.
In Nirula Corner House v. CST (2009) 19 STT 373 (CESTAT), assessee entered into an
agreement with 'S' to allow it to run restaurant in brand name 'Nirulas'. Assessee was
required to manage, sale and supervise preparation of food and operations of restaurant. If
the required conditions were not fulfilled, the agreement could be unilaterally revoked. It
was held that such type of services cannot be considered as relating to consultant's service.
Classification of service as franchise service appears to be more appropriate.
In CMC Ltd. v. CCE (2011) 33 STT 498 = 15 taxmann.com 359 (CESTAT), assessee entered into
franchising agreement with various subscribers to lend its modular part time semester wise
course leading to diploma in advance software technology. 25% of course fees paid by
student was deducted by assessee and balance was paid to franchisee. It was held that this
is franchising service.
In Delhi Public School Society v. CST (2014) 43 GST 421 = 41 taxmann.com 377 = 75 VST 350
(CESTAT), assessee had permitted various persons to use its name, motto, logo etc. for
establishment of schools against payment of consideration of a fixed amount. Assessee was
to provide its managerial and business expertise to other party. Entire capital, risk, liabilities,
profits/losses were to be borne by other party. It was held that this is franchise service. It is
not IPR service as there was continuing involvement of assessee to provide
managerial/business expertise. In this case, it was also held that if there is no sharing of
risk/profits/losses and entire expenditure/risk/benefits are borne/enjoyed by only one
party, it is not a joint venture.
Licensing to produce or sell under brand name taxable - The service of licence to produce
goods or provide service in name of franchisor will be taxable w.e.f. 16-6-2005 [Earlier, in
view of earlier definition, it was started vide CBE&C circular No. 59/8/2003 dated 20-6-2003,
that if a principal manufacturer merely allows production of goods bearing his brand name
to another under 'License Production Agreement', it is not a 'franchise agreement', and the
license fee received is not taxable. This clarification may not be valid w.e.f. 16-6-2005].
 543

Vocational training provided through franchisee - If vocational training is provided through

franchisee, the service will be taxable under 'franchisee service' - Jetking Information Ltd. v.
CCE (2007) 6 STT 444 (CESTAT) - same view in CMC Ltd. v. CCE (2011) 33 STT 498 = 15
taxmann.com 359 (CESTAT).
Courier services through franchisee - If courier service is provided through franchise, the
franchisee will not be eligible for exemption available to small service providers as he is
providing service under brand name of other.
The franchisor courier will be liable for service tax on amounts received from the franchisee
- Speed and Safe Courier Services v. CCE (2008) 13 STT 257 (CESTAT) [It seems the franchisor
was providing both courier as well as franchise services, but agreement indicated that it is a
franchise agreement].
Business promotion expenses paid to parent company is not royalty - In Dy. DIT (IT) v.
Marriot International Licensing Co. PV (2013) 35 taxmann.com 400 (ITAT), the Assessee was
a foreign company. It had franchise agreement with one Indian company to establish and
operate hotels in India under the name 'Marriot'. The Indian company was required to pay
1.5% of gross revenue to foreign company for 'International Marketing Activities'. It was held
that this is not 'royalty'. [However, Indian company will be required to pay service tax under
reverse charge mechanism].
Franchise service is not transfer of right to use goods and hence not deemed sale - In
Malabar Gold v. CTO (2013) 40 STT 319 = 35 taxmann.com 569 = 63 VST 497 (Ker HC DB), it
was held that franchise service is not subject to State Vat. It is not transfer of right to use
trade mark [reversing decision in Malabar Gold v. CTO (2013) 38 STT 606 = 30 taxmann.com
606 = 58 VST 191 (Ker HC), where it was held that Vat is payable on franchisee services, even
if service tax was paid] - same view in McDonalds India v. CTT (2017) 102 VST 482 (Del HC
DB).
In Mahyco Monsanto Biotech v. UOI (2016) 58 GST 339 = 74 taxmann.com 92 = 95 VST 499
(Bom HC DB), it has been held that franchisee right to operate restaurant under 'Subway'
mark in competition with other franchisees is not 'transfer of right to use goods'. Hence,
service tax is payable, not Vat. However, transfer of seeds containing proprietary technology
for further development of seeds is 'transfer of right to use goods'. Hence, service tax is
payable.
30.5 Transfer of IPR of software
Temporary or permanent transfer or permitting use or enjoyment of Intellectual Property
Right (IPR) in respect of software falls under service group 99733.
GST rate of IPR of software - Temporary or permanent transfer of IPR of software or
permitting the use or enjoyment of IPR in respect of Information Technology Software is
service. The GST rate is 18% (9% CGST and 9% SGST/UTGST) or 18% IGST - Sr No. 17(ii) of
Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017.
GST rate of supply of software in physical form - Permanent transfer of IPR of software is
'goods' and GST rate is 18% [9% CGST plus 9% SGST/UTGST] or 18% IGST. The HSN
classification is 'Any Chapter'- Sr No. 452P of Schedule III of Notification No.1/2017-CT (Rate)
 544

and 1/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 15-11-2017. This rate should
apply to supply of software in physical form.
Information Technology Software - 'Information technology software' means any
representation instructions, data, sound or image, including source code and object code,
recorded in a machine readable form, and capable of being manipulated or providing
interactivity to a user, by means of a computer or an automatic data processing machine or
any other device or equipment - para 4 explanation (v) of Notification No. 11/2017-CT (Rate)
and No. 8/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
30.5-1 Development of software is service
Development, design, programming, customisation, adaptation, upgradation,
enhancement, implementation of information technology software is 'supply of service' -
para 5(d) of Schedule II of CGST Act.
Software is the set of instructions that allows physical hardware to function and perform
computations in a particular manner, be in word processor, web browser or the computer's
operating system. These expressions are in contrast with the hardware which are the
physical components of a computer system - LML Ltd. v. CC (2010) 258 ELT 321 (SC).
30.5-2 Software in physical form is goods
Though the CGST Act defines development of software as 'service', software in physical form
(branded as well as tailor made), 'Information Technology Software' is 'goods' in Customs
Tariff Act under heading 8523 80 20.
The GST rate (as goods) is same as GST rate of development of software or licensing of
software service. It is 18% (9% CGST and 9% CGST) or 18% CGST.
Software in physical form should still be held as 'goods' under GST.
In Tata Consultancy Services v. State of Andhra Pradesh (2004) 141 Taxman 132 = AIR 2005
SC 371 = 2004 AIR SCW 6583 = 271 ITR 401 = (2005) 1 SCC 308 = 137 STC 620 = 178 ELT 22
(SC 5 member Constitution Bench), it has been held that canned software (i.e. computer
software packages sold off the shelf) like Oracle, Lotus, Master-Hey etc. are 'goods'. The
copyright in the program may remain with originator of programme, but the moment copies
are made and marketed, they become 'goods'.
Earlier also, in Associated Cement Companies Ltd. v. CC 2001(4) SCC 593 = 2001 AIR SCW 559
= 128 ELT 21 = AIR 2001 SC 862 = 124 STC 59 (SC 3 member bench), it was held that computer
software is 'goods' even if it is copyrightable as intellectual property.
In State Bank of India v. Municipal Corporation 1997(3) Mh LJ 718 = AIR 1997 Bom 220, it
was held that 'computer software' is 'appliance' of computer. It was held that it is 'goods'
and octroi can be levied on full value and not on only value of empty floppy. [In this case, it
was held that octroi cannot be levied on license fee for duplicating the software for
distribution outside the corporation limits].
In Inventa Software India P Ltd. v. ACCT (2008) 17 VST 362 (Karn HC DB), it has been held
that application software development in financial accounting, inventory control, sales
analysis, purchase order system and other professional services is nothing but software
development programme. It is 'goods'.
 545

Customised and non-customised software both are goods - Infosys Technologies Ltd. v.
Special Commissioner (2008) 17 VST 256 = 233 ELT 56 (Mad HC).
Supply of software off the shelf, which is not designed and developed specific to any
customer and sold without any customisation, qualifies as 'supply of computer software as
goods' Classifiable under heading No. 8523. Benefits of Notification No. 45/2017-CT (Rate)
and Notification No. 47/2017-IT (Rate), both dated 14-11-2017 are applicable to supplies
made if conditions specified in notification are satisfied - Solize India Technologies (P.) Ltd.,
In re [2020] 118 taxmann.com 98 (AAR - Karnataka).
30.5-3 Place of Supply of Service of development of software and services on software
Software is intangible. It does not have unique existence and can exist on different servers
at any point of time. Hence, in case of service of development of software (development,
design and programming of information technology software) and services on software
(testing, debugging, modification etc. i.e. customisation, adaptation, upgradation,
enhancement, implementation of information technology software), the place of supply is
the location of recipient of service - CBIC circular No. 209/1/2018-ST dated 4-5-2018.
30.5-4 Software services relating to Electronics Semi-Conductor and Design Manufacturing
(ESDM) industry - Place of supply
Many companies in India are engaged in process of developing software and designing
integrated circuits for customers located out of India. These are part of Electronics Semi-
Conductor and Design Manufacturing (ESDM) industry. The Indian company digitally
integrates various IP blocks (Intellectual Property Blocks). Sample prototype hardware is
prepared by customer and sent to Indian developer and design companies to test and
validate the software. This is composite supply of software development and design for
integrated circuits electronically. Testing of software on sample prototype hardware is
incidental to supply. This testing is only ancillary activity. Hence, This is no 'performance on
goods supplied by recipient'. Hence, section 13(3)(a) of IGST Act is not applicable. The place
of supply is location of recipient of service at a place out of India as per section 13(2) of IGST
Act and exempt from GST - CBI&C circular No. 118/37/2019-GST dated 11-10-2019.
30.5-5 Place of supply in case of Information Technology enabled Services (ITeS)
CBI&C, vide circular No. 107/26/2019-GST dated 18-7-2019, had clarified issues relating to
ITeS services. This circular has been withdrawn ab initio vide CBI&C Circular No. 127/46/2019
- GST dated 4-12-2019 stating that there were some apprehensions about the circular [not
stated what were those apprehensions]. In my view, some part of what was stated in that
circular was correct and should be valid even if circular is withdrawn.
The contents of the circular dated 18-7-2019 have been discussed in chapter on 'Place of
Supply - Exports and Imports'.
30.5-6 EULA or distribution agreement is not right to use copyright
Distribution agreements or EULAs (End User License Agreements) of software do not create
any interest or right in such distributors/end-users, which would amount to the use of or
right to use any copyright, as contained in the definition of royalties, defined by Article 12 of
DTAAs. Hence, there is no obligation to withholding taxes under section 195 of Income Tax
Act on amount paid, by resident to non-resident computer software
 546

manufacturers/suppliers for sale of software under distribution agreements/EULAs -

Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT [2021] 125 taxmann.com 42 (SC 3
member bench).
 547

Business and production services

31.1 Business auxiliary and support services
Section 8 of service classification section 8 covers Business and Production Services.
Important headings are - Research and development services (9981), Legal and accounting
services (9982), Other professional, technical and business services (9983),
telecommunication services (9984), support services (9985), support services to agriculture
(9986), maintenance and repair services (9987), manufacturing services on physical inputs
owned by others (job work) (9988) and other manufacturing services (9989).
31.2 Services by incubatee and incubator
This service falls under service heading 9981 (Research and Development Services).
The exemptions are provided vide Notification No. 12/2017-CT (Rate) and No. 9/2017-IT
(Rate) both dated 28-6-2017, effective from 1-7-2017.
Services provided by an incubatee up to a total turnover of fifty lakh rupees in a financial
year subject to the following conditions, namely : (a) the total turnover had not exceeded
fifty lakh rupees during the preceding financial year; and (b) a period of three years has not
elapsed from the date of entering into an agreement as an incubatee.
Taxable services, provided or to be provided, by a Technology Business Incubator or a
Science and Technology Entrepreneurship Park recognised by the National Science and
Technology Entrepreneurship Development Board of the Department of Science and
Technology, Government of India or bio-incubators recognised by the Biotechnology
Industry Research Assistance Council, under the Department of Biotechnology, Government
of India are exempt from GST.
Incubatee - "Incubatee" means an entrepreneur located within the premises of a
Technology Business Incubator or Science and Technology Entrepreneurship Park
recognised by the National Science and Technology Entrepreneurship Development Board
(NSTEDB) of the Department of Science and Technology, Government of India and who has
entered into an agreement with the Technology Business Incubator or the Science and
Technology Entrepreneurship Park to enable himself to develop and produce hi-tech and
innovative products - para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate)
both dated 28-6-2017, effective from 1-7-2017.
31.3 Legal Services
Legal services fall in group 99821.
Services supplied by Advocates to small or non-business entities or Government are
exempt - Services supplied by a partnership firm of advocates or an individual as an
advocate other than a senior advocate, by way of legal services to- (i) an advocate or
partnership firm of advocates providing legal services (ii) any person other than a business
entity; or (iii) a business entity with an aggregate turnover up to such amount in the
preceding financial year as makes it eligible for exemption from registration under the CGST
Act, 2017 [till 1-10-2019 the words were - 'twenty lakh rupees (ten lakh rupees in the case
of special category states)'] in the preceding financial year (iv) the Central Government, State
Government, Union territory, local authority, Governmental Authority or Government
Entity, are exempt from GST - - Sr. No. 45(b) of Notification Nos. 12/2017-CT (Rate) and No.
 548

9/2017-IT (Rate) both dated 28-6-2017. The words in italics inserted w.e.f. 1-10-2019. Clause
(iii) was inserted w.e.f. 25-1-2018.
Really, Government, Governmental Authority etc. are not business entities and exemption
was available even prior to 25-1-2018.
Services of Senior Advocate to small or non-business entity or Government are exempt -
Services of senior advocate by way of legal services to- (i) any person other than a business
entity; or (ii) a business entity with an aggregate turnover up to such amount in the preceding
financial year as makes it eligible for exemption from registration under the CGST Act, 2017
[till 1-10-2019 the words were - 'twenty lakh rupees (ten lakh rupees in the case of special
category states)'] in the preceding financial year (iii) the Central Government, State
Government, Union territory, local authority, Governmental Authority or Government
Entity, are exempt - Sr No. 45(c) of Notification Nos. 12/2017-CT (Rate) and No. 9/2017-IT
(Rate) both dated 28-6-2017, effective from 1-7-2017. The words in italics inserted w.e.f.
1.10-2019. Clause (iii) was inserted w.e.f. 25-1-2018.
Really, Government, Governmental Authority etc. are not business entities and exemption
was available even prior to 25-1-2018.
Advocate - "Advocate" has the same meaning as assigned to it in clause (a) of sub-section
(1) of section 2 of the Advocates Act, 1961 - para 2 of Notification No. 12/2017-CT (Rate) and
No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Business entity - "Business entity" means any person carrying out business - para 2 of
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective
from 1-7-2017.
Legal Service - "Legal service" means any service provided in relation to advice, consultancy
or assistance in any branch of law, in any manner and includes representational services
before any court, tribunal or authority - para 2 of Notification No. 12/2017-CT (Rate) and No.
9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
31.3-1 Reverse charge in legal services
As per Notification Nos. 13/2017-CT (Rate) and 10/2017-IT (Rate) both dated 28-6-2017,
effective from 1-7-2017 (as corrected on 25-9-2017), in case of legal services by an individual
advocate including a senior advocate or firm of advocates, GST is payable by recipient if he
is a business entity located in India.
The statutory wording is as follows -
In case of Services provided by an individual advocate including a senior advocate or firm of
advocates by way of legal services, directly or indirectly to business entity, business entity
located in the taxable territory is liable to pay tax under reverse charge - - Note - the business
entity located in the taxable territory who is litigant, applicant or petitioner, as the case may
be, shall be treated as the person who receives the legal services.
Explanation - Legal service means any service provided in relation to advice, consultancy or
assistance in any branch of law, in any manner and includes representational services before
any court, tribunal or authority.
 549

Corrigendum F No. 336/20/2017-TRU dated 25-9-2017 [Since it is corrigendum, it will be

retrospective w.e.f. 1-7-2017].
Whether IGST or CGST plus SGST/UTGST to be paid when Advocate is from out of State? -
If Advocate providing service is from out of State, where IGST should be paid or CGST and
SGST/UTGST should be paid under reverse charge? There are divergent views but in my
opinion, safe course is to pay CGST and SGST/UTGST under reverse charge. If Advocate is
from out of India, it will be import of service and IGST should be payable. The issue is
discussed in chapter 'reverse charge'.
Earlier wordings - The wordings upto 25-9-2017 was as follows—
In case of services supplied by an individual advocate including a senior advocate by way of
representational services before any court, tribunal or authority, directly or indirectly, to any
business entity located in the taxable territory, including where contract for provision of
such service has been entered through another advocate or a firm of advocates, or by a firm
of advocates, by way of legal services, to a business entity, the business entity located in the
taxable territory is liable to pay GST under reverse charge.
All legal services are subject to reverse charge - The drafting of provision was misleading
as it created an impression that only representational services are under reverse charge.
However, the term 'legal services' also appears in the notification. Hence, it has been
clarified that all legal services supplied by Advocate are under reverse charge - PIB press
release dated 15-7-2017 19:15 IST and CBE&C press release No. 81/2017, dated 15-7-2017.
Now, issue has been finally settled by issuing corrigendum on 25-9-2017.
31.3-2 Advocates themselves are never liable to pay GST they need not register
If Advocate or senior Advocate provides services to non-business entity or small business
entity, the service is exempt.
If they supply service to business entity, the business entity himself is liable under reverse
charge.
Thus, Advocates or Senior Advocates themselves are never liable to pay GST. Hence, they
need not register under GST.
31.4 Services of Arbitral Tribunal
Arbitration and conciliation services fall under service tariff 998215.
In case of services supplied by an arbitral tribunal to a business entity, the business entity
located in the taxable territory is liable to pay GST under reverse charge - Notification No.
13/2017-CT (Rate) and 10/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Exemption to services by Arbitral Tribunal to small or non-business entity or to
Government - Services provided by an arbitral tribunal to - (i) any person other than a
business entity; or (ii) a business entity with an aggregate turnover up to such amount in the
preceding financial year as makes it eligible for exemption from registration under the CGST
Act, 2017 [till 1-10-2019, the words were as follows - 'twenty lakh rupees (ten lakh rupees in
the case of special category states)'] in the preceding financial year and (iii) the Central
Government, State Government, Union territory, local authority, Governmental Authority
or Government Entity, are exempt from GST - - Sr No. 45(a) of Notification Nos. 12/2017-CT
 550

(Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017. The words in italics inserted w.e.f. 1-
10-2019. Clause (iii) inserted w.e.f. 25-1-2018.
Really, Government, Governmental Authority etc. are not business entities and exemption
was available even prior to 25-1-2018.
31.4-1 Professional, technical and business Services
Professional, technical and business services fall under heading 9983.
This covers following -
Management consulting and management services and IT services (99831)
Architectural service and urban planning (99832)
Engineering Services (99833)
Scientific and other technical services (99834)
Veterinary Services (99835)

Advertising services and provision of advertising space or time (99836)

Market Research and public opinion service (99837)
Photography, videography and their processing (99838)
Other professional, technical and business services (99839)

GST Rate of technical and business services relating to exploration, mining or drilling of
petroleum crude or natural gas - GST rate on other professional, technical and business
services relating to exploration, mining or drilling of petroleum crude or natural gas or both
is 12% [6% CGST plus 6% SGST/UTGST or 12% IGST] w.e.f. 1-10-2019 - Sr No. 21(ia) of
Notification Nos. 11/2017-CT (Rates) and 8/2017-IT (Rates) dated 28-6-2017, effective from
1-10-2019 [Till 1-10-2019, the GST rate was 18%].
Scope of entry at Sr No. 21(ia) shall be governed by explanatory notes to service code 998341
and 998343 of explanatory notes to Scheme of Classification of Services, adopted for
purposes of GST, which is based on United Nations Central Product Classification - CBI&C
circular No. 114/33/2019-GST, dated 11-10-2019.
Till 1-10-2019, the GST rate was 18%.
Support services to exploration, mining or drilling of petroleum crude or natural gas or both
are subject to tax @ 12% (6% CGST and 6% SGST/UTGST) as per Sr. No. 24(ii) of Notification
Nos. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017. These fall under
heading 9986. Scope of entry at Sr. No. 21(ii) shall be governed by explanatory notes to
service code 998621 and 998622 of explanatory notes to Scheme of Classification of
Services, adopted for purposes of GST, which is based on United Nations Central Product
Classification - CBI&C circular No. 114/33/2019-GST dated 11-10-2019.
Selling of space for advertisement in print media - GST rate is 5%. See discussions below.
General GST Rate on business and production services - General GST rate on business and
production services falling under heading 9983 (other than above) is 18% - Sr No. 21(ii) of
 551

Notification Nos. 11/2017-CT (Rate) and 8/2017-IT (Rate) dated 28-6-2017, effective from 1-
7-2017.
Management consultancy services is not intermediary services - Management Consultancy
services provided by applicant to clients abroad falls under SAC Code 998311 and such
services does not in any way, facilitate or arrange supply of goods or services or both
between two or more persons and will not fall within definition of term 'intermediary' as per
section 2(13) of IGST Act, 2017 - Thomas Joseph Nellissery, In re [2019] 104 taxmann.com 8
(AAR - Kerala).
Testing, hall marking and certification of gold ornaments - Testing, hall marking and
certification of gold ornaments falls under heading 998346 (technical testing and analysis
services) and is taxable @ 18% - CGR Gold Trading In re (2020) 77 GST 353 = 110
taxmann.com 495 (AAR-Kerala).
31.5 Advertising services and provision of advertising space or time
Service of advertising and provision of advertising space or time falls under group 99836.
Selling of space for advertisement in print media is subject to GST of 5% (2.5% CGST and
2.5% SGST) or 5% IGST - Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) dated 28-
6-2017, effective from 1-7-2017.
Advertisement - "Advertisement" means any form of presentation for promotion of, or
bringing awareness about, any event, idea, immovable property, person, service, goods or
actionable claim through newspaper, television, radio or any other means but does not
include any presentation made in person - para 2 of Notification No. 12/2017-CT (Rate) and
No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Print media - "Print media" means - (i) 'book' as defined in sub-section (1) of section 1 of
the Press and Registration of Books Act, 1867 (25 of 1867), but does not include business
directories, yellow pages and trade catalogues which are primarily meant for commercial
purposes (ii) 'newspaper' as defined in sub-section (1) of section 1 of the Press and
Registration of Books Act, 1867
As per section 1(1) of Press and Registration of Books Act, 1867; 'book' includes every
volume, part or division of a volume, and pamphlet, in any language, and every sheet of
music, map, chart or plan separately printed. - - 'newspaper' means any printed periodical
work containing public news or comment on public news. - - 'Printing' includes cyclostyling
and printing by lithography.
Definition of 'book' is not exhaustive. As per Concise Oxford Dictionary, 'book' means 'a
written or printed work consisting of pages fastened along one side and bound in covers'.
A calendar (almanac) (like Kalnirnaya, Kal-darshika) with panchang, is 'book'. Hence, sale of
space in such book is not subject to service tax, as the definition of 'book' is inclusive
definition - CCE v. Media World Enterprises (2015) 85 VST 202 (CESTAT).
Advertisement is souvenir - As per aforesaid definition, a souvenir is a 'book'. Hence,
advertisement in souvenir should attract tax as applicable to advertisement in print media.
31.5-1 Sponsorship and brand promotion services
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Sponsorship and brand promotion services fall under heading 998397. Events and Exhibition
organization and assistance services fall under service tariff 998596 - All Rajasthan
Corrugated Board and Box Manufacturers Association In re (2019) 75 GST 335 = 107
taxmann.com 264 (AAR-Rajasthan).
Reverse charge in respect of sponsorship services - Services provided by any person by way
of sponsorship to any body corporate or partnership firm are under reverse charge. Any
body corporate or partnership firm located in the taxable territory who is recipient of service
is liable to pay GST under reverse charge.
However, brand promotion services are not under reverse charge - All Rajasthan Corrugated
Board and Box Manufacturers Association In re (2019) 75 GST 335 = 107 taxmann.com 264
(AAR-Rajasthan).
31.6 News Agency Services
Services of journalists falls under tariff 998442.
Services by way of collecting or providing news by an independent journalist, Press Trust of
India or United News of India are exempt - Notification No. 12/2017-CT (Rate) and No.
9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
31.6-1 Library Services
The service falls under heading 99845.
Services of public libraries by way of lending of books, publications or any other knowledge-
enhancing content or material is exempt - Notification No. 12/2017-CT (Rate) and No.
9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
31.6-2 Manpower supply or labour supply services
Manpower supply or labour supply services (other than agriculture) fall under heading
99851.
Farm labour supply service is exempt - Farm labour supply services fall under heading 9986
and are exempt - Mrs Manju Devi In re (2020) 113 taxmann.com 503 (AAR-Rajasthan).
Manpower supply is not service as pure agent - Manpower supply service is not service as
'pure agent'. The service falls under 998519 and GST rate is 18% - Bhadreshkumar
Rameshchandra Dave, In re [2021] 123 taxmann.com 190 (AAR - Gujarat).
Valuation of manpower supply services - As per MF(DR) circular No. B1/6/2005-TRU dated
27-7-2005 para 22.4, service tax (now GST) is to be charged on the full amount of
consideration for the supply of manpower, whether full-time or part-time. The value
includes recovery of staff costs from the recipient e.g. salary and other contributions. Even
if the arrangement does not involve the recipient paying these staff costs to the supplier
(because the salary is paid directly to the individual or the contributions are paid to the
respective authority) these amounts are still part of the consideration and hence form part
of the gross amount (i.e. Even if the salary is paid directly by recipient of service to the
individual workman, it will still form part of value of taxable service)
Value includes total bill amount which is inclusive of actual wages of manpower supplied
and additional 2% service charges paid to applicant - KSF-9 Corporate Services (P.) Ltd., In re
[2021] 124 taxmann.com 579 (AAR - Karnataka).
 553

In CCE v. Jubilant Empro P Ltd (2014) 43 GST 236 = 38 taxmann.com 297 (CESTAT). It was
held that service tax (now GST) is payable on salary plus service charges [In this case, the
persons sent were actually employees of assessee. Hence, he was not acting as pure agent
of the service receiver].
In Abbatross Marine Services v. CST (2015) 52 GST 1024 = 63 taxmann.com 133 (CESTAT). It
was held that service tax (now GST) is payable on amount inclusive of wages.
In Neelav Jaiswal v. CCE (2015) 77 VST 215 (CESTAT), it has been held that provident fund
contribution payable to Provident Fund authorities is part of value of taxable service.
Provisions of Contract Labour Act - As per section 2(2)(b) of Contract Labour (Regulation
and Abolition) Act, 'contract labour' is a workman employed in or in relation to work of an
establishment when he is hired in or in connection with such work by or through contractor,
with or without the knowledge of the principal employer. As per section 2(2)(b) of Contract
Labour (Regulation and Abolition) Act, 'contractor' means a person who undertakes to
produce a given result for the establishment through contract labour or who supplies
contract labour for any work of establishment. The labour contractor is responsible to
comply with all labour laws. The privity of contract is between contractor and labour and
not between principal employer and labour.
Manpower recruitment services - The manpower recruitment service would come under
'manpower supply' service, as the manpower recruitment agency supplies manpower on
permanent basis.
Secondment/deputation of employees - In group companies, often person employed in
once company is deputed to work in another company. This is also termed as 'secondment'.
Usually, salary is debited to company where he is deputed for working. Issue is whether this
will be supply of manpower service.
In Paramount Communication Ltd. v. CCE (2013) 32 taxmann.com 168 (CESTAT), it was held
that this cannot be regarded as manpower supply of service - same view in Target
Corporation India (P.) Ltd. v. CCE [2021] 123 taxmann.com 444 (CESTAT).
However, in my view, issue is debatable and this can be considered as supply service. It is
advisable to have proper 'joint employment agreement' where employee is transferred to
another company under their control. If such agreement established employer employee
relation, then it would be exempt from GST.
31.7 Security Personnel services
Security guards service falls under service code 998525.
GST is payable on salary of guards plus ESI, PF paid on their wages plus supervision charges
paid to security service provider.
GST is payable on amount received as bonus payable to persons deployed as security
personnel (this amount was received separately from the client (service recipient) - Ex-
Servicemen Resettlement Society In re (2020) 77 GST 512 = 112 taxmann.com 20 (AAR-WB).
If residential accommodation is provided to security guards, its cost was includible in value
of service. In my view, these charges are not includible under GST as value of services is
matter of contract. However, litigation is possible.
 554

GST is payable @ 18% on entire amount received by it from its clients, which includes wages
etc. to be paid to Security Guards as well as amount received from its clients as
establishment charges to run its administration office and to cover its administration cost
like administration staff salary, stationery, electricity of admin office etc. - Gujarat Industrial
Security Force Society In re [2021] 124 taxmann.com 224 (AAR - Gujarat).
Reverse charge on security service of providing security personnel - Security services
(services provided by way of supply of security personnel) provided to a registered person
by any person other than a body corporate is subject to reverse charge w.e.f. 1-1-2019.
If service provider is a body corporate (i.e. company or registered cooperative society or
LLP), then there is forward charge i.e. the service provider himself is liable.
Note that LLP is body corporate. Partnership firm or HUF is not a body corporate.
Similarly, if recipient of service is unregistered, the service provider himself is liable.
If service provider is individual, firm or trust, then there is reverse charge, i.e. service
recipient is liable to pay GST.
No reverse charge if recipient of service is Government Agency or registered only for TDS
purposes - Nothing contained in this entry shall apply to, - (i)(a) a Department or
Establishment of the Central Government or State Government or Union territory; or (b)
local authority; or (c) Governmental agencies; which has taken registration under the CGST
Act only for the purpose of deducting tax under section 51 of the said Act and not for making
a taxable supply of goods or services; or (ii) a registered person paying tax under composition
scheme under section 10 of CGST Act.
This was noted and order passed that RCM does not apply if service recipient (University in
this case) is registered under GST only for TDS purposes - Hemchand Yadav Vishwavidyalaya,
In re [2020] 80 GST 231 = 114 taxmann.com 308 (AAR - CHHATTISGARH).
In such cases, the supplier of service himself will be liable to pay GST under reverse charge.
31.8 Travel arrangement and tour operator services
Travel arrangement and tour operator services fall under group 99855.
Tour operator services are subject to GST of 5% (2.5% CGST and 2.5% SGST) or 5% IGST -
Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017, effective
from 1-7-2017.
"Tour operator" means any person engaged in the business of planning, scheduling,
organizing, arranging tours (which may include arrangements for accommodation,
sightseeing or other similar services) by any mode of transport, and includes any person
engaged in the business of operating tours - para 2 of Notification No. 12/2017-CT (Rate)
and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Input tax credit of goods and services is not available, other than the input tax credit of input
service in the same line of business (i.e. tour operator service procured from another tour
operator) [The words in italics inserted w.e.f. 25-1-2018]. Till 25-1-2018, no input tax credit
was allowable.
The bill issued for service indicates that it is inclusive of charges of accommodation and
transportation required for such a tour and the amount charged in the bill is the gross
 555

amount charged for such a tour including the charges of accommodation and transportation
required for such a tour.
If service is only of hotel booking and if hotel charges are recovered separately on actual
basis, then GST will be payable @ 18% only on his service charges.
Arranging hotel booking is taxable under heading 998552 - Arrangement for client
accommodation in hotels is a service classifiable under SAC 998552. It is taxable at 18 per
cent (CGST + SGST) under Sl. No. 23(iii) of Notification No. 11/2017 - CT (Rate) dated 28-6-
2017 - Golden Vacations Tours & Travels, In re [2019] 109 taxmann.com 439 (AAR-West
Bengal).
Ancillary services provided to tour operator fall under 9985 as support services - Ancillary
services like elephant ride, guide services, lunch/dinner in hotel, provided to tour operator
fall under 9985 as support services and taxable @ 18% - Crown Tours and Travels In re (2020)
taxmann.com 501 (AAR-Rajasthan).
In Crown Tours & Travels, In re [2020] 119 taxmann.com 121 (AAR- Rajasthan), applicant was
sub-tour operator engaged in business of providing tour services to tourists which were
identified by main tour operator wherein assessee was providing services such as local
transportation services along with services like elephant ride, lunch/dinner, local
sightseeing, etc., since assessee was rendering only transportation services along with some
ancillary services and not any accommodations, services provided by assessee would not fall
under purview of Sl. No. 23(i) [Chapter heading 9985] of Notification No. 11/2017 - Central
Tax (rate) dated 28-6-2017 and rate of 5 per cent GST was not applicable.
31.8-1 Services provided by tour operator to foreign tourist outside India
Service supplied by a tour operator to a foreign tourist in relation to a tour conducted
outside India is exempt from GST - Notification No. 9/2017-IT (Rate) dated 28-6-2017,
effective from 1-7-2017.
There is no corresponding exemption in CGST as only IGST can apply to this transaction.
In Indian Association of Tour Operators v. UOI (2017) 5 GSTL 4 (Del HC DB), provision of tax
on service provided to foreign tourists in India (who had made payment in foreign
exchanges) was held as invalid. This decision was in different context and does not apply in
this case, though some help can be taken from this judgment.
31.8-2 Services relating to religious pilgrimage
Services by a specified organisation in respect of a religious pilgrimage facilitated by * the
Government of India, under bilateral agreement are exempt from GST - Notification No.
12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017
[* - The words 'the Ministry of External Affairs' are omitted w.e.f. 25-1-2018. Thus, now, the
religious pilgrimage can be facilitated by any Ministry or department of Government of India.
Specified Organisation - "Specified organisation" shall mean,-(i) Kumaon Mandal Vikas
Nigam Limited, a Government of Uttarakhand Undertaking; or (ii) 'Committee' or 'State
Committee' as defined in section 2 of the Haj Committee Act, 2002 (35 of 2002) - para 2 of
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective
from 1-7-2017.
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31.8-3 Value of supply of services of booking of air travel tickets

The value of supply of services in relation to booking of tickets for travel by air provided by
an air travel agent, shall be deemed to be an amount calculated at the rate of five per cent
of the basic fare in the case of domestic bookings, and at the rate of ten per cent of the basic
fare in the case of international bookings of passage for travel by air.
For the purposes of this sub-rule, the expression "basic fare" means that part of the air fare
on which commission is normally paid to the air travel agent by the airline - Rule 32(3) of
CGST and SGST Rules, 2017.
31.9 Events and Exhibition organization and assistance services
Events and Exhibition organization and assistance services fall under service tariff 998596 -
All Rajasthan Corrugated Board and Box Manufacturers Association In re (2019) 75 GST 335
= 107 taxmann.com 264 (AAR-Rajasthan).
Services by an organiser to any person in respect of a business exhibition held outside India
are exempt from GST - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017, effective from 1-7-2017.
Really, in this case, place of supply of service is outside India. Hence, issue of GST should not
arise at all.
31.10 Support Services of agriculture, forestry, fishing, animal husbandry
In case of support Services of agriculture, forestry, fishing, animal husbandry fall under
service group 9986, the GST rate is Nil - Notification No. 11/2017-CT (Rate) and No. 8/2017-
IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Support services - meaning - As per explanation to heading 9986, "Support services to
agriculture, forestry, fishing, animal husbandry" mean—
(i) Services relating to cultivation of plants and rearing of all life forms of animals, except
the rearing of horses, for food, fibre, fuel, raw material or other similar products or
agricultural produce by way of—
(a) agricultural operations directly related to production of any agricultural produce
including cultivation, harvesting, threshing, plant protection or testing;
(b) supply of farm labour;
(c) processes carried out at an agricultural farm including tending, pruning, cutting,
harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting,
grading, cooling or bulk packaging and such like operations which do not alter the
essential characteristics of agricultural produce but make it only marketable for the
primary market;
(d) renting or leasing of agro machinery or vacant land with or without a structure
incidental to its use;
(e) loading, unloading, packing, storage or warehousing of agricultural produce;
(f) agricultural extension services;
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(g) services by any Agricultural Produce Marketing Committee or Board or services

provided by a commission agent for sale or purchase of agricultural produce;
(h) services by way of fumigation in a warehouse of agricultural produce [this sub-clause
inserted w.e.f. 25-1-2018].
(ii) Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing,
labelling of fruits and vegetables which do not change or alter the essential
characteristics of the said fruits or vegetables.
(iii) Carrying out an intermediate production process as job work in relation to cultivation
of plants and rearing of all life forms of animals, except the rearing of horses, for food,
fibre, fuel, raw material or other similar products or agricultural produce.

Agricultural extension - "Agricultural extension" means application of scientific research

and knowledge to agricultural practices through farmer education or training.
Agricultural produce - "Agricultural produce" means any produce out of cultivation of plants
and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw
material or other similar products, on which either no further processing is done or such
processing is done as is usually done by a cultivator or producer which does not alter its
essential characteristics but makes it marketable for primary market - para 2 of Notification
No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-
2017.
Groundnuts with shell, turmeric and ginger and whole pulse grains on which no further
processing is done or such processing is done as is usually done by a cultivator or producer
which does not alter its essential characteristics but makes it marketable for primary market
are 'agricultural produce' - Guru Cold Storage P Ltd. In re (2018) 68 GST 488 = 94
taxmann.com 159 (AAR - Gujarat).
Judgments regarding 'agricultural produce' - Activity of cleaning of various Agriculture
products like Saunf (Fennel), Dhaniya (Coriander), Jeera (Cumin seeds) etc. is specialized
activity of cleaning whereby various impurities are removed, but do not change essential
character of agriculture produce. This activity is done using specific machines and
equipments which are installed at premises and away from Agricultural farm. Hence, these
are not 'agricultural produce' - Rara Udhyog, In re [2018] 95 taxmann.com 118 (AAR -
Rajasthan).
List of goods held as 'agricultural produce' - In Sardar Mal Cold Storage & Ice Factory, In re
[2018] 95 taxmann.com 122 (AAR - Rajasthan), it has been held that following are
'agricultural produce' - Fennel (Saunf), Coriander (Dhaniya), Cumin Seeds (Jeera), Carom
Seeds (Ajwain), Fenugreek Seeds (Kasoori Methi), Mustard Seeds (Sarson), Brown Mustard
Seeds (Rai), Nigella Seeds (Kalonji), Poppy Seeds (Posara Dana).
Raw whole yellow peas is agricultural produce - T R Roy Choudhury & Co In re (2020) 78 GST
287 = 113 taxmann.com 100 (AAAR-WB).
 558

List of goods held as not 'agricultural produce' - In Sardar Mal Cold Storage & Ice Factory,
In re [2018] 95 taxmann.com 122 (AAR - Rajasthan), it has been held that following are not
'agricultural produce'—
Turmeric (Haldi) and dried ginger (sonth)
Tamarind

Dry mango (sukha amchur), kathodi (sukhi kathodi), dry gooseberry (sukha amla), dry
water caltrop/water cashewnut (dry Singadha), dry peas (sukha matar)

Cinnamon (Dalchini), Gum (Gond), Arjuna Chaal (Arjun Chaal)

Groundnuts (Mungfalli), Coconut (Copra Cola)
Dry fruits such as Fig (Anjeer) Almond (Badaam), Walnuts (Akhrot), Pistachio (Pista),
Lotus Seed Pop (Phool/Tal Makhana) etc.

However, in Erode Manjal Vanigarkal Matrum Kidagu Sangam In re (2018) 69 GST 910 = 97
taxmann.com 450 (AAR - TN), it was (indirectly) held that turmeric is 'agricultural produce'
and service of commission agent in respect of turmeric is exempt [Really in this decision, it
was taken for granted that turmeric is agricultural produce and there is no specific ruling
that turmeric is 'agricultural produce'].
Processed tea leaves is not agricultural produce, when activity of manufacture is carried
out in warehouse - Processed tea leaves is not agricultural produce when activity of
manufacture is carried out in warehouse and final product i.e. tea bags are also stored in
same warehouse- Nutan Warehousing Co. Ltd. In re (2018) 69 GST 661 = 96 taxmann.com
362 (AAR - Maharashtra) - view confirmed in appeal Nutan Warehousing Co. Ltd. In re (2018)
100 taxmann.com 253 (AAAR - Maharashtra).
Commission Agent of agricultural produce is exempt from tax - In Erode Manjal Vanigarkal
Matrum Kidangu Urimaiylargal Sangam In re (2018) 69 GST 910 = 97 taxmann.com 450 (AAR
- TN), it was (indirectly) held that turmeric is 'agricultural produce' and service of commission
agent in respect of turmeric is exempt [Really in this decision, it was taken for granted that
turmeric is agricultural produce and there is no specific ruling that turmeric is 'agricultural
produce'].
Service of procuring agricultural produce from farmers either for itself or on behalf of NAFED
is exempt from GST - Rajasthan Rajya Sahakari Kriya Vikraya Sangh Ltd., In re (2019) 104
taxmann.com 415 (AAR - Rajasthan).
Cut flowers is an agricultural produce. Hence, commission received for facilitating purchase
and sale of cut flowers for auction of flowers is exempt from GST - International Flower
Auction Bangalore Ltd. In re (2019) 110 taxmann.com 344 (AAR-Karnataka).
Broker/intermediary is not 'commission agent' and is not exempt - Broker/intermediary
service in relation to agricultural produce is not 'commission agent' and is not exempt. He is
'intermediary' as definition of 'intermediary' includes 'broker' and hence not exempt -
Mcdonald Pelz Global Commodities India (P.) Ltd., In re [2021] 124 taxmann.com 328 (AAR -
 559

Haryana) [really, distinction between 'broker' and 'agent' is very thin, but here the applicant
himself had pleaded that they are not exempt from GST - then why did they apply?]
Auctioneer of cut flowers (agricultural produce) is not 'commission agent' and exemption
is not available - Though cut flower is 'agricultural produce', service of auctioneer is not
service of 'commission agent'. Hence, commission received by auctioneer (really these are
'fees' of auctioneer though the company (auctioneer) was using the term 'commission') is
not for service as commission agent. Hence, the service is not exempt from GST -
International Flower Auction Bangalore Ltd. In re [2020] 115 taxmann.com 56 (AAAR-Karn)
[reversing decision in International Flower Auction Bangalore Ltd. In re (2019) 110
taxmann.com 344 (AAR-Karnataka), where it was held that cut flowers is an agricultural
produce. Hence, commission received for facilitating purchase and sale of cut flowers for
auction of flowers is exempt from GST].
Commission Agent of Agricultural produce requires registration only if liable under reverse
charge - In case of commission agent of agricultural produce, the commission agent is not
a taxable person and agriculturist is also not a taxable person. Hence, the commission agent
does not require registration under GST. However, if he is liable to pay GST under reverse
charge, he will be liable to be registered under section 24(iii) of CGST Act - - CBI&C Circular
No. 57/31/2018-GST dated 4-9-2018, as amended vide corrigendum dated 5-11-2018.
Services of commission agent of agricultural produce are exempt from GST - Bhaktawar Mal
Kamra and Sons In re (2019) 76 GST 247 = 110 taxmann.com 138 (AAR - Haryana).
Agricultural Produce Marketing Committee or Board - "Agricultural Produce Marketing
Committee or Board" means any committee or board constituted under a State law for the
time being in force for the purpose of regulating the marketing of agricultural produce.
Renting or leasing of land by farmers for agriculture, forestry, fishing or animal husbandry
exempt - It is clarified that renting or leasing of land by farmers for agriculture, forestry,
fishing or animal husbandry exempt from 1-7-2017 itself - CBI&C press release No. 16/2018
dated 28-5-2018.
Services by way of warehousing of minor forest produce - Services by way of warehousing
of minor forest produce, falling under heading 9967 or 9985 are exempt from GST -
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 as
amended w.e.f. 27-7-2018.
Services of warehousing of specified agricultural products on which further processing has
been done exempt w.e.f. 1-10-2019 - Services by way of storage or warehousing of cereals,
pulses, fruits, nuts and vegetables, spices, copra, sugarcane, jaggery, raw vegetable fibres
such as cotton, flax, jute etc., indigo, unmanufactured tobacco, betel leaves, tendu leaves,
coffee and tea are exempt w.e.f. 1-10-2019. The services may be falling under heading 9967
or 9985 - Sr No. 24B of Notification Nos. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017 as inserted w.e.f. 1-10-2019.
Service of artificial insemination of live-stock (other than horses) is exempt - Services by
way of artificial insemination of livestock (other than horses) is exempt from GST. The service
falls under heading 9986 - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017 as inserted w.e.f. 27-7-2018.
 560

Mere renting of space is not service of storage and warehousing of goods - In storage and
warehousing service, loading, unloading and stacking in storage area, inventory of goods,
security arrangement and insurance service is supplied. In service of renting of space, such
service is not supplied. Hence, mere renting of space is not service of storage and
warehousing of goods - Rishi Shipping In re (2018) 68 GST 395 = 94 taxmann.com 147 (AAR-
Gujarat).
In Karnataka Food and Civil Supplies Corporation In re (2020) 77 GST 21 = 110 taxmann.com
403 (AAR-Karn), the applicant had hired godown of Central Warehousing Corporation. This
was used for storage of exempt as well as taxable commodities, It was held that this is
renting or leasing service of commercial property under heading 9972 12 and is taxable @
18% - order upheld in appeal in Karnataka Food and Civil Supplies Corporation In re [2020]
82 GST 82 = 119 taxmann.com 8 (AAAR-Karn).
Renting of premises of cold storage is renting/leasing of immovable property and is taxable
- Gubba Cold Storage P Ltd. In re (2020) 81 GST 380 = 117 taxmann.com 67 (AAR-Telangana).
Farm labour supply service is exempt - Farm labour supply services fall under heading 9986
and are exempt - Mrs Manju Devi In re (2020) 113 taxmann.com 503 (AAR-Rajasthan).
Activity of Chilling and packing of milk is exempt from GST - Activity of Chilling and packing
of milk is exempt from GST, under Sr No. 24 of Notification Number 11/2017-CT (Rate) dated
28-6-2017. The activity falls under clause (e) of definition of 'support service', which reads
as follows - 'loading, unloading, packing, storage or warehousing of agricultural produce'.
The Tax Research Department of CBIC had issued letter No. 354/292/2018-TRU, dated 9-8-
2018 that the service is not exempt as the activity is 'processing', which does not fall under
clause (c) of definition of 'support service'. The CBI&C letter was held as not in consonance
with provisions contained in Sr No. 24 of Notification Number 11/2017-CT (Rate) dated 28-
6-2017.
Lease rent charged for water channel for fish farming - Lease rent charged by municipality
for land i.e. water channel used for fish farming falls within meaning of "services relating to
rearing of all life forms of animals - by way of renting or leasing of vacant lands" falls under
heading 9986 eligible for GST exemption as per Sl. No. 54 of Notification No. 12/2017-Central
Tax (Rate), dated 28-6-2017 - George Jacob, In re [2020] 119 taxmann.com 10 (AAR -
KERALA).
31.10-1 Loading and unloading of rice exempt
Services by way of loading, unloading, packing, storage or warehousing of rice is exempt
from GST. This service falls under heading 9967 or 9985- Notification No. 12/2017-CT (Rate)
and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
31.10-2 Services of veterinary clinic exempt
Services by a veterinary clinic in relation to health care of animals or birds are exempt. This
service falls under heading 9983 - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT
(Rate) both dated 28-6-2017, effective from 1-7-2017.
These services fall under heading 9983.
31.10-3 Services relating to agriculture exempt
 561

Services relating to cultivation of plants and rearing of all life forms of animals, except the
rearing of horses, for food, fibre, fuel, raw material or other similar products or agricultural
produce by way of following are exempt [Notification No. 12/2017-CT (Rate) and No.
9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.]
(a) agricultural operations directly related to production of any agricultural produce
including cultivation, harvesting, threshing, plant protection or testing;
(b) supply of farm labour;
(c) processes carried out at an agricultural farm including tending, pruning, cutting,
harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting,
grading, cooling or bulk packaging and such like operations which do not alter the
essential characteristics of agricultural produce but make it only marketable for the
primary market;
(d) renting or leasing of agro machinery or vacant land with or without a structure
incidental to its use;
(e) loading, unloading, packing, storage or warehousing of agricultural produce;
(f) agricultural extension services;
(g) services by any Agricultural Produce Marketing Committee or Board or services
provided by a commission agent for sale or purchase of agricultural produce.
(h) services by way of fumigation in a warehouse of agricultural produce [this sub-clause
inserted w.e.f. 25-1-2018].

These services fall under heading 9986.

Storage of agricultural produce falls under 9984 and exempt whether supplied to traders
or farmers - Storage and warehousing of agricultural produce falls under Service Account
Code (SAC) 9986 and not under 9967. Exemption under Notification No. 12/2017 Central Tax
(Rate) dated 28-6-2017 under entry No. 54(e) is applicable for agricultural produce of both
farmers and traders - S.S.S.V.K. Cold Storage (P.) Ltd., In re [2018] 94 taxmann.com 141 (AAR
- Andhra Pradesh).
Services of warehousing of specified agricultural products on which further processing has
been done exempt w.e.f. 1-10-2019 - Services by way of storage or warehousing of cereals,
pulses, fruits, nuts and vegetables, spices, copra, sugarcane, jaggery, raw vegetable fibres
such as cotton, flax, jute etc., indigo, unmanufactured tobacco, betel leaves, tendu leaves,
coffee and tea are exempt w.e.f. 1-10-2019. The services may be falling under heading 9967
or 9985 - Sr No. 24B of Notification Nos. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017 as inserted w.e.f. 1-10-2019.
Commission Agent of Agricultural produce requires registration only if liable under reverse
charge - In case of commission agent of agricultural produce, the commission agent is not
a taxable person and agriculturist is also not a taxable person. Hence, the commission agent
does not require registration under GST. However, if he is liable to pay GST under reverse
 562

charge, he will be liable to be registered under section 24(iii) of CGST Act - - CBI&C Circular
No. 57/31/2018-GST dated 4-9-2018, as amended vide corrigendum dated 5-11-2018.
Services of commission agent of agricultural produce are exempt from GST - Bhaktawar Mal
Kamra and Sons In re (2019) 76 GST 247 = 110 taxmann.com 138 (AAR-Haryana).
31.10-4 Job work of cultivation of plants and rearing of animals
Carrying out an intermediate production process as job work in relation to cultivation of
plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre,
fuel, raw material or other similar products or agricultural produce is exempt from GST. This
service falls under 9986 - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017, effective from 1-7-2017.
31.10-5 Slaughtering of animals are exempt
Services by way of slaughtering of animals, falling under heading 9988 is exempt from GST -
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective
from 1-7-2017.
31.10-6 Pre-conditioning, cooling, Cold chain development are exempt
Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling
of fruits and vegetables which do not change or alter the essential characteristics of the said
fruits or vegetables are exempt. This service falls under heading 9988 or 9992.
Services provided by the National Centre for Cold Chain Development under the Ministry of
Agriculture, Cooperation and Farmer's Welfare by way of cold chain knowledge
dissemination are exempt. This service falls under heading 9988 or 9992 - Notification No.
12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Fumigation in a warehouse of agricultural produce exempt w.e.f. 25-1-2018 - Services by
way of fumigation in a warehouse of agricultural produce is exempt w.e.f. 25-1-2018 - Sr.
No. 53A of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-
2017 inserted w.e.f. 25-1-2018.
31.10-7 Pisciculture, sericulture, floriculture is not subject to tax
Activities like breeding of fish (pisciculture), rearing of silk worms (sericulture), cultivation of
ornamental flowers (floriculture) and horticulture, forestry are covered in the definition of
agriculture - Para 4.4.2 of CBE&C's 'Taxation of Services : An Education Guide' published on
20-6-2012.
This clarification should apply in GST also, as the wordings in GST exemption notification as
same as under service tax provisions.
31.10-8 Plantation crops like rubber, tea or coffee covered under agricultural produce
Plantation crops like rubber, tea or coffee covered under agricultural produce - Para 4.4.4 of
CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012
Leasing of land for coffee plantation is for agricultural purposes. It falls under 9986 and is
exempt from tax - Cochin Plantations Ltd. In re (2018) 70 GST 806 = 99 taxmann.com 55 (AAR
- Kerala).
31.10-9 Potato chips or tomato ketchup is not agricultural produce
 563

Potato chips or tomato ketchup is not agricultural produce. In terms of the definition of
agricultural produce, only such processing should be carried out as is usually done by
cultivator producers which does not alter its essential characteristics but makes it
marketable for primary market. Potato chips of tomato ketchup are manufactured through
processes which alter the essential characteristic of farm produce (potatoes and tomatoes
in this case) - Para 4.4.5 of CBE&C's 'Taxation of Services : An Education Guide' published on
20-6-2012.
31.10-10 Operations like shelling of paddy or cleaning of wheat carried out outside the
farm
Activities like the processes carried out in agricultural farm would also be covered if the same
are performed outside the agricultural farm provided such processes do not alter the
essential characteristics of agricultural produce but only make it marketable in the primary
market. Therefore, cleaning of wheat would be covered in the negative list entry even if the
same is done outside the farm.
Shelling of paddy would not be covered in the negative list entry relating to agriculture as
this process is never done on a farm but in a rice sheller normally located away from the
farm. However, if shelling is done by way of a service i.e. on job work then the same would
be covered under the exemption relating to 'carrying out of intermediate production process
as job work in relation to agriculture' - Para 4.4.6 of CBE&C's 'Taxation of Services : An
Education Guide' published on 20-6-2012.
31.10-11 Rice, ginned cotton, cereals, pulses, copra, jaggery, tea, processed fruits are not
'agricultural produce'
In Agricultural products like cereals, pulses, copra and jaggery, the processing is done by a
person other than cultivator or producer and hence will not be exempt from tax - Para 4.4.7
of CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012.
Rice and ginned cotton is not 'agricultural produce' - Rice is de-husked in mill. Cotton is
ginned and bailed in ginning factory. Hence, these will not be 'agricultural produce' -
Clarification by Finance Minister issued vide letter No. 354/114/2013-TRU dated 8th
November 2013 - 33 STR J129. This view has been communicated by Central Warehousing
Corporation vide their circular No. CWC/FD-Taxation/ST(Gen)/12-13 dated 17-12-2013 [43
GST 13 (St)].
Pulses (dal), jaggery, processed cashew nuts, raisin, anjeer, tamarind, copra are not
'agricultural produce' - Pulses (dal) (de-husked or split), jaggery, processed cashew nuts,
raisin (kismis), fig (anjeer), tamarind (ambali foal), groundnut seeds, copra are not
'agricultural produce' - Guru Cold Storage P Ltd. In re (2018) 68 GST 488 = 94 taxmann.com
159 (AAR - Gujarat)
Black tea, white tea, coffee beans, pulses, jaggery, processed dry fruits is not 'agricultural
produce' - Black tea, white tea, processed coffee beans or powder, pulses i.e. dal (de-husked
or split), jaggery, processed dry fruits, processed cashew nuts is not 'agricultural produce' -
MF(DR) circular No. 16/16/2017-GST dated 15-11-2017.
 564

31.10-12 Would the processes of grinding, sterilizing, extraction packaging in retail packs
of agricultural products, which make the agricultural products marketable in retail market,
be covered in the negative list?
The processes of grinding, sterilizing, extraction packaging in retail packs of agricultural
products, which make the agricultural products marketable in retail market, is not covered
in the negative list. Only such processes are covered in the negative list which makes
agricultural produce marketable in the primary market - Para 4.4.8 of CBE&C's 'Taxation of
Services : An Education Guide' published on 20-6-2012.
31.10-13 Leasing of vacant land with a green house or a storage shed meant for agricultural
produce
Leasing of vacant land with a green house or a storage shed meant for agricultural produce
would be covered in the negative list. In terms of the specified services relating to agriculture
'leasing' of vacant land with or without structure incidental to its use' is covered in the
negative list. Therefore, if vacant land has a structure like storage shed or a green house built
on it which is incidental to its use for agriculture then its lease would be covered under the
negative list entry - Para 4.4.9 of CBE&C's 'Taxation of Services : An Education Guide'
published on 20-6-2012.
31.10-14 Services by Agricultural Produce Marketing Committee or Board which are not
taxable
Agricultural Produce Marketing Committees or Boards are set up under a State Law for
purpose of regulating the marketing of agricultural produce. Such marketing committees or
boards have been set up in most of the States and provide a variety of support services for
facilitating the marketing of agricultural produce by provision of facilities and amenities like,
sheds, water, light, electricity, grading facilities etc. They also take measures for prevention
of sale or purchase of agricultural produce below the minimum support price. APMCs collect
market fees, license fees, rents etc. Services provided by such Agricultural Produce
Marketing Committee or Board are covered in the negative list. However any service
provided by such bodies which is not directly related to agriculture or agricultural produce
will be liable to tax e.g. renting of shops or other property - Para 4.4.9 of CBE&C's 'Taxation
of Services : An Education Guide' published on 20-6-2012.
31.10-15 Prawn or shrimp is not agricultural produce
Prawn or shrimp is not agricultural produce - CCE v. Haripriya Marine food Products (2015)
52 GST 965 = 63 taxmann.com 68 (SC).
31.10-16 Is hen an animal and is poultry agricultural produce?
Poultry and birds have been classified as 'Live Animals' in chapter 1 of Central Excise Tariff
Act.
"Agriculture" means the cultivation of plants and rearing of all life-forms of animals, except
the rearing of horses, for food, fibre, fuel, raw material or other similar products.
In Davinder Singh v. WTO 1982 I ITD 610 Chd., in context of Wealth Tax Act, it was held that
ordinary meaning of 'animals' also covers 'birds'.
Hence, in my view, poultry can get covered under 'agricultural produce'.
 565

31.11 Support services other than agriculture, forestry, fishing, animal husbandry
These services fall under heading 9986.
Support services to exploration and mining of petroleum crude or natural gas - Support
Services to exploration, mining or drilling of petroleum crude or natural gas or both are
subject to tax @ 12% (6% CGST and 6% SGST/UTGST) w.e.f. 25-1-2018 - Sr No. 24(ii) of
Notification Nos. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 inserted
w.e.f. 25-1-2018 [The words in italics were 'Services of' upto 1-10-2019. Thus, after 1-10-
2019, the scope has been widened].
These fall under heading 9986. Scope of entry at Sr No. 21(ii) shall be governed by
explanatory notes to service code 998621 and 998622 of explanatory notes to Scheme of
Classification of Services, adopted for purposes of GST, which is based on United Nations
Central Product Classification - CBI&C circular No. 114/33/2019-GST dated 11-10-2019.
GST Rate of technical and business services relating to exploration, mining or drilling of
petroleum crude or natural gas - GST rate on other professional, technical and business
services relating to exploration, mining or drilling of petroleum crude or natural gas or both
is 12% [6% CGST plus 6% SGST/UTGST or 12% IGST] w.e.f. 1-10-2019 - Sr No. 21(ia) of
Notification Nos. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017, effective
from 1-10-2019 [Till 1-10-2019, the GST rate was 18%].
Scope of entry at Sr No. 21(ia) shall be governed by explanatory notes to service codes
998341 and 998343 of explanatory notes to Scheme of Classification of Services, adopted
for purposes of GST, which is based on United Nations Central Product Classification - CBI&C
circular No. 114/33/2019-GST, dated 11-10-2019.
Support services relating to mining, electricity, gas and water distribution - Support
services to mining, electricity, gas and water distribution other than above are subject to tax
@ 18% (9% CGST and 9% SGST/UTGST) w.e.f. 1-7-2017 - Sr. No. 24(iii) of Notification Nos.
11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017.
Other support services - Rate of 18% (9% CGST and 9% SGST/UTGST) is applicable to other
support services also.
Back Office services to overseas clients is intermediary service? - In V Sero Global In re
(2018) 99 taxmann.com 253 (AAR-Maharashtra), it has been held that back office service of
administrative and accounting support service is 'intermediary service'. Place of supply is
location of supplier of service i.e. India. Hence, service is not export of service and hence not
'zero rated supply' [By any stretch of imagination, I cannot understand how this activity can
be 'intermediary service'].
31.12 Maintenance Services
Miscellaneous maintenance services fall under heading 9987.
Housekeeping like plumbing, carpentering etc . - In case of Services by way of house-
keeping, such as plumbing, carpentering etc., except where the person supplying such
service through electronic commerce operator is liable for registration under section 22(1)
of CGST Act, the e-commerce operator is liable to pay tax.
 566

If the supplier of service has aggregate turnover exceeding Rs 20 lakhs (10 lakhs in certain
States), he himself is liable to get registered under GST and pay tax @ 18%. Otherwise, the
e-commerce operator will be liable to pay GST [This service included in e-commerce services
w.e.f. 22-8-2017].
The tax rate on house keeping services like plumbing, carpentering etc. is 5% (2.5% CGST
and 2.5% SGST/UTGST) w.e.f. 25-1-2018, if provided through e-commerce operator, subject
to non-availment of input tax credit - Sr. No. 3(xi) of Notification No. 11/2017-CT (Rate) and
No. 8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 25-1-2018.
Other maintenance services - Maintenance, repair and installation (except construction)
services, other than above are subject to tax @ 18% [9% CGST plus 9% SGST/UTGST].
Repairing and servicing of transformers owned by another person is not job work as defined
under section 2(68) of the GST Act. It is composite supply unless the contract specifies that
the goods and services are to be separately charged. The principal supply is the service of
repair of transformers classifiable under SAC 998719 and taxable @ 18% - Alok Bhanuka., In
re [2019] 103 taxmann.com 433 (AAR-West Bengal)
Servicing of vehicles which covers both goods and services - In case of servicing of vehicles
which covers both goods and services, of value of goods and services is shown separately,
the goods and services shall be liable to tax at the rates applicable to such goods and services
separately Servicing of vehicles which covers both goods and services - CBI&C circular No.
47/21/2018-GST dated 8-6-2018.
In other words, supply of goods and services will be treated as two different supplies -
neither mixed supply nor composite supply.
The principle should apply to any contract of maintenance and repairs.
Operation and Maintenance services of a plant - Operation and Maintenance services of a
plant are classifiable under heading 9987 Maintenance repair and installation (except
construction) services - Sri Satya Sai Water Supply Project Board In re (2020) 82 GST 503 =
117 taxmann.com 826 (AAR-AP).
 567

Job work
31A.1 Introduction
Job work is very common in industry, more-so in engineering and textile industries.
Service classification for manufacturing services on physical inputs (goods) owned by others
is 9988.
Maintenance, repair and installation services fall under heading 9987.
Publishing, printing and reproduction services fall under heading 9989 and group 99891.
Interestingly, the scheme of classification of services notified by Government as Annexure
to Notification No. 11/2017-CT (Rate) dated 28-6-2017 does not refer to term 'job work' at
all.
CBI&C has issued explanatory notes to scheme of classification of services, vide CBI&C press
release dated 11-6-2018, as a guiding tool. It has been clarified that when a service is based
on its description, specific description shall be preferred over a more general description.
This explanatory note also does not refer to term 'job work' at all.
The term 'job work' is used only in Sr No. 26(i) and 26(ia) of Notification No. 11/2017-CT
(Rate) dated 28-6-2017.
31A.1-1 Provisions in CGST Law relating to job work
The provisions relating to job work have been made as material sent for job work is 'supply'.
Hence, GST would have been payable on material sent for job work. This was not practical.
Hence, GST Law makes elaborate provisions for sending inputs job work and return, without
payment of GST.
Section 19 of CGST Act make provisions relating to taking input tax credit in respect of inputs
sent for job work.
Section 143 of CGST Act makes provisions for special procedure for removal of goods for job
work without payment of tax.
31A.1-2 Job work may or may not result in 'manufacture' of a product
"Job work" means undertaking any treatment or process by a person on goods belonging to
another registered person and the expression "job worker" shall be construed accordingly -
section 2(68) of CGST Act.
"Manufacture" means processing of raw material or inputs in any manner that results in
emergence of a new product having a distinct name, character and use and the term
"manufacturer" shall be construed accordingly - section 2(72) of CGST Act.
Thus, simple activities like packing, re-packing, labelling, testing, repairs, mixing etc. will not
qualify as 'manufacture'.
The definition of 'job work' nowhere states that 'job work' should not result in 'manufacture'
of a product.
In fact, many entries in Sr No. 26(i) and 26(ia) of Notification No. 11/2017-CT (Rate) dated
28-6-2017 specifically use the term 'manufacture' at various places like manufacture of clay
bricks, leather goods, footwear, handicraft goods and umbrella. The description like printing
 568

of newspaper and books, all food products, bus body building in Sr No. 26(i) is clear that
activity of 'job work' can result in manufacture.
31A.1-3 Term 'job work' applies only when 'inputs' (goods) are sent by 'registered person'
- job worker need not be registered under GST
The description of heading 9988 is 'manufacturing services on physical inputs (goods) owned
by others'.
"Input" means any goods other than capital goods, used or intended to be used by a supplier
in the course or furtherance of business - section 2(59) of CGST Act.
Definition of 'job work' under section 2(68) of CGST Act makes it clear that the term 'job
work' can be used only when inputs (goods) are sent by 'another registered person'. The
definition of 'job work' uses the term 'process by a person'. Thus, the job worker need not
be registered under GST.
'Input' does not include 'capital goods'. Thus, capital goods cannot be sent for 'job work'
though capital goods can be sent for maintenance or repairs for which heading in 9987.
31A.1-4 Processing done for unregistered person is covered under clause 26(iv) of
Notification No. 11/2017-CT (Rate) dated 28-6-2017
Sr No. 26(id) of Notification No. 11/2017-CT (Rate) dated 28-6-2017 reads as follows -
'services by way of job work other than (i), (ia), (ib) and (ic) above'. The GST rate is 12%.
Sr No. 26(iv) of Notification No. 11/2017-CT (Rate) dated 28-6-2017 reads as follows -
Manufacturing services on physical inputs (goods) owned by others, other than (i), (ia), (ib),
(ic), (id), (ii), (iia) and (iii) of Sr No. 26. The GST rate is 18%.
Thus, Sr no. 26(id) (residual entry) covers job work where inputs are sent by registered
person (the process may or may not result in 'manufacture', while Sr No. 26(iv) (last residual
entry) covers manufacturing services (processing) where inputs (goods) are sent by
unregistered person.
The reason is that Sr No. 26(id) is a 'specific description' which prevails over Sr No. 26(iv)
(which is last residual entry) which is a 'general description'.
Thus, in respect of residual entries 26(id) and 26(iv), the GST rates are as follows -
Service provider Service recipient (owner of inputs who GST Rate
has sent inputs for processing)

Registered job Registered person 12% [Sr. No. 26(id)] (the process may or
worker may not result in 'manufacture') - This
view confirmed in CBI&C circular No.
126/45/2019-GST dated 22-11-2019.
Registered Unregistered person 18% [Sr No. 26(iv)] (the process may or
person may not result in 'manufacture')
Unregistered Any person (registered or unregistered) No GST as supplier of service is
person unregistered

31A.1-5 Summary of GST Rates on manufacturing services (which includes job work) w.e.f.
1-10-2019
 569

GST rates on job work are specified in Sr No. 26 of Notification No. 11/2017-CT (Rate) and
No. 8/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017 as amended from time
to time.
Broadly the rates w.e.f. 1-10-2019 are as follows -
Job work or processing of printing of newspapers, textile and textile products, books,
hides and skins and leather, manufacture of leather goods or footwear, printing of
paper products where GST rate is Nil or 5%, gold, silver, precious stones, platinum
(but not diamonds), hides, food items, clay bricks, handicraft goods - GST rate 5%
(CGST 2.5% and SGST/UTGST 2.5% or IGST 5%) - Sr Nos. 26(i) and (ii) - heading 9988
[same rate earlier also from 13-10-2017 to 30-9-2019]
Job work or processing of manufacture of umbrellas and printing of paper products
where GST rate is 12% - GST rate 12% (CGST 6% and SGST/UTGST 6% or IGST 12%) -
Sr. Nos. 26(ia) and (iia) - heading 9988 [same rate earlier also from 13-10-2017 to 30-
9-2019]
Job work on diamonds falling under chapter 71 - GST rate 1.5% [CGST 0.75% plus
SGST/UTGST 0.75% or IGST 1.5%] - Sr No. 26(ib) inserted w.e.f. 1-10-2019 - sender of
inputs must be registered person [earlier, the rate was 5% during 1-7-2017 to 30-9-
2019]

Job work in relation to bus body building - GST rate 18% (CGST 9% and SGST/UTGST
9% or IGST 18%) - Sr No. 26(ic) - sender of inputs must be registered person [same
rate earlier also from 1-7-2017] 'Bus body building' shall include building of body on
chassis of any vehicle under chapter 87 of Customs Tariff - Explanation to Sr No. 26(ic)
inserted w.e.f. 22-11-2019 [Since this is only 'explanation', the amendment may act
retrospectively].
Job work other than above, when inputs sent by registered person - GST rate 12%
(CGST 6% and SGST/UTGST 6% or IGST 12%) - Sr No. 26(id) [During 1-7-2017 to 30-9-
2019, the GST rate was 18%] - rate 12% whether activity results in manufacture or
not - This view confirmed in CBI&C circular No. 126/45/2019-GST dated 22-11-2019.
Manufacturing services of tailoring- GST rate 5% [CGST 2.5% and SGST/UTGST 2.5%
or IGST 5%] - Sr. No. 26(iii) [same rate earlier also from 25-1-2018 to 30-9-2019] [The
sender of material may or may not be registered] - disputes possible as intention of
GST Council was to reduce rate to 12% only for machine job work such as in
engineering industry.

Manufacturing services on physical inputs (goods) owned by others [other than

above], where inputs sent by unregistered person - GST rate 18% (CGST 9% and
SGST/UTGST 9% or IGST 18%) - Sr No. 26(iv) [same rate earlier also from 1-7-2017 to
30-9-2019] [Activity may or may not result in 'manufacture']
Services by way of printing of newspapers, books (including Braille books), journals
and periodicals, which attract IGST @ 12% or 5% or Nil, where only content is supplied
by the publisher and the physical inputs including paper used for printing belong to
 570

the printer would attract GST rate of 12% - [6% CGST and 6% SGST or 12% IGST]. - Sr
No. 27(i) - heading 9989.
Other manufacturing services, publishing, printing and reproduction services,
material services would attract GST rate of 18% - [9% CGST and 9% SGST/UTGST or
18% IGST]. - Sr No. 27(ii) - heading 9989.
Repairs, maintenance and installation (except construction) - GST rate of 18% - [9%
CGST and 9% SGST/UTGST or 18% IGST]. - Sr. No. 25(ii) - heading 9987.
In case of supply of maintenance, repair or overhaul service in respect of aircrafts,
aircraft engines and other aircraft components or parts supplied to a person for use
in course or furtherance of business, the GST rate is 5% w.e.f. 1-4-2020. SAH code is
9987 - Sr No. 25(ia) of Notification No. 11/2017-CT (Rate) dated 28-7-2017 inserted
w.e.f. 1-4-2020.

31A.1-6 Job worker can use some of his own material

Use of incidental material is no bar in job work - Job worker is person who contributes
mainly through labour and skill, though done with the help of tools, gadgets or machinery,
as the case may be. - . - When job worker contributes his own raw material to articles
supplied by customers and manufactures different goods, it does not amount to job work.
However, addition of minor items by job worker would not detract it being a job work - like
a tailor stitching a shirt out of cloth supplied by his customer, may use his own buttons,
thread and lining cloth and such an activity amounts to job work. - Prestige Engineering v.
CCE 1994 (73) ELT 497 (SC). - quoted and followed in JSW Energy Ltd. In re (2020) 80 GST 575
= 117 taxmann.com 319 (AAAR - Maharashtra).
Use of own material by job worker not a bar - Normally, a 'job worker' can use only minor
items. However, as rightly observed in Shakti Insulated Wires Ltd. v. CCE 1999 (114) ELT 424
(CEGAT), excise exemption Notification No. 214/86-CE does not prohibit a job worker from
utilising other inputs in addition to raw material received by him and recover charges
therefor from the principal manufacturer. Thus, there is no bar under Central Excise from
using own material in addition to material supplied by principal manufacturer - same view
in CCE v. Abhinav Chemicals (2012) 284 ELT 589 (CESTAT) * Sachin Metal Works v. CCE (2013)
38 STT 354 = 29 taxmann.com 344 (CESTAT). [decisions under Central Excise but principles
apply to GST also].
Job worker can use his material in addition to goods supplied by Principal for job work. It
does not change nature of activity. The GST rate will be same as rate on job charges -
Industrial Engineering Corporation In re [2020] 80 GST 298 = 110 taxmann.com 497 (AAR-
Kerala).
In customs case also, it has been held that in absence of any restriction in notification, the
job worker can use his own material in job work - CC v. Sujag Fine Chemicals (2014) 45 GST
471 = 45 taxmann.com 286 (Bom. HC DB).
31A.2 GST rates on various types of job work and manufacturing services
 571

The GST rates on job work [where sender of inputs (goods) is registered person] and
manufacturing services [where sender of inputs (goods) is unregistered person] are
elaborated below.
31A.2-1 Concessional rate of 5% for certain job work
In case of job work relating to printing, textile, jewellery and hides and skins, handicrafts,
processing of foods etc., the GST rate is 5% [2.5% CGST and 2.5% SGST/UTGST or 5% IGST].
Since the term is 'job work', sender of inputs should be registered person.
The detailed coverage under this provision is as follows [Sr No. 26(i) of Notification Nos.
11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017
as amended from time to time] -
Services by way of job work in relation to-
(a) Printing of newspapers [this entry also appears in Sr No. 26(ii)(a) of same notification]
(b) Textiles and textile products falling under Chapters 50 to 63 in the First Schedule to
the Customs Tariff Act, 1975 - amended w.e.f. 22-8-2017 [During 1-7-2017 to 22-8-
2017, the entry was as follows -Textile yarns (other than of man-made fibres) and
textile fabrics]. Thus, from 22-8-2017, job work of garments will also be subject to
GST @ 5%.
(c) All products other than diamonds, falling under chapter 71 of Customs Tariff Act,
1975 [Pearls, precious and semi-precious stones, precious metals (like gold, silver,
platinum) and their Articles, imitation jewellery, coin] [Till 13-10-2017, the words
were as follows - Cut and polished diamonds; precious and semi-precious stones; or
plain and studded jewellery of gold and other precious metals, falling under Chapter
71 in the First Schedule to the Customs Tariff Act, 1975] [The words 'other than
diamonds' has been added w.e.f. 1-10-2019. After 1-10-2019, GST rate on job work
in relation to diamonds is 1.5% [CGST 0.75% plus SGST/UTGST - 0.75%, or IGST 1.5%].
(d) Printing of books (including Braille books), journals and periodicals [this entry also
appears in Sr No. 26(ii)(b) of same notification]
(da) Printing of all goods falling under chapter 48 or 49 which attract GST rate of 5% or Nil
[inserted w.e.f. 13-10-2017] [this entry also appears in Sr No. 26(ii)(c) of same
notification]
(e) Processing of hides, skins and leather falling under Chapter 41 in the First Schedule
to the Customs Tariff Act, 1975 (51 of 1975).
(ea) manufacture of leather goods or foot wear falling under Chapter 42 or 64 in the First
Schedule to the Customs Tariff Act, 1975, respectively [This sub-clause inserted w.e.f.
25-1-2018].
(f) all food and food products falling under chapters 1 to 22 of Customs Tariff Act
[inserted w.e.f. 13-10-2017]
 572

(g) all products falling under Chapter 23 of Customs Tariff Act [residues and waste from
food industries, prepared animal fodder] except dog and cat food put up for retail
sale falling under heading 2309 10 00 [inserted w.e.f. 13-10-2017]
(h) manufacture of clay bricks falling under tariff item 6901 00 10 [inserted w.e.f. 13-10-
2017]
(i) Manufacture of handicraft goods as defined in Notification No. 32/2017-CT dated 15-
9-2017 [inserted w.e.f. 15-11-2017]. 'Handicraft' has same meaning as assigned to it
in Notification No. 32/2017-CT dated 15-9-2017.

Manufacture of tea bags on job work basis - In Vedika Exports Tea (P.) Ltd., In re [2019] 72
GST 97 = 101 taxmann.com 478 (AAR-West Bengal), applicant, under an agreement entered
into with Hindustan Unilever Ltd. (HUL), was manufacturing tea bags from physical inputs
owned by HUL and pack them in cartons, wraps them up and put them in specially designed
boxes. It was held that the service is classifiable as job work under Heading No. 9988 and
taxable at rate of 5% (as it is food item).
31A.2-2 Job work of manufacture of umbrella
GST rate in respect of job work of manufacture of umbrella is 12% [(6% CGST and 6% SGST)
or 12% IGST] w.e.f. 13-10-2017 - Sr No. 26(ia) of Notification Nos. 11/2017-CT (Rate) and No.
8/2017-IT (Rate) both dated 28-6-2017 amended w.e.f. 13-10-2017. The sender of inputs
should be registered under GST.
31A.2-3 Process (manufacturing service) of tailoring
GST rate in respect of tailoring services is 5% [(2.5% CGST and 1.5% SGST) or 5% IGST] w.e.f.
25-1-2018 - Sr No. 26(iii) of Notification Nos. 11/2017-CT (Rate) and No. 8/2017-IT (Rate)
both dated 28-6-2017 inserted on 25-1-2018. The sender of inputs may or may not be
registered under GST.
31A.2-4 Job work in relation to diamonds
GST rate on services of job work in relation to diamonds falling under chapter 71 of Customs
Tariff Act is 1.5% [CGST 0.75% plus SGST/UTGST - 0.75% or IGST 1.5%] w.e.f. 1-10-2019 - Sr
No. 26(ib) of Notification Nos. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-
2017 inserted w.e.f. 1-10-2019. The sender on inputs should be registered person.
Till 1-10-2019, the GST rate was 5%.
31A.2-5 Job work in relation to bus body building
In case of Job work in relation to bus body building, the GST rate is 18% [CGST 9% plus
SGST/UTGST - 9%, or IGST 18%] w.e.f. 1-10-2019 - Sr No. 26(ic) of Notification Nos. 11/2017-
CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-10-2019. The
sender on inputs should be registered person.
'Bus body building' shall include building of body on chassis of any vehicle under chapter 87
of Customs Tariff - Explanation to Sr No. 26(ic) inserted w.e.f. 22-11-2019 [Since this is only
'explanation', the amendment may act retrospectively].
Even earlier, the general rate of 18% was applicable.
 573

In Automobile Corporation of Goa Ltd., In re [2018] 71 GST 133 = 98 taxmann.com 317 (AAR
- Goa), applicant was engaged in building and mounting of body on chassis provided by
customer under FOC Challan. It was held that the said activity will result in supply of services
under HSN 9988 and taxable at rate of 18 per cent - same view in Kondody Autocraft (India)
(P.) Ltd., In re [2019] 74 GST 36 = 104 taxmann.com 34 (AAR - Kerala). * Tube Investments of
India Ltd., In re [2020] 120 taxmann.com 350 (AAR - Tamil Nadu).
In Rohan Coach Builders, In re [2019] 75 GST 1 = 107 taxmann.com 4 (AAR - Madhya
Pradesh), it has been held that fabrication of bus body on chassis supplied by OEM (Principal)
on delivery challan or any other owner of chassis on receiving job charges (including inputs
required for such fabrication work) is job work taxable under SAC 998881, as 'Manufacturing
services on physical inputs (goods) owned by other'. It is taxable at rate of 18 per cent (9%
CGST and 9% SGST) - same view in Sanghi Brothers (Indore) (P) Ltd. In re (2019) 74 GST 680
= 107 taxmann.com 10 (AAR-Maharashtra) * V E Commercial Vehicles Ltd., In re [2020] 118
taxmann.com 144 (AAR - MP) * AB N DhruvAutocraft (India) (P.) Ltd., In re [2020] 119
taxmann.com 196 (AAR - Gujarat).
Activity of job work making bullet proof body building done on chassis of motor vehicles
supplied by customer (i.e. free supply) is a supply of Service attracting GST 18% - Jeet & Jeet
Glass & Chemicals (P.) Ltd., In re [2021] 124 taxmann.com 188 (AAR- Rajasthan).
In Arpijay Fabricators (P.) Ltd., In re [2018] 96 taxmann.com 44 [2018] 68 GST 815 (AAR -
Madhya Pradesh) it was held that body building on chassis is a composite supply. If principal
supply is service, it would be job work under heading 9988.
In a contrary decision, in Paras Motor Industries, In re [2018] 95 taxmann.com 218 = 69 GST
293 (AAR - Haryana), it was held that activity of fabrication and fitting and mounting of bus
bodies on chassis supplied by other party is a composite supply of service with supply of
goods, i.e., bus bodies, being principal supply and same is covered under HSN Code 8707.
Body building of tippers and trailers - Services of fabrication and tippers and trailers are
covered under Heading 9988 as manufacturing services on physical inputs (goods) owned by
others in Terms of Sl. No. 26(ii) of Notification No. 11/2017-Central Tax (Rate), dated 28-6-
2017 initially and subsequently under Sl. No. 26(iii)/(iv) respectively, consequent to
amendment of said entry No. 26 of aforesaid Notification. Thus, applicant is eligible to
charge concessional rate of GST at rate of 18 per cent (9% CGST plus 9% SGST) - SLN Tech-
Fabs (Bengaluru) (P.) Ltd., In re [2020] 113 taxmann.com 370 (AAR - Karnataka).
Supply of ready built body and mere mounting on chassis is supply of goods, while step by
step building of bus body is supply of service - Supply of ready built body and mere
mounting on chassis supplied by owner is supply of goods under heading 8707 attracting
GST rate of 28%, as it is composite supply where principal supply is of goods i.e. body.
However, step by step building of bus body supplied by owner, using own inputs and capital
goods by supplier is supply of service falling under heading 9988, with GST rate 18%, in terms
of CBI&C circular No. 52/26/2018-GST dated 9-8-2018. - Tata Marcopolo Motors Ltd. In re
(2019) 75 GST 183 = 107 taxmann.com 223 (AAR-Maharashtra).
31A.2-6 Job work other than printing, textile, bus body building, diamonds, food items etc.
 574

In case of Job work other than printing, textile, bus body building, diamonds, food items etc.
(for which other rate has been prescribed), GST rate is 12% [CGST 6% plus SGST/UTGST - 6%
or IGST 12%] w.e.f. 1-10-2019 - Sr. No. 26(id) of Notification Nos. 11/2017-CT (Rate) and No.
8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-10-2019. The sender on inputs
should be registered person.
Earlier, the GST rate was 18% for all job work other than printing, textile, bus body building,
diamonds, food items etc., for which specific rates have been prescribed.
The GST rate is 12% whether or not activity results in 'manufacture', if sender of inputs is
registered person. This view is confirmed in CBI&C circular No. 126/45/2019-GST dated 22-
11-2019.
Electroplating components provided by customers - Electroplating components provided
by customers is job work. It is supply of service under heading 9988. Applicable rate w.e.f.
1-10-2019 is 12% if goods received from registered person and 18% if goods received from
unregistered person - Electroplating and Metal Finishers In re (2020) 82 GST 410 = 115
taxmann.com 98 (AAR-TN). * ENP Techno Engineers, In re [2021] 123 taxmann.com 407 (AAR
- Gujarat).
31A.2-7 Repairs and maintenance is not job work
Repairing and servicing of transformers owned by another person is not job work as defined
under section 2(68) of the GST Act. It is composite supply unless the contract specifies that
the goods and services are to be separately charged. The principal supply is the service of
repair of transformers classifiable under SAC 998719 and taxable @ 18% - Alok Bhanuka., In
re [2019] 73 GST 512 = 103 taxmann.com 433 (AAR-West Bengal).
This is correct as maintenance, repair and installation services (except construction) fall
under heading 9987. Hence, GST rate should be 18%.
31A.2-8 Maintenance, repair or overhaul of aircraft
In case of supply of maintenance, repair or overhaul service in respect of aircrafts, aircraft
engines and other aircraft components or parts supplied to a person for use in course or
furtherance of business, the GST rate is 5% w.e.f. 1-4-2020. SAH code is 9987 - Sr No. 25(ia)
of Notification No. 11/2017-CT (Rate) dated 28-7-2017 inserted w.e.f. 1-4-2020.
31A.2-9 Repairs during warranty with parts, on behalf of Principal in composite supply of
service
In Premier Car Sales Ltd., In re [2021] 125 taxmann.com 362 (AAR- Uttar Pradesh), applicant
entered with dealership agreement with automobile manufacturer Hyundai Motors India
Ltd. (HMIL). Under the dealership agreement, applicant was providing repair services to
customers on behalf of HMIL during warranty period. The repair services carried out by
applicant was to fulfil warranty obligation of HMIL. This involved labour plus supply of parts.
It was held that this would be classified as a composite supply of services under heading
9987, with GST rate of 18%.
[In automobile repair industry, general practice is to make invoice separately for parts and
service charges. Thus, trade practice is to treat these two supplies as separate supply].
31A.3 Services in relation to printing work
 575

In case of services by way of job work any treatment or process on goods belonging to
another person, in relation to- (a) printing of newspapers - - (d) printing of books (including
Braille books), journals and periodicals and (da) printing of all goods falling under chapter 48
or 49 which attract Nil or 5% GST, the GST tax rate is 5% [2.5% CGST and 2.5% SGST) or 5%
IGST. - Entry inserted w.e.f. 22-8-2017 - Sr No. 26(i) of Notification No. 11/2017-CT (Rate)
and No. 8/2017-IT (Rate) both dated 28-6-2017 inserted on 25-1-2018. The sender of inputs
should be registered person.
Similar entries appear in Sr No. 26(ii)(a), 26(ii)(b) and 26(ii)(c) of same notification. The words
used are 'services by way of any treatment or process on goods belonging to another
person'. Here, sender of inputs (goods) should be unregistered person.
In case of services by way of any treatment or process on goods belonging to another person,
in relation to printing of all goods falling under Chapter 48 or 49 where IGST rate is 12% [or
CGST 6% plus SGST/UTGST 6%] the rate is 12% [6% CGST and 6% SGST] or 12% IGST - Sr No.
26(iia) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017
inserted on 13-10-2017. Sender of inputs (goods) should be unregistered person.
Any job work or process in relation to printing has same rate as that of printing - Since the
words used are 'in relation to', any ancillary service in relating to printing of newspaper,
books, journals and periodicals, the GST rate will be 5%.
The expression 'in relation to' (so also 'pertaining to') is a very broad expression, which pre-
supposes another subject matter. These are words of comprehension which might both have
a direct significance as well as an indirect significance depending on the context. -. - 'Relating
to' is equivalent to or synonymous with as to 'concerning with' and 'pertaining to'. The
expression 'pertaining to' is an expression of expansion and not of contraction - Doypack
Systems (P) Ltd. v. UOI (1988) 2 SCR 962 = 1988 2 SCC 299 = (1989) 65 Comp Cas 1 = 1988
(36) ELT 201 (SC) = AIR 1988 SC 782 * Tamil Nadu Kalyana Mandapam Association v. UOI
2004 (167) ELT 3 = 4 STT 308 = 267 ITR 9 = 136 Taxman 596 = 135 STC 480 (SC) CCE v. Solaris
Chemtech (2007) 7 SCC 347 = 9 STT 412 = 214 ELT 481 (SC) * Mansukhlal Dhanraj Jain v.
Eknath Vithal Ogale (1995) 2 SCC 665.
'In relation to' are words of comprehensiveness which might have both a direct significance
or indirect significance depending on the context. They are not words of restrictive content.
- State Waqf Board v. Abdul Azeer Sahib (1967) 1 MLJ 190 = AIR 1968 Mad 79 * State of
Karnataka v. Azad Coach Builders (2010) 9 SCC 524 = 7 taxmann.com 28 = 4 GST 72 = 36 VST
1 = 262 ELT 32 (SC 5 member bench).
The expression 'in relation to' is of widest import. - Thyssen Stahlunion GMBH v. Steel
Authority of India 1999 AIR SCW 4016 = AIR 1999 SC 3923 = 1999 (6) SCC 334.
31A.3-1 Printing work when only contents are supplied by publisher
Publishing, printing and reproduction services fall under heading 9989 and group 99891.
Services by way of printing of newspapers, books (including Braille books), journals and
periodicals, which attract IGST @ 12% or 5% or Nil, where only content is supplied by the
publisher and the physical inputs including paper used for printing belong to the printer
would attract GST rate of 12% - [6% CGST and 6% SGST] or 12% IGST. - Sr No. 27(i) of
 576

Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) w.e.f. 22-8-2017 [The words in
italics inserted w.e.f. 13-10-2017].
Other manufacturing services, publishing, printing and reproduction services, material
services (other than above) would attract GST rate of 18% - [9% CGST and 9% SGST/UTGST
or 18% IGST]. - Sr No. 27(ii) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate)
w.e.f. 22-8-2017 [The words in italics inserted w.e.f. 13-10-2017].
Printing of question papers falls under 9989 and if not for educational institution, GST rate
is 12% - Manaswi Das, In re [2021] 125 taxmann.com 45 (AAR-UP).
Departmental clarification - CBI&C circular No. 354/263/2017-TRU dated 20-10-2017
clarifies that supply of printing where only contents are supplied by publisher is a composite
supply and predominant nature is 'supply of printing' (whatever that means) and supplies
would be supply of service falling under heading 9989.
As per the departmental circular, in case of printed envelopes, letter cards, printed boxes,
tissues, napkins, wallpaper etc. falling under chapter 48 or 49 of Customs Tariff, printed with
design, logo etc. supplied by recipient of goods but made using physical inputs including
paper belonging to printer, predominant supply is that of goods and supply of printing of
content (supplied by recipient of supply) is ancillary to principal supply of goods and
therefore would constitute supply of goods falling under heading 48 or 49 of Customs Tariff.
Printing of books on basis of contents supplied by published - goods or service?
Really validity of the provision and circular of treating the activity as service is highly
doubtful. If the printer himself purchases the paper, his activity is not job work at all, as he
is not undertaking any process on goods supplied by another person. What he is doing is
manufacturing a book and supplying duly printed book. These are 'goods' i.e. 'printed books'
falling under HSN heading 4901. The GST rate is Nil. The GST Tariff does not make any
distinction between contents supplied by another and own contents.
The distinction made by CBI&C in their circular dated 22-8-2017 between printing of books
and printing of envelopes, letter cards, tissues etc. is really artificial and imaginary. I am sure
matter will go to Court. Let us see what view Court takes.
In Sukee Printpack LLP., In re [2019] 110 taxmann.com 195 (AAR - Karnataka), the applicant
indeed raised the issue that if all printing is held as 'service', then chapters 48 and 49 in
Customs Tariff become redundant. However, without answering this issue, it was held that
this is service.
In Chhattisgarh Text Book Corporation In re (2019) 72 GST 563 = 102 taxmann.com 30 (AAR-
Chhattisgarh), it has been (indeed rightly) held that supplying educational books as per
instructions of School Education Department is exempt from GST, as it is supply of printed
books attracting zero rate of tax.
In Sri Venkateswara Enterprises In re [2020] 78 GST 686 = 110 taxmann.com 240 (AAR-Karn),
it was held that printing of text books as per contents supplied by Karnataka State Pre-
University Board and selling the text books to re-sellers as printed text books are classifiable
under heading 4901 and are exempt. In this case, the applicant was using his own material
like paper, inks, chemicals, manpower and machinery.
 577

In Datacon Technologies In re [2020] 79 GST 55 = 110 taxmann.com 394 (AAR-Karn), it was

held that printing of answer booklet with water mark of Karnataka State Secondary
Education Board printed on each page, where paper is of applicant himself, constitutes
supply of goods falling under heading 4802 with GST @ 12%.
In Pattabi Enterprises In re (2020) 120 taxmann.com 237 (AAAR- Karn), it was held that
printing of 'access cards' with own paper, machinery, ink etc. as per design (contents)
supplied by recipient is supply of goods under 4901 1020 and GST rate is 5%. Printing is
service rendered by applicant to himself and not to recipient.
In Sonka Publication (India) (P.) Ltd. v. Union of India [2019] 105 taxmann.com 162 (Delhi HC
DB), it has been held that 'Sulekh Sarita' are 'Printed Books' classifiable under 'HSN 4901'
and are wholly exempted from GST [The issue was different but point is that the
classification as 'printed books' has been accepted].
Printed books are covered under heading 4901 and are exempt - Ideal Industrial Synergy
Solutions P Ltd. In re (2020) 81 GST 686 = 117 taxmann.com 295 (AAR-Karn).
Printing bible for foreign customer and supply within India - In Swapna Printing Works (P.)
Ltd., In re [2018] 71 GST 467 = 100 taxmann.com 448 (AAR-West Bengal), applicant had
received a specific order from a foreign customer, Gideons International, for printing and
binding Bibles. Printed copies of the Bible were required to be delivered to the recipient's
branch in India. It was held that the Applicant's activity is a supply of service classifiable
under SAC 9989, but said supply is not the export of service, as the recipient of the service
is located in India. Hence, GST is payable - same view in Swapna Printing Works (P.) Ltd., In
re [2020] 82 GST 41 = 115 taxmann.com 130 (AAR-WEST BENGAL) [Not clear why applicant
went again to AAR].
[Really in my view, it is supply of goods but not export of goods as goods do not leave India.
Supply of books is actually exempt from GST].
Printing of cheque book - Job work of Supply of 'Printing of cheque books' (where paper is
being supplied by banks) are classifiable under heading 9988 and attracts GST at rate of 5
per cent (2.5 per cent CGST + 2.5 per cent SGST). Supply of cheque books (where printing
paper and inks are being borne by applicants) are classifiable under heading 4907 as goods
and would not attract any GST as they are exempted supply in terms of Serial No. 118 to
Notification No. 02/2017-Central Tax (Rate), dated 28-6-2017 - K L Hi-tech Secure Print Ltd.
In re (2018) 98 taxmann.com 127 (AAR-Telangana).
31A.3-2 Supply of printed books where the supplier owns copyright of material
In FAQ No. 6 of FAQ (Short) on Services issued by CBI&C on 29-8-2017, it was clarified that
supply of books shall be treated as supply of goods as long as the supplier owns the books
and has the legal rights to sell the books on his own account.
This has been elaborated in CBI&C circular No. 27/1/2018 dated 4-1-2018, where it has been
clarified that if the books are printed after obtaining copyright from author or another
publisher, it will be treated as supply of books so long as supplier owns the books and has
right to sale those books on his account.
31A.3-3 Printing of contents (like photographs, posters, designs) supplied by customer on
photographic paper - whether goods or service
 578

Printing of contents (like photographs, posters, designs) supplied by customer on

photographic paper is not 'supply of goods' i.e. not supply of 'other printed matter' under
chapter heading 4911. The activity is service of 'printing of photograph from media'
classifiable as service under heading 9989 (GST rate 12%) - Photo Products Company (P) Ltd.
In re (2018) 68 GST 371 = 93 taxmann.com 479 (AAR - West Bengal) [However, as per CBI&C
circular No. 84/03/2019-GST dated 1-1-2019, printing of picture falls under service code
998386 and tax rate is 18%]
In Colortone Process (P) Ltd. In re (2019) 74 GST 14 = 105 taxmann.com 221 (AAR-Kerala), it
has been held that colour printing of images from digital media is covered under service
classification 998386 and taxable @ 18%.
Printing of content provided by recipient on PVC materials of applicant and supply of printed
trade advertising material to recipient is a composite supply, in which supply of service of
printing is principal supply. Service is classifiable under SAC 998912 and applicable rate is
12% - Macro Media Digital Imaging (P.) Ltd., In re [2020] 120 taxmann.com 411 (AAR - Tamil
Nadu). - confirmed in appeal in Macro Media Digital Imaging (P.) Ltd., In re [2021] 125
taxmann.com 283 (AAAR - Tamil Nadu).
In Macro Media Digital Imaging P Ltd. (2020) 81 GST 777 = 113 taxmann.com 99 (AAAR-WB),
it has been held that printing of content given by customer of banner and supply of such
printed material is composite supply of services under heading 9989.
In Macro Media Digital Imaging (P.) Ltd., In re [2020] 122 taxmann.com 187 (AAAR-
KARNATAKA), it has been held that trade advertisements printed and supplied by appellant
is classifiable under Heading No. 4911 10 and attracts GST rate of 12% [reversing decision in
Macro Media Digital Imaging (P.) Ltd., In re[2020] 115 taxmann.com 63 (AAR - KARNATAKA),
where it was held that printing of content provided by customer on Poly Vinyl Chloride (PVC)
banners and supply of such printed trade advertisement material is supply of services
classifiable under Heading No. 9989. Applicable rate of GST on supply of aforesaid service is
18% up to 30-10-2017 and 12% effective from 31-10-2017, as per Entry No. 27 of Notification
No. 11/2017-Central Tax (Rate), dated 28-6-2017.
In Macro Media Digital Imaging P Ltd. (2018) 68 GST 409 = 94 taxmann.com 135 (AAR-
Telangana), it has been held that the activity is classifiable as supply goods under heading
4911 (Other printed matter), as it is transfer of title in goods i.e. movable property - same
view in Macro Media Digital Imaging (P.) Ltd., In re [2020] 117 taxmann.com 801 (AAR - AP).
Flex banner printing is transferring title in goods to the customers in form of printed flex
material. It is supply of goods under heading 4911 with GST rate of 12% - Sree & Co., In re
[2020] 80 GST 823 = 117 taxmann.com 919 (AAR - AP).
In my view, the decisions of Telangana and AP AAR seems more logical. However, now all
printing is being considered as 'service' only (though in my view wrongly).
Service of printing of pictures carry GST rate of 18% - As per CBI&C circular No. 84/03/2019-
GST dated 1-1-2019, printing of picture falls under service code 998386 i.e. 'photographic
and video-graphic processing services' and tax rate is 18%. It is not covered under 'printing
and reproduction services of recorded media, on a fee or contract basis under service code
998912 where GST rate is 12%. The circular makes reference to explanatory notes to scheme
 579

of classification of services', which CBI&C had issued vide CBI&C press release dated 11-6-
2018, as a guiding tool. Thus, it has no statutory significance.
The circular itself clarifies that when a service is based on its description, specific description
shall be preferred over a more general description. Even otherwise, it is settled law that
specific description prevails over general description. Rule of Interpretation of Customs
Tariff also state that later entry should be preferred over earlier entry when both entries are
specific. Thus, the CBI&C circular does not seem to be correct.
In Colo Color (Prop. Hiral Pinkal Rambhia), In re [2019] 75 GST 645 = 107 taxmann.com 383
(AAR - Maharashtra), it has been held that printing and reproduction services of recorded
media, on a fee or contract basis, falls under SAC 998386 and the subject transaction is
therefore covered under Entry No. 21 of Notification No. 11/2017-Central Tax (Rate), dated
28-6-2018 and attracts GST at rate of 18%.
31A.3-4 Printing of question papers
In Edutest Solutions (P.) Ltd., In re [2018] 69 GST 820 = 98 taxmann.com 9 (AAR-Gujarat), it
has been held that activity of printing of test papers/question papers by applicant for its
clients (Secondary and Higher Secondary Education Boards of various States, other
educational institutes and others) should be treated as supply of service under 9989. In this
case, manuscript material for printing question papers relating to examinations was supplied
to applicant by Boards and he was printing with own paper. It was held that this activity
classified as services under Heading 9989 and tax rate is 12% (6% CGST plus 6% SGST/UTGST
or 12% IGST). However, if service is supplied to educational institution, it would be exempt.
- same view in Maxwell Co P Ltd. In re (2020) 113 taxmann.com 527 (AAR-UP).
In Ashok Kumar Basu., In re [2018] 69 GST 775 = 97 taxmann.com 665 (AAR-West Bengal), it
has been held that service of printing Question Papers for Educational Institutions for
specific examination is classifiable under SAC 9992 (education services). Service to such
Educational Institutions relating to conduct of examination, as described in 66(b)(iv) of
Notification No.12/2017-CT(Rate) dated 28-6-2017, includes supply of service of printing
question papers, and is exempt under GST Act. It is exempt supply.
Service of printing of question papers, OMR sheets, answer books, mark sheet, scanning and
processing of results is for conducting examination and is exempt - K L Hi-tech Secure Print
Ltd. In re (2018) 98 taxmann.com 127 (AAR-Telangana).
In my view, really it is supply of goods as it is not mere job work. Even then, the question
papers should fall under HSN code 4911 and tax rate should be 12%.
Printing of question papers, OMR sheets, answer books etc. for educational Boards upto
HSC exempt - Supply of service of printing of pre-examination items like question papers,
OMR sheets (Optical Mark Reading), answer booklets and printing of post-examination items
like marks card, grade card, certificates to educational boards of up to higher secondary be
treated as exempt supply of service by virtue of Entry No. 66 of Notification No. 12/2017 -
Central Tax (Rate), dated 28-6-2017 as amended by Notification No. 2/2018 - Central Tax
(Rate), dated 25-1-2018 - Orient Press Ltd., In re [2019] 106 taxmann.com 240 (AAR -
Maharashtra).
31A.3-5 Printing of pamphlets where contents are supplied by buyer/client
 580

Printing of pamphlets where contents are supplied by buyer/client is supply of service falling
under SAC No. 9989 - Temple Packaging (P) Ltd. In re (2018) 70 GST 36 = 97 taxmann.com
154 (AAR - Daman, Diu and DNH).
31A.4 What is 'manufacture'
"Manufacture" means processing of raw material or inputs in any manner that results in
emergence of a new product having a distinct name, character and use and the term
"manufacturer" shall be construed accordingly - section 2(72) of CGST Act.
In Union of India v. Delhi Cloth Mills Co. Ltd. AIR 1963 SC 791 = 1963 Suppl (1) SCR 586 = 1977
(1) ELT (J199) (SC) (SC five member constitution bench) it has been held that the
manufacture means bringing into existence a new substance. Manufacture is end result of
one or more processes, through which original commodity passes. Thus, manufacture
implies a change but every change is not manufacture. A new and different article must
emerge having a distinctive name, character or use.
Manufacture under Central Excise law is the process or activity which brings into being
articles which are known in the market as goods, and to be goods these must be different,
identifiable and distinct articles known to the market as such. For articles to be goods, these
must be capable of being sold or being sold in the market as such - Hindustan Polymers v.
CCE - 1989 (43) ELT 165 (SC) = (1989) 4 SCC 323 = AIR 1990 SC 1676.
(For example cutting of wood in small pieces or making small pieces of a long steel bars
would not amount to manufacture as no new product emerges).
Commodity should be fit for commercial use - In UOI v. JG Glass Industries 1998 AIR SCW
573 = 97 ELT 5 = (1998) 2 SCC 32 = 78 ECR 761 = 23 RLT 768 = 114 STC 387 = AIR 1998 SC 839
= 96 Taxman 29 (SC), it was held that a process will amount to 'manufacture', if the
commodity which was already in existence will serve no purpose or will be of no commercial
use but for the process. In this case, printing of colour and logo was done on glass bottle. It
was found that even before printing, glass bottle was commercial commodity and could be
sold even without printing. Hence, it was held that printing of bottles with ceramic colour
and decoration is not 'manufacture'. In this case, two fold test was applied - (a) Whether by
the said process a different commercial commodity comes into existence or whether the
identity of original commodity ceases to exist and (b) whether the commodity which was
already in existence will be of no commercial use but for the said process. In other words,
whether the commodity already in existence will be of no commercial use but for the said
process.
Trade Parlance is important to determine whether activity is 'manufacture' - The test to
be applied is whether a commodity subject to processing retains its original character and
identity or whether the processed commodity is regarded in the trade by those who deal in
it, as distinct identity from original commodity. Nature and extent of processing may vary.
With each process, the original commodity experiences change. But it is only when the
change or series of change take commodity to a point where commercially it is recognised
as a new and distinct commodity, then it can be said that new commodity has come into
being. The test is whether in the eyes of those dealing in the commodity or in commercial
parlance, the processed commodity is regarded as distinct in character and identity from the
 581

original commodity - Sterling Foods v. State of Karnataka - 1986 (63) STC 239 = 1986(3) SCC
469 = AIR 1986 SC 1809 = 26 ELT 3 (SC) - similar views in Aditya Mills Ltd. v. UOI 73 STC 195
= 37 ELT 471 = AIR 1988 SC 2237 * DCST v. Shibhy International AIR 1988 SC 992 = 69 STC
325 (SC).
Assembly can be manufacture - Assembly of various parts and components may amount to
manufacture if new product emerges, which is movable and marketable.
In Triveni Engineering v. CCE 2000 AIR SCW 3144 = AIR 2000 SC 2896 = 40 RLT 1 = 120 ELT
273 (SC), it was held that combining steam engine turbine and alternator by fixing them on
platform and aligning them is manufacture as new product, turbo alternator, comes into
existence which has a distinctive name and use different from its components.
Assembly of various parts to make water purification plant on job work basis amounts to
'manufacture' - Poonam Spark v. CCE (2015) 51 GST 812 = 60 taxmann.com 202 (SC).
Generation of electricity from coal supplied by Principal is job work and not manufacture
of electricity - - Generation of electricity from coal supplied by Principal is job work (and not
manufacture of electricity)- JSW Energy Ltd. In re (2020) 80 GST 575 = 117 taxmann.com 319
(AAAR - Maharashtra).
Earlier, in JSW Energy Ltd. In re (2018) 68 GST 263 = 93 taxmann.com 91 (AAR - Maharashtra),
it was held that generation of electricity from coal supplied by Principal is manufacture of
electricity and not job work. This decision was confirmed in JSW Energy Ltd. In re (2018) 68
GST 332 = 95 taxmann.com 65 (AAAR - Maharashtra). In writ petition, the decision of AAAR
was remanded for reconsideration in JSW Energy Ltd. v. UOI (2019) 75 GST 102 = 108
taxmann.com 27 (Bom HC DB), as the issue was decided by AAAR on entirely new ground,
without hearing assessee. On rehearing, the decision has been reversed as above.
31A.4-1 Cases where job work has been held as 'manufacture'
In following cases, 'job work' has been held as 'manufacture'.
Mixing of materials supplied by Principal, processing it and returning final product after
manufacture is 'job work' - In Kerala Estera Polymers, In re [2019] 73 GST 599 = 104
taxmann.com 40 (AAR - Kerala), applicant was procuring some consumables. He was mixing
rubber compound on the materials supplied by the principal. He was returning the finished
products such as rubber backed mats and matting to the principal. It was held that this is
'job work' and GST rate is 5% [2.5% CGST plus 2.5% SGST/UTGST].
Manufacturing coir mats from material like carpets, coir etc. supplied by principal is job work
and is covered under heading 9988 and GST rate is 2.5% CGST plus 2.5% SGST [5%] - Irene
Rubbers In re (2019) 74 GST 141 = 105 taxmann.com 227 (AAR - Kerala).
Processing of natural gas and other inputs supplied by customer into manufactured
industrial gas - Processing of natural gas and other inputs supplied by customer into
manufactured industrial gas is job work - Prodair Air Products India (P) Ltd. In re (2018) 70
GST 740 = 98 taxmann.com 440 (AAR-Kerala).
Manufacture of industrial gases from electricity, water is Job work - In Inox Air Products
(P) Ltd. In re (2018) 68 GST 464 = 94 taxmann.com 114 (AAR-Gujarat), it has been held that
manufacture of industrial gases (Oxygen, Nitrogen and Argon) from electricity, industrial
 582

quality water and air supplied by Principal is 'job work'. The GST is payable on value of supply
as per section 15(1) of CGST Act (i.e. job charges).
Consumables can be sent for job work and these need not be returned - In Ratan Projects
& Engineering Co. (P.) Ltd., In re [2019] 73 GST 705 = 103 taxmann.com 450 (AAR-West
Bengal), applicant, a manufacturer of cable tray, angel ladder tray, etc., was sending steel
structures for galvanising to a job worker along with furnace oil, zinc, nickel that are to be
consumed in galvanising process. It was held that the goods like furnace oil, zinc etc.,
consumed in the process of galvanising are inseparable from galvanised goods. They should
not be treated as supply in terms of section 143(3) of CGST Act, provided they have been
entirely used up in the process of galvanising, even if they are not returned within time
allowed under section 143(1)(a) of CGST Act. Return of galvanised goods to applicant
satisfies condition of receiving back inputs in accordance with section 143(1)(a) of the GST
Act.
Converting Gas, DM water into Hydrogen, Nitrogen and steam is job work - In Bharat
Petroleum Corporation Ltd., In re [2018] 98 taxmann.com 436 (AAR - Kerala), applicant was
supplying Regasified Liquefied Natural Gas (RLNG), De-Mineralized Water (DM Water),
Hydrogen Rich off Gas and raw water through pipeline free of cost to a company (Job worker)
for manufacture of Hydrogen, Nitrogen and steam. It was held that this is 'job work'.
Job work permissible even if identity of inputs gets lost - In Haldia Petrochemicals v. CCE
(2005) 1 STT 261 (CESTAT), assessee was sending naptha to job worker for generation of
electricity and steam. Electricity would be supplied by job worker to assessee. It was held
that assessee will be eligible for Cenvat credit of Naptha even if identity of input is lost at
the end of job worker.
31A.5 Procedure for removal of inputs or capital goods for job work
The procedure applies only for inputs where person sending inputs is registered'. Since
repairs is not 'job work', the procedure should not apply where machinery, tools, jigs etc.
are sent for repairs, though delivery challan and records are required.
A registered person (hereinafter referred to in this section as the "principal") may, under
intimation and subject to such conditions as may be prescribed, send any inputs and/or
capital goods, without payment of tax, to a job worker for job-work and from there
subsequently send to another job worker and likewise - section 143(1) of CGST Act.
Intermediate product can be sent for job work - For the purpose of job work, input includes
intermediate goods arising from any treatment or process carried out on the inputs by the
principal or the job worker - Explanation to section 143 of CGST Act.
Intimation through quarterly return is sufficient - Though the section uses the term
'intimation', actually what is required is a quarterly return in form GST ITC-04 to be
submitted by 25th of the month succeeding the quarter, as per Rule 45 of CGST and SGST
Rules, 2017. Intimation of every job worker or every dispatch to job worker is not required -
para 8.4(vi) of CBI&C circular No. 38/12/2018 dated 26-3-2018.
31A.5-1 Principal with reference to job work
Person sending goods for job work is termed as 'Principal'. He should be a registered person.
 583

The term 'principal' used with reference to job work is different from the term 'principal' as
defined in section 2(88) of IGST Act.
'Principal' for purpose of job work provisions means a registered person who sends any
inputs and/or capital goods, without payment of tax, to a job worker for job-work and from
there subsequently send to another job worker and likewise - section 143(1) of CGST Act and
Explanation to section 19(7) of CGST Act.
31A.5-2 General provisions regarding sending material for job work
The basic provisions are as follows -
Which material can be sent for job work - Inputs and capital goods can be sent for job work.
'Moulds and dies, jigs and fixtures, or tools' can also be sent for which separate provisions
have been made.
Job worker need not be registered under GST if his aggregate turnover is less than 20/10
lakhs per annum - Job worker need not be registered under GST if his aggregate turnover is
less than 20 lakhs per annum (10 lakhs per annum in case of special category States),
whether he supplies such service within the State or inter-State - para 6 of CBI&C circular
No. 38/12/2018 dated 26-3-2018.
His aggregate turnover is only of his job charges and his own material used. Value of goods
supplied by Principal are not includible in value of his aggregate turnover.
Job worker can use his own goods in addition to goods supplied by job worker - Job worker
can use his own goods in addition to goods supplied by job worker - para 5 of CBI&C circular
No. 38/12/2018 dated 26-3-2018. [However, principal supply should be job work as per
definition of 'composite supply'].
The job worker is eligible for availing Input Tax Credit of tax paid on his own goods used
during job work - para 10 of CBI&C circular No. 38/12/2018 dated 26-3-2018.
Direct dispatch of inputs and capital goods from place of supplier to place of job worker -
The inputs/capital goods can be sent to job worker from place of business of principal. These
can also be sent directly from the place of supplier of those inputs and capital goods, without
bringing them at the place of business of principal - section 19 of CGST Act.
This is obviously to reduce cost and time of double transportation.
Goods can be sent directly to place of job worker from the place of supplier without bringing
in the factory of Principal. The invoice of supplier should be in name of buyer (Principal) and
name and address of job worker should be mentioned as consignee. The Principal shall issue
Delivery Challan under rule 45 of CGST Rules and send it directly to job worker. Even
imported goods can be sent from customs station of imports to place of job worker. Here
also, Principal should prepare Delivery Challan and send it to job worker - para 8.4(iv) of
CBI&C circular No. 38/12/2018 dated 26-3-2018.
The Principal is eligible for availing Input Tax Credit on goods sent for job work even if goods
are directly supplied to place of job worker. He is of course eligible if goods are first received
in factory of Principal and then sent for job work - para 10 of CBI&C circular No. 38/12/2018
dated 26-3-2018.
31A.5-3 Bringing back goods after job work
 584

The 'principal' should bring back inputs, after completion of job-work or otherwise, and/or
capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year and
three years, respectively, of their being sent out, to any of his place of business, without
payment of tax - section 143(1)(a) of CGST Act.
The period of one year or three years can be extended by Commissioner for further period
of one year or two years respectively on sufficient cause being shown - second proviso to
section 143(1) of CGST Act inserted vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019.
This power will be exercised by jurisdictional Commissioner [amendment to section 168 of
CGST Act made vide Finance Act, 2020 w.e.f. 30-6-2020].
There is no time limit for bringing back moulds and dies, jigs and fixtures, or tools.
The term 'bring back' in this sub-section is not correct as the goods after job work can be
brought to any of the place of business of 'principal'.
'Bring back' of material sent for job work need not be in same form - In JSW Energy Ltd. In
re (2020) 80 GST 575 = 117 taxmann.com 319 (AAAR - Maharashtra), coal was sent for job
work and 'electricity' generated from coal was received from supplier. It was held that this
is 'job work'.
31A.5-4 Direct dispatch from place of job worker
After job work, the finished goods (inputs after job work or capital goods) can be sent directly
from place of job worker, instead of bringing them back to place of business of 'principal'. If
such supply is in India, GST is payable. Such goods can also be exported directly from place
of job worker, either on payment of GST or without payment of GST - section 143(1)(b) of
CGST Act - reiterated in CBI&C circular No. 88/07/2019-GST dated 1-2-2019.
The goods shall not be permitted to be supplied from the place of business of a job worker
in terms of clause (b) unless the "principal" declares the place of business of the job-worker
as his additional place of business except in a case - (i) where the job worker is registered
under section 25 of CGST Act; or (ii) where the "principal" is engaged in the supply of such
goods as may be notified by the Commissioner in this behalf - proviso to section 143(1) of
CGST Act.
If job worker is registered under GST, then the 'principal' is not required to declare the place
of job worker as additional place of business.
Supply is of Principal and not of job worker - The supply is of Principal made from place of
job worker, it is not supply made by job worker - para 7 of CBI&C circular No. 38/12/2018
dated 26-3-2018.
[Hence, invoice and e-way bill should be issued by Principal and not by job worker]
31A.5-5 Responsibility of tax and goods is of Principal
The responsibility for accountability of the goods including payment of tax thereon shall lie
with the "principal" - section 143(2) of CGST Act.
31A.5-6 If inputs or capital goods are not returned within one/three years
If inputs or capital goods are not received back by 'principal' within one/three years. GST
shall be payable as if the inputs/capital goods were supplied by the principal to job worker
 585

on the day when the inputs/capital goods were sent out - sections 143(3) and 143(4) of CGST
Act.
If inputs or capital goods are directly sent to place of job worker, the period of one/three
years will be counted from date of receipt of inputs/capital goods by the job worker - proviso
to section 19(3) and proviso to section 19(6) of CGST Act.
The meaning of 'on the day when the inputs/capital goods were sent out' can mean that (a)
GST rate as applicable on the day when they are sent out will be relevant (b) Interest for
one/three years will be payable.
Tax with interest is payable if goods are not returned within one/three years - As per
section 143 of CGST Act, if goods are not returned within one year in case of inputs and three
years in case of capital goods, the inputs and capital goods shall be deemed to have been
supplied by Principal to the job worker on the day when such inputs or capital goods are
sent out to the job worker. Thus, if inputs or capital goods are not returned within one/three
years, tax is payable by Principal with interest from the date on which goods were sent for
job work. He should raise tax invoice for that purpose and include in his return for that
period. If the goods are returned by job worker after one/three years, the job worker will be
treated as supplier and will be liable to pay GST (is he liable to pay interest also?)- para 9.5
of CBI&C circular No. 38/12/2018 dated 26-3-2018.
The period of one year or three years can be extended by Commissioner for further period
of one year or two years respectively on sufficient cause being shown - proviso to section
143(1) of CGST Act inserted vide CGST (Amendment) Act, 2018 [This amendment notified
and made effective on 1-2-2019].
This power of granting extension will be exercised by jurisdictional Commissioner
[amendment to section 168 of CGST Act made vide Finance Act, 2020 w.e.f. 30-6-2020].
Procedure for payment of tax with interest if inputs or capital goods are not returned
within 1/3 years - If inputs or capital goods are not returned within period prescribed in
section 143 (one or three years), the supply shall be declared in form GSTR-1. Tax with
applicable interest shall be paid - Rule 45(4) of CGST and SGST Rules, 2017.
31A.5-7 Special provisions relating to moulds and dies, jigs and fixtures, or tools
The provision of returning goods within one/three years is not applicable to moulds and dies,
jigs and fixtures, or tools. These may be retained at place of job worker.- section 19(7) of
CGST Act.
Moulds, tools and dies are not required to be returned to Principal - para 9.5 of CBI&C
circular No. 38/12/2018 dated 26-3-2018.
Thus, the job worker can sale them as scrap on payment of GST if he is registered. If he is
not registered, GST can be paid by 'principal' on such scrap.
Value of job charges not to include value of tools, moulds, fixtures and dies provided by
Principal if its value factored in price of supply of service - It has been clarified that value of
moulds, dies, jigs, fixtures and tools may not be included in the value of job work services
provided its value has been factored in the price of such services supplied by the job worker
- para 9.4(i) of CBI&C circular No. 38/12/2018 dated 26-3-2018 reiterated in CBI&C circular
No. 88/07/2019-GST dated 1-2-2019.
 586

The entire circular has been very well drafted and is clear, but wording of this para is highly
confusing. What is meant by 'factored'? The para itself states that as per section 15(2)(b) of
CGST Act, any amount that the supplier is liable to pay in relation to the supply but which
has been incurred by the recipient will form part of that particular supply, provided that its
value has been factored in the price of such supply. Now, the supplier of service (job worker)
is not at all liable to pay any amount for supply of such tools, dies, fixtures and moulds. Thus,
factoring of its value in the job charges of job worker is not required at all.
Hence, in my view, value of tools, dies, fixtures, moulds is not includible in the job charges
of job worker - same view in Toolcomp Systems P. Ltd., In re (2019) 108 taxmann.com 107
(AAR-Karnataka).
However, in view of vague wording in the circular, show cause notices and demands seem
possible [Tax Practitioners and Consultants will be happy that at least one vague statement
has been made in the otherwise clear and unambiguous circular].
31A.5-8 Clearance of waste and scrap arising during job work
Any waste and scrap generated during the job work may be supplied by the job worker
directly from his place of business on payment of tax if such job worker is registered, or by
the principal, if the job worker is not registered - section 143(5) of CGST Act.
The invoice may be issued by Principal if job worker is not registered. If the Principal is
located in State A and job worker is located in State B, the Principal while selling scrap should
charge IGST if recipient is located in State B or any other State. If the recipient of scrap is
located in State A, the Principal will charge SGST and CGST - para 9.4(iii) of CBI&C circular
No. 38/12/2018 dated 26-3-2018.
Job worker can sale scrap by charging GST - Industrial Engineering Corporation In re [2020]
80 GST 298 = 110 taxmann.com 497 (AAR-Kerala).
31A.5-9 Delivery challan for sending goods for job work
The inputs or capital goods shall be sent to the job worker under the cover of a challan issued
by the principal, including where the inputs or capital goods are sent directly to job- worker
- Rule 45(1) of CGST and SGST Rules, 2017.
The challan issued by the principal to the job worker shall contain the details specified in
Rule 55 of CGST Rules - Rule 45(2) of CGST and SGST Rules, 2017.
Sending goods by one job worker to another or returned to Principal - If the goods are sent
from one job worker to another job worker, the challan may be issued either by the principal
or the job worker sending the goods to another job worker. The job worker, instead of
issuing his own challan, can endorse the challan issued by the principal to another job
worker, indicating therein the quantity and description of goods where the goods are sent
by one job worker to another or are returned to the principal. The challan endorsed by the
job worker may be further endorsed by another job worker, indicating therein the quantity
and description of goods where the goods are sent by one job worker to another or are
returned to the principal -first and second proviso to rule 45(1) of CGST Rules inserted w.e.f.
23-3-2018.
The aforesaid provisions also apply to return of goods by the job worker (or the last job
worker if there are more than one job workers) to Principal i.e. the job worker can endorse
 587

the Delivery Challan issued by Principal or earlier job worker and return the goods to
Principal or earlier job worker.
The simplification is welcome. However, this is possible only when entire lot as contained in
Delivery Challan is send by one job worker to another or is returned to Principal. Hence, it is
advisable that Principal issues delivery challans in small lots so that endorsement is easy.
Another possible problem is in respect of preparing e-way bill for such movement, as details
of delivery challan number and date have to be specified in part A of e-way bill. The date of
delivery challan may be much earlier than date of e-way bill, which may create problems at
the time of road checks.
Contents of Delivery Challan - The delivery challan, serially numbered should be issued at
the time of removal of goods for transportation, containing following details (i) date and
number of the delivery challan (ii) name, address and GSTIN of the consigner, if registered
(iii) name, address and GSTIN or UIN of the consignee, if registered (iv) HSN code and
description of goods (v) quantity (provisional, where the exact quantity being supplied is not
known) (vi) taxable value (vii) tax rate and tax amount - central tax, State tax, integrated tax,
Union territory tax or cess, where the transportation is for supply to the consignee (viii) place
of supply, in case of inter-State movement, and (ix) signature - rule 55(1) of CGST Rules.
Delivery challan to be in triplicate - The delivery challan shall be prepared in triplicate, in
case of supply of goods, with following marking - (a) the original copy being marked as
ORIGINAL FOR CONSIGNEE (b) the duplicate copy being marked as DUPLICATE FOR
TRANSPORTER; and (c) the triplicate copy being marked as TRIPLICATE FOR CONSIGNER -
rule 55(2) of CGST Rules.
If entire goods received are returned, there can be endorsement on the challan while
returning goods to Principal. If goods are returned piecemeal, fresh delivery challan is
required - FAQ on GST Chapter 9 Q No. 25 issued by CBI&C on 15-12-2018.
Electronic way bill for sending material for job work and its return - Where goods are being
transported on a delivery challan in lieu of invoice, the same shall be declared in e-way bill
issued under rule 138 - rule 55(3) of CGST Rules.
Such e-way bill is required in case of inter-State supply for job work, even if value of
consignment is less than Rs. 50,000 - first proviso to rule 138(1) of CGST Rules.
E-way bill can be generated either by Principal of job worker - third proviso to rule 138(1) of
CGST Rules.
If job worker is unregistered, e-way bill should be generated by Principal.
This has been reiterated in para 8.3 of CBI&C circular No. 38/12/2018 dated 26-3-2018.
In case of material sent for job work or returned after job work, the 'value' indicated in e-
way bill should be inclusive of value of goods. In my view, the value cannot be mere value of
job charges.
31A.5-10 Quarterly return of material sent for job work
The details of challans in respect of goods dispatched to a job worker or received from a job
worker (*) during a quarter shall be included in form GST ITC-04 furnished for the quarter
on or before 25th of the month succeeding the quarter or within such further period as may
 588

be allowed by Commissioner by notification. Extension by State Commissioner will be deemed

to be notified by Central Commissioner also - Rule 45(3) of CGST and SGST Rules, 2017 -
words in italics inserted w.e.f. 28-10-2017 (* - The words were - 'or sent from one job worker
to another'. These have been omitted w.e.f. 31-12-2018.
Return in form GST ITC-04 for the period July 2017 to March 2019 not required - Return in
form GST ITC-04 for the period July 2017 to March 2019 is not required. However, in respect
of return for the period April 2019 to June 2019, details of challans in respect of goods
dispatched to job worker during July 2017 to March 2019 but not received from place of job
worker or not supplied from job worker as on 31-3-2019 shall be reported in Sr No. 4 of GST
ITC-04 - Notification No. 38/2019-CT dated 31-8-2019.
Earlier, time limit for filing GST ITC 04 in respect of job work for the period July 2017 to June
2019 was extended to 31-8-2019 - Notification No. 32/2019-CT dated 28-6-2019 [Now no
return required for the period July 2017 to March 2019].
Extension of time limit to file ITC-04 return during 20-3-2020 to 30-8-2020 due to COVID-
19 (Corona Virus) - Where, any time limit for filing ITC-04 return under job work provisions
falls during the period from the 20-3-2020 to the 30-8-2020, the due date automatically gets
extended to 31-8-2020 - Notification No. 35/2020-CT dated 3-4-2020 as amended.
Thus, ITC-04 return for quarter ending March 2020 was due on 25-4-2020. Now, this can be
filed on or before 31-8-2020 without Late fee.
Form GST ITC-04, in respect of goods dispatched to a job worker or received from a job
worker, during the period from July, 2020 to September, 2020 till the 30-11-2020 -
Notification No. 87/2020 - CT dated 10-11-2020.
31A.6 Manufacturing alcoholic liquor on behalf of brand name owner is not 'job work', but
amount of profit paid to brand owner is subject to GST
In United Breweries Ltd., In re [2018] 69 GST 210 = 95 taxmann.com 87 (AAR-Karnataka),
applicant (brand owner) has manufacturing arrangement with contract brewing/bottling
units (CBU) who manufacture brands of beer belonging to applicant and supply such beer to
market by procuring raw materials, packaging materials, incurring overheads and other
manufacturing costs etc. on its own. They (CBUs) sell beer directly in market. The material is
purchased by CBUs and ownership of raw material required to manufacture beer rests with
manufacturer (CBU) and not with applicant (brand owner). It was held that manufacturing
activity undertaken by CBUs does not qualify classification under Heading 9988. Thus, CBUs
are not engaged in supply of any service to applicant and therefore there does not arise any
liability to pay GST on amount retained by CBUs as their profit. [This is correct as no material
is supplied by applicant to CBU].
There is revenue sharing arrangement between CBU and applicant (brand owner). CBUs get
fixed amount per case of bottle and surplus profit is transferred to applicant.
It was held that this is 'supply'. GST is payable by the Brand owner (UBL) on "Surplus Profit"
transferred by the CBU to brand owner out of the manufacturing activity and the supply of
service to the CBUs is classified under Service Code (Tariff) 999799 and liable to pay GST at
18% (CGST-9%, SGST-9%) on the amount received from the CBUs. [This is a residual entry,
where service cannot fall in any other head].
 589

In appeal, in United Breweries Ltd., In re [2018] 70 GST 843 = 99 taxmann.com 107 (AAAR-
Karnataka), the order of AAR was modified as follows [practically confirmed].
(a) The activity engaged in by the appellant by way of granting the contracting brewing
units the representational right to manufacture and supply beer bearing its brand
name, in return for a consideration, is a supply of service as mandated in section 7,
read with clause 5(c) of the Schedule II of the said Act;
(b) The supply of service by the appellant is taxable to GST in terms of section 9;
(c) The service supplied by the appellant is classified under the Service Code 999799 as
'other services nowhere else classified';
(d) The amounts received by the appellant from the contracting units under the
Agreement, in the nature of Brand Fee and reimbursement of expenses, is termed as
a consideration for the supply of service and is chargeable to GST at the applicable
rate of 18 per cent. [Para 48]

In Allied Blenders and Distilleries P. Ltd., In re [2019] 103 taxmann.com 125 (AAR -
Maharashtra), the applicant [owner of various brands of Indian Made Foreign Liquor (IMFL)],
was supplying all raw material, packing material etc. to CBU (Contract Bottling Units). The
CBUs had requisite licenses under State Excise Laws. CBUs were only getting fixed monthly
bottling charges. Applicant was not receiving any consideration for allowing CBUs to use the
brand name of IMFL. It was held that applicant is not liable to pay GST as there is no 'supply'.
[Though the decision does not say so, the CBUs will be liable to pay GST on job charges
(bottling charges) received by them].
In Crown Beers India (P.) Ltd., In re [2018] 100 taxmann.com 322 (AAR - Maharashtra), the
applicant had agreement with Privilege Industries Ltd. (PIL). PIL will incur costs of material,
labour, consumable, power etc. for manufacture of beer, which will be reimbursed by
applicant. In addition, fixed cost plus profit will be paid by applicant to PIL. It was held that
this is job work by PIL. PIL is liable to pay GST on fixed costs received from applicant.
However, GST is not payable on costs reimbursed [In effect, GST is payable on job work
charges] - view confirmed in Crown Beers India (P.) Ltd., In re [2019] 107 taxmann.com 468
(AAAR-Maharashtra).
[About raw materials and consumables there is no issue. However, whether cost of labour
and power is part of job work charges is matter of debate. In my view, these costs are
includible in job charges].
31A.7 Other provisions relating to job work
Other provisions relating to job work are as follows.
31A.7-1 Input Tax Credit of inputs and capital goods sent for job work
The "principal" shall, subject to such conditions and restrictions as may be prescribed, be
entitled to take credit of input tax on inputs and capital goods sent to a job-worker for job-
work - section 19(1) and 19(4) of CGST Act.
 590

The "principal" shall be entitled to take credit of input tax on inputs even if the inputs or
capital goods are directly sent to a job worker for job-work without their being first brought
to his place of business - section 19(2) and 19(5) of CGST Act.
ITC of capital goods sent to job worker - The "principal" shall, subject to such conditions
and restrictions as may be prescribed, be entitled to take credit of input tax on capital goods
sent to a job-worker for job-work if the said capital goods, after completion of job-work, are
received back by him within three years of their being sent out - section 19(4) of CGST Act.
The "principal" shall be entitled to take credit of input tax on capital goods even if the capital
goods are directly sent to a job worker for job-work without their being first brought to his
place of business, and in such a case, the period of three years shall be counted from the
date of receipt of the capital goods by the job worker - section 19(5) of CGST Act.
31A.7-2 Job work on behalf of foreign Principal is taxable as place of supply is India
In Synthite Industries, In re [2018] 99 taxmann.com 99 (AAR - Andhra Pradesh), the applicant
was providing job work service of removing 'caffeine' from Tea powder imported from
foreign company (Principal) and exporting de-caffeinated tea to principal. It was held that it
is job work under SAC code 9988. Place of supply is India and hence SGST and CGST is payable
[9% + 9% - total 18%]. [After GST Amendment Act, 2018 is notified on 1-2-2019, this service
will be exempt in view of amendment to second proviso to section 13(3)(a) of GST Act].
31A.7-3 In case of job work, value of material will be included in aggregate turnover of
principal for considering exemption available to small persons
The supply of goods, after completion of job-work, by a registered job worker shall be
treated as the supply of goods by the principal referred to in section 143, and the value of
such goods shall not be included in the aggregate turnover of the registered job worker -
Explanation (i) to section 22 of CGST Act.
Thus, in case of job work, value of material will be included in aggregate turnover of principal
for considering exemption available to small persons (having turnover of 20/10 lakhs) and
not in turnover of job worker.
31A.8 Transitory provisions in respect of goods sent to job worker or for testing prior to
30-6-2017
Section 141 of CGST Act make provisions in respect of inputs, semi-finished goods and
finished goods which were removed for job work before 1-7-2017 (i.e. introduction of GST)
and returned after 1-7-2017.
A taxable person might have sent Inputs, semi-finished goods and finished goods outside
before 1-7-2017 for job work or testing. If these are received back before 31-12-2017, GST
will not be payable - section 141(1), (2) and (3) of CGST Act and section 141 of SGST Act.
If such inputs are not returned within six months, input tax credit taken on 1-7-2017 is
required to be reversed - proviso to section 141(1), (2) and (3) of CGST and SGST Act.
Instead of returning the goods to place of Principal, the person who had despatched the
goods can transfer the goods to his premises and supply from that place on payment of tax
or he can export the finished goods without payment of tax - third proviso to section 141(2)
of CGST and SGST Act.
 591

Both the registered person who has despatched the goods as well as the job worker are
required to file details of stock with them as on 1-7-2017 within 90 days in form GST TRAN-
1 - section 141(4) of CGST and SGST Act.
 592

Telecommunication, broadcasting and information supply

32.1 Telecom and OIDAR services
Service Classification Code heading for telecommunication, broadcasting and information
supply service is 9984. The groups in this heading are - Telephony and telecommunication
service (99841), Internet telecommunication (99842), Online content service (99843), News
agency service (99844), Library and archive service (99845) and broadcasting, programming
and programme distribution services (99846).
32.2 Telecommunication
This service falls under service group 99841.
The place of supply rules are very relevant for this service.
Inter-branch transactions are also very relevant as the rules are made to ensure that GST is
paid where the service is finally consumed.
The GST rate is 18% [9% CGST and 9% SGST] or 18% IGST.
32.2-1 Supply of SIM Card is not supply of goods but is service
SIM card is a card containing computer chips with pre-recorded instructions which would,
upon activation, enable the customer access to the service of cellular phone.
In Idea Mobile Communication Ltd. v. CCE & C [2011] 32 STT 262 = 12 taxmann.com 307 = 43
VST 1 (SC), it has been held that SIM card does not have any intrinsic value. The value of SIM
card forms part of the activation charges as no activation is possible without a valid
functioning of SIM card. Thus it is 'service' and not 'goods' - followed in State of Andhra
Pradesh v. Bharat Sanchar Nigam Ltd. (2011) 33 STT 553 = 16 taxmann.com 48 = 49 VST 98
(AP HC DB).
Activation charges of SIM cards are not liable to sales tax - 'Goods' do not include
electromagnetic waves or radio frequencies. Hence, activation charges of SIM cards are not
liable to sales tax - Escotel Mobile Communications v. State of Haryana (2008) 12 VST 443
(P&H HC DB).
32.2-2 Electromagnetic waves transmitted through telephones is not 'goods'
In Bharat Sanchar Nigam Ltd. v. UOI (2006) 3 SCC 1 = 152 Taxman 135 = 3 STT 245 = 145 STC
91 = 282 ITR 273 = AIR 2006 SC 1383 = 3 VST 95 = 2 STR 161 (SC 3 member bench), it has
been held that electromagnetic waves by which data is transmitted is not 'goods', since they
can neither be abstracted nor are they consumed in the sense that they are not extinguished
by their user. They are not delivered, stored or possessed. Nor are they marketable.
Transmission of voice or data by use of Artificially Created Light Energy is service and not
goods - Transmission of voice or data by use of Artificially Created Light Energy is service and
not goods. Vat will not be payable on this service - Bharti Airtel v. State of Karnataka (2011)
32 STT 483 = 13 taxmann.com 96 = 44 VST 486 = 7 GST 265 (Karn HC DB).
32.3 Online information and database access or retrieval services
Online content service falls under service group 99843.
The place of supply of the "online information and database access or retrieval services"
services shall be location of recipient of service - section 13(12) of IGST Act.
 593

For the purposes of this sub-section, person receiving such services shall be deemed to be
located in the taxable territory if any two of the following non-contradictory conditions are
satisfied, namely:—
(i) the location of address presented by the recipient of service via internet is in taxable
territory
(ii) the credit card or debit card or store value card or charge card or smart card or any
other card by which the recipient of service settles payment has been issued in the
taxable territory
(iii) the billing address of recipient of service is in the taxable territory;
(iv) the internet protocol address of the device used by the recipient of service is in the
taxable territory
(v) the bank of recipient of service in which the account used for payment is maintained
is in the taxable territory
(vi) the country code of the subscriber identity module (SIM) card used by the recipient
of service is of taxable territory
(vii) the location of the fixed land line through which the service is received by the
recipient is in taxable territory.- Explanation to section 13(12) of IGST Act.

32.3-1 Meaning of "online information and database access or retrieval services" (OIDAR
service)
Section 2(17) of IGST Act states as follows—
"Online information and database access or retrieval services" (OIDAR service) means
services whose delivery is mediated by information technology over the internet or an
electronic network and the nature of which renders their supply essentially automated and
involving minimal human intervention, and impossible to ensure in the absence of
information technology and includes electronic services such as—
(a) advertising on the internet
(b) providing cloud services
(c) provision of e-books, movie, music, software and other intangibles via
telecommunication networks or internet
(d) providing data or information, retrievable or otherwise, to any person, in electronic
form through a computer network
(e) online supplies of digital content (movies, television shows, music, etc.)
(f) digital data storage; and
(g) online gaming.
 594

In Thai Airways International Public Co Ltd. v. Commissioner (Adjn) (2015) 49 GST 342 = 53
taxmann.com 115 (CESTAT 2 v 1 decision), it has been held that maintaining data base on
real time basis of flights operated by assessee for Computer Reservation System
(CRS)/Global Distribution System (GDS) is 'Online Information and Data Access or Retrieval
Services'.
In Photolibrary India v. CST (2017) 64 GST 386 = 87 taxmann.com 18 (Bom HC DB), it has
been held that licensing of images and allowing customers to download images on payment
of amount is OIDAR service.
Providing access to online contents in journals is covered under service code 998431. This
activity is not publishing of journals - Informatics Publishing Ltd. In re [2020] 78 GST 629 =
110 taxmann.com 443 (AAR-Karnataka).
e-Book - E-books means an electronic version of printed book (falling under tariff item 4901
in first Schedule to Customs Tariff Act, 1975 supplied online which can be read on a computer
or a hand held device - Definition given at Sr No. 22 in Notification No. 11/2017-CT (Rate)
dated 28-6-2017 - quoted in Venbakkam Commandur Janardhan In re (2020) 81 GST 251 =
116 taxmann.com 578 (AAR-TN). In this case, journal was provided in DVD/CD form termed
as 'The Law Weekly Desktop'. It had search, updating and printing facility. It was held that
this is not 'e-book'.
Using internet itself does not mean it is OIDAR service - Using the internet, or some
electronic means of communication, just to communicate or facilitate outcome of service
does not always mean that a business is providing OIDAR services - para 12 of CBE&C Circular
No. 202/12/2016-ST dated 9-11-2016.
Services that are covered under OIDAR Service - OIDAR services covers services which are
automatically delivered over the internet, or an electronic network, where there is minimal
or no human intervention are covered under OIDAR.
In practice, this can be either (i) where the provision of the digital content is entirely
automatic e.g., a consumer clicks the 'Buy Now' button on a website and either : the content
downloads onto the consumers device, or the consumer receives an automated e-mail
containing the content (ii) where the provision of the digital content is essentially automatic,
and the small amount of manual process involved does not change the nature of the supply
from an OIDAR service.
All 'electronic services' that are provided in the ways outlined above are OIDAR services -
para 14 of CBE&C Circular No. 202/12/2016-ST dated 9-11-2016.
As per information brochure issued by Director General of Taxpayers Services on 20-7-2017,
following are not OIDAR services - (1) sending document through e-mail (2) online course
consisting of pre-recorded videos and downloadable PDFs plus support from live tutor (3)
Individually commissioned contents in digital form e.g. photographs, reports, medical
results.
However, following will be OIDAR - (a) Document automatically e-mailed by supplier's
system (b) Document automatically downloaded from site (c) Stock photographs available
for automatic download (d) Online course of pre-recorded videos and downloadable
documents (without live tutor).
 595

Indicative List of OIDAR services - Following is indicate list of OIDAR services [para 16 of
CBE&C Circular No. 202/12/2016-ST dated 9-11-2016] -
(1) Website supply, web-hosting, distance maintenance of programmes and equipment - (a)
Website hosting and webpage hosting (b) automated, online and distance maintenance of
programmes (c) remote systems administration (d) online data warehousing where specific
data is stored and retrieved electronically (e) online supply of on-demand disc space.
(2) Supply of software and updating thereof - (a) Accessing or downloading software
(including procurement/accountancy programmes and anti-virus software) plus updates (b)
software to block banner adverts showing, otherwise known as Banner blockers (c)
download drivers, such as software that interfaces computers with peripheral equipment
(such as printers) (d) online automated installation of filters on websites (e) online
automated installation of firewalls.
(3) Supply of images, text and information and making available of databases - (a) Accessing
or downloading desktop themes (b) accessing or downloading photographic or pictorial
images or screensavers (c) the digitised content of books and other electronic publications
(d) subscription to online newspapers and journals (e) weblogs and website statistics (f)
online news, traffic information and weather reports (g) online information generated
automatically by software from specific data input by the customer, such as legal and
financial data, (in particular such data as continually updated stock market data, in real time)
(h) the provision of advertising space including banner ads on a website/web page (i) use of
search engines and Internet directories.
(4) Supply of music, films and games, including games of chance and gambling games, and
of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events -
(a) Accessing or downloading of music on to computers and mobile phones (b) accessing or
downloading of jingles, excerpts, ringtones, or other sounds (c) accessing or downloading of
films (d) downloading of games on to computers and mobile phones (e) accessing automated
online games which are dependent on the Internet, or other similar electronic networks,
where players are geographically remote from one another.
(5) Supply of distance teaching - (a) Automated distance teaching dependent on the Internet
or similar electronic network to function and the supply of which requires limited or no
human intervention, including virtual classrooms, except where the Internet or similar
electronic network is used as a tool simply for communication between the teacher and
student (b) workbooks completed by pupils online and marked automatically, without
human intervention.
Indicative list of non-OIDAR services - Following are some services which will not get
covered under OIDAR service -(i) Supplies of goods, where the order and processing is done
electronically (ii) Supplies of physical books, newsletters, newspapers or journals (iii)
Services of lawyers and financial consultants who advise clients through e-mail (iv) Booking
services or tickets to entertainment events, hotel accommodation or car hire (v) Educational
or professional courses, where the content is delivered by a teacher over the internet or an
electronic network (in other words, using a remote link) (vi) Offline physical repair services
of computer equipment (vii) Advertising services in newspapers, on posters and on television
- para of CBE&C Circular No. 202/12/2016-ST dated 9-11-2016.
 596

Online gaming is not gambling and GST rate 18% under 998439 - Online Fantasy Sports
Gaming are not gambling services, rather are games of skills. Hence, they fall under entry
998439 for its online gaming activities and GST rate is 18% - Gurdeep Singh Sachar v. UOI
[2019] 106 taxmann.com 290 (Bombay HC DB).
Supply of online gaming is service under 998439 taxable @ 18% - Supplying digital goods
i.e., online gaming, is supply of e-goods (online gaming). This will be covered under services
under GST Act which are classified under Heading No. 998439 and are taxable at 18% -
Amogh Ramesh Bhatawadekar, In re [2020] 122 taxmann.com 251 (AAR - Maharashtra).
Providing service of online tests - Providing service of online tests via electronic software
to non-taxable online recipients in India is OIDAR service - NCS Pearson Inc., In re [2020] 122
taxmann.com 22 (AAAR-Karnataka). [partly reversing NCS Pearson Inc., In re [2020] 80 GST
98 = 117 taxmann.com 189 (AAR - Karnataka)].
Computer Reservation System for which payment made by HO outside India - In British
Airways v. Commissioner (2015) 76 VST 497 (CESTAT), the appellant had a branch office in
India. However, the services of computer reservation system (CRS) were received outside
India. It was held that service tax is not payable (under reverse charge).- followed in Thai
Airways International Public Co Ltd. v. Commissioner (Adjn) (2015) 49 GST 342 = 53
taxmann.com 115 (CESTAT 2 v 1 decision) * Qatar Airways v. CST (2016) 57 GST 72 = 71
taxmann.com 295 (CESTAT).
These decisions will need review in view of changes introduced in definition of OIDAR
service.
In Jet Airways v. CST (2017) 97 CST 225 (CESTAT), it has been held (in my view rightly) that
computer reservation system is OIDAR Service. If availed in India from outside India, service
tax is payable under reverse charge.
32.3-2 Supplier of online information and database access or retrieval services located
outside India liable to pay IGST
On supply of online information and database access or retrieval services by any person
located in a non-taxable territory and received by non-taxable online recipient the supplier
of service located in a non-taxable territory shall be the person liable for paying IGST -
Section 14(1) of IGST Act.
If there is intermediary located outside India, he will be liable to pay IGST.
In Spring Nature Customer Service Centre GmBH In re [2020] 79 GST 184 = 110 taxmann.com
283 (AAR-Karn), it was held as follows - (a) Applicant has to charge GST to unregistered
persons in India for purposes other than commerce, industry, business or profession (b) GST
is not to be charged if supply is to Government, local authority, Governmental authority or
individual if they are registered persons (c) GST is not to be charged if supply is to a person
in taxable territory (India) who receives it for business purposes (as in that case, he will be
liable under reverse charge).
32.3-3 Intermediary located outside India liable to pay IGST
In case the supply of online information and database access or retrieval services by any
person located in a non-taxable territory and received by non -taxable online recipient, an
intermediary located in the non-taxable territory, who arranges or facilitates provision of
 597

such service, shall be deemed to be receiving such services from the service provider in non-
taxable territory and supplying such services to the non-taxable online recipient - proviso to
Section 14(1) of IGST Act.
However, if the intermediary satisfies all the following conditions, he will not be liable to pay
IGST:
(a) the invoice or customer's bill or receipt issued or made available by such
intermediary taking part in the supply clearly identifies the service in question and
its supplier in non-taxable territory.
(b) the intermediary involved in the supply does not authorise the charge to the
customer or take part in its charge i.e. intermediary neither collects or processes
payment in any manner nor is responsible for the payment between the non-
assessee online recipient and the supplier of such services.
(c) the intermediary involved in the supply does not authorise delivery.
(d) the general terms and conditions of the supply are not set by the intermediary
involved in the supply but by the service provider.

Payment by person supplying OIDAR service from out of India - Person supplying OIDAR
service from out of India to a non-taxable online recipient may deposit the amount in
Electronic Cash Ledger through CBE&C's payment system i.e. Electronic Accounting System
in Excise and Service tax from date to be notified - second proviso to Rule 87(2) of CGST and
SGST Rules, 2017 inserted w.e.f. 17-8-2017.
They can make payment through Society for Worldwide Interbank Financial
Telecommunication payment network from date to be notified - second proviso to Rule 87(3)
of CGST and SGST Rules, 2017 inserted w.e.f. 17-8-2017.
32.3-4 Meaning of "non-taxable online recipient"
"Non-taxable online recipient" means Government, a local authority, a governmental
authority, an individual or any other person not registered and receiving online information
and database access or retrieval services in relation to any purpose other than commerce,
industry or any other business or profession, located in taxable territory - Section 2(16) of
IGST Act.
For the purposes of this clause, "governmental authority" means an authority or a board or
any other body : (i) set up by an Act of Parliament or a State legislature; or (ii) established by
Government, with 90% or more participation by way of equity or control, to carry out any
function entrusted to a municipality under article 243W of the Constitution - Explanation to
Section 2(16) of IGST Act.
For the purposes of this clause, "governmental authority" means an authority or a board or
any other body: (i) set up by an Act of Parliament or a State Legislature; or (ii) established by
Government, with 90% or more participation by way of equity or control, to carry out any
function entrusted to a Panchayat under Article 243G or to a municipality under article 243W
of the Constitution - Explanation to Section 2(16) of IGST Act. [The words in italics inserted
vide IGST (Amendment) Act, 2018 w.e.f. 1-2-2019].
 598

32.3-5 Registration under IGST by supplier of online information and database access or
retrieval services
The supplier of online information and database access or retrieval services who is liable to
pay IGST as per section 14(1) of GST Act shall, for payment of IGST, take a single registration
under a Simplified Registration Scheme notified by Central Government - section 14(2) of
IGST Act.
Any person located in taxable territory representing such supplier for any purpose in the
taxable territory shall take a registration and pay IGST on behalf of the supplier.
If such supplier does not have a physical presence or does not have a representative for any
purpose in the taxable territory, he may appoint a person in the taxable territory for the
purpose of paying IGST and such person shall be liable for paying IGST - second proviso to
Section 14(2) of IGST.
32.3-6 Reverse charge if OIDAR service received by person registered under GST in India
If the recipient of service is person registered under GST in India, he will be liable to pay IGST
under reverse charge mechanism.
32.3-7 Submission of return by person providing OIDAR service in form GSTR-5A
Person providing OIDAR service shall file return in form GSTR-5A on or before 20th of
succeeding month - Rule 64 of CGST and SGST Rules, 2017.
Last date for filing GSTR-5A returns for July to September 2017 has been extended to 20-11-
2017 - Notification No. 42/2017-CT dated 13-10-2017.
Return in form GSTR-5A for July 2017, August 2017, September 2017 and October 2017
should be filed on or before 15-12-2017 - Notification No. 61/2017-CT dated 15-11-2017.
Supplier of OIDAR service is not required to file GSTR-1 return - Rule 59(1) of CGST and SGST
Rules, 2017.
Extension of time limit to file GSTR-5A return during 20-3-2020 to 30-8-2020 due to COVID-
19 (Corona Virus) - Where, any time limit for filing return by non-resident taxable person
falls during the period from the 20-3-2020 to the 30-8-2020, the due date automatically gets
extended to 31-8-2020 - Notification No. 35/2020-CT dated 3-4-2020 as amended.
32.3-8 Income Tax aspects of OIDAR Services
Income Tax has made provision for 'equalisation levy' in sections 163 to 180 i.e. Chapter VIII
of Finance Act, 2016. Equalisation Levy Rules, 2016 have been made. It is applicable to
specified service provided by non-resident to a resident in India. Person receiving the service
is required to deduct 6% of the amount of consideration as equalisation levy and remit the
same like TDS to Government. Presently this covers advertisement services.
Concept of 'Significance Economic Presence' has been introduced in Finance Act, 2018 for e-
commerce taxation.
32.3-9 Administrative authority to administer GST on services supplied to non-assessee
Principal Commissioner of Central Tax, Bengaluru West and all officers subordinate to him
as officers empowered to grant registration in case of OIDAR services provided by person
located in non-taxable territory and received by non-taxable online recipient - Notification
No. 2/2017-IT dated 19-6-2017.
 599

He will also be authority for the purpose of administration of service suppliers in non-taxable
territory providing cross border OIDAR services provided to 'non-taxable online recipient' in
India.
 600

Community social, personal and other services

33.1 Community services
Section 9 of Service classification covers community, social and personal services. The
headings in the section are - Public Administration (9991) (covered under Government
related services), Education Services (9992), human health and social care service (9993),
sewage and water collection (9994), services of membership organisation (9995),
recreational, cultural and sporting services (9996), other services (9997), domestic services
(9998) and service provided by extra-territorial organisations and bodies.
33.1-1 Service of providing information under RTI Act
Services by way of providing information under the Right to Information Act, 2005 (RTI Act)
is exempt w.e.f. 25-1-2018 - Sr No. 65A of Notification No. 12/2017-CT (Rate) and No.
9/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 25-1-2018.
There is no GST on fees payable for registering complaints or appeals under Consumer
Protection Act - CBI&C circular No. 32/06/2018-GST dated 12-2-2018.
The service falls under heading 9991.
33.2 Education Services
This service falls under heading 9992.
The commercial education is subject to GST @ 18% (CGST 9% and SGST 9%) or IGST 18%.
Various exemptions are contained in Notification No. 12/2017-CT (Rate) and 9/2017-IT
(Rate) both dated 28-6-2017, effective from 1-7-2017.
Services provided by educational institution to its students, faculty and staff exempt -
Service supplied by an educational institution to its students, faculty and staff is exempt from
GST - Sr. No. 66(a) of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated
28-6-2017.
Services supplied by University to affiliated colleges are taxable - In Bharathiyar University,
In re, [2021] 123 taxmann.com 50 (AAR - Tamil Nadu), University was collecting fees for sale
of application, registration, inspection, affiliation fees from constituent colleges i.e. Self-
financing and management colleges. It was held that 'affiliation' of the institution/course as
'Principal supply' provided by applicant university are not exempted under entry Sl. No. 66
of Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017. Thus, these services are
taxable.
University is regulatory authority. However, in this case, it seems it is a private University
and is not coming within the definition of 'Governmental Authority'.
Examinations conducted by State Board subject to GST? - Benefit of exemption is not
available to applicant-State Examination Board under Entry No. 66(b)(iv) to Notification No.
12/2017-Central Tax (Rate), dated 28-6-2017 as exams conducted by applicant are planned
and conducted by State Examination Board on its own accord and it is not service provided
to an educational institute - State Examination Board, In re [2020] 121 taxmann.com 98 (AAR
- Gujarat).
[Really, Board is Governmental Authority and conduct of examination is part of educational
service, which is covered under Article 243G and hence exempt].
 601

Canteen services provided in recognized educational institution - If canteen service is

supplied in college by the educational institute itself, there is no tax liability. However, if the
service is supplied through contractor, tax @ 5% [CGST 2.5% plus SGST/UTGST 2.5%] is
payable - CBI&C circular No. 28/02/2018-GST dated 8-1-2018 - reiterated in CBI&C circular
No. 85/04/2019-GST dated 1-1-2019.
The circular dated 8-1-2018 was withdrawn w.e.f. 27-7-2018 - MF (TRU) circular No.
50/24/2018-GST dated 31-7-2018. However, there was still confusion and hence the
relevant notification has been suitably amended w.e.f. 1-1-2019 and earlier provision as
stated in circular dated 8-1-2018 has been reiterated.
Services provided by educational institution to conduct entrance examinations exempt
w.e.f. 25-1-2018 - Service supplied by an educational institution by way of conduct of
entrance examination against consideration in the form of entrance fee; is exempt from GST
w.e.f. 25-1-2018 - Sr. No. 66(aa) of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT
(Rate) both dated 28-6-2017 inserted w.e.f. 25-1-2018.
In Attest Testing Services Ltd. In re (2019) 76 GST 512 = 109 taxmann.com 366 (AAR-
Maharashtra), applicant was conducting online examinations with pre and post examination
management processes. It was held that this is composite supply. Conduct of examination is
principal supply and hence exempt.
Services supplied to educational institution upto HSC level exempt - Following services
supplied to recognised educational institution from pre-school and higher secondary school
are exempt (but not in respect of graduation or post graduation courses) - (i) transportation
of students, faculty and staff (ii) catering, including any mid-day meals scheme sponsored by
the Central Government, State Government or Union territory (iii) security or cleaning or
house keeping services performed in such educational institution - Sr. No. 66(b) clauses (i),
(ii) and (iii) of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-
2017.
Services supplied to educational institution of conduct of examination - Following service
supplied to recognised educational institution are exempt - services relating to admission to,
or conduct of examination by, such institution * - Sr. No. 66(b)(iv) of Notification No.
12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017.
[* - The words 'upto higher secondary' in clause (iv) above have been omitted w.e.f. 25-1-
2018. Thus, w.e.f. 25-1-2018, all services supplied to recognized educational institution
relating to admission to or conduct of examination by such recognized educational
institution will be exempt].
In Attest Testing Services Ltd. In re (2019) 76 GST 512 = 109 taxmann.com 366 (AAR-
Maharashtra), applicant was conducting online examinations with pre and post examination
management processes. It was held that this is composite supply. Conduct of examination is
principal supply and hence exempt.
Service provided to State school board of education to scan OMR flying slip, OMR marks foil
with barcode sticker, OMR attendance sheet and OMR absentee sheet along with data
extraction and finalization of data is covered under "other educational support services"
 602

under SAC 999299. It is related to conduct of examination and, hence, is exempted - Datacon
Technologies, In re [2020] 120 taxmann.com 32 (AAR - Karn).
Services provided to educational institutions (primary and secondary schools) for
assessment and learning is exempt - Services provided to educational institutions (primary
and secondary schools) for assessment and learning is exempt - Educational Initiative P Ltd.
In re (2021) 83 GST 191 = 119 taxmann.com 219 (AAR-Gujarat).
Service supplied to government aided schools of supply of goods and services under ICT
project are taxable - Service supplied to government aided schools of supply of goods and
services under ICT project (of supply, installation, commissioning and maintenance of
projection system, computer hardware, are taxable. It is a mixed supply and service falls
under 9992 - Telecommunication Consultants India Ltd. In re (2018) 70 GST 709 = 99
taxmann.com 133 (AAR - Odisha).
In IL&FS Education & Technology Services Ltd., In re [2018] 98 taxmann.com 231 (AAR -
Maharashtra), it has been held that implementation of information and communication (ICT)
project in Government and Government aided higher secondary schools across State, which
inter alia involved supply of computer hardware, software and connected accessories,
maintenance of equipment along with creation of infrastructure and provision of computer
training for which total expenditure was to be borne by State Government, is not exempt -
same view in IL & FS Education & Technology Services Ltd., In re [2018] 95 taxmann.com 86
(AAR - Odisha) = [2018] 69 GST 160 (AAR - Odisha). - confirmed in IL & FS Education &
Technology Services Ltd., In re [2019] 72 GST 538 = 102 taxmann.com 363 (AAAR-Odisha).
In a contrary decision, in appeal, in IL & FS Education & Technology Services Ltd., In re [2019]
103 taxmann.com 209 (AAAR-Maharashtra), it has been held that the project was nothing
but a training project aided by technology. Merely because hardware and software is
provided by appellant, it does not mean that training to be done is not a principal supply. It
was held that the supply is exempted.
Printing of question papers, OMR sheets, answer books, mark sheet, scanning and
processing of results - Service of printing of question papers. OMR sheets, answer books,
mark sheet, scanning and processing of results is for conducting examination and is exempt
- K L Hi-tech Secure Print Ltd. In re (2018) 98 taxmann.com 127 (AAR - Telangana).
In Edutest Solutions (P.) Ltd., In re [2018] 69 GST 820 = 98 taxmann.com 9 (AAR-Gujarat), it
has been held that activity of printing of test papers/question papers by applicant for its
clients (Secondary and Higher Secondary Education Boards of various States, other
educational institutes and others) should be treated as supply of service under 9989. In this
case, manuscript material for printing question papers relating to examinations was supplied
to applicant by Boards and he was printing with own paper. It was held that this activity
classified as services under Heading 9989 and tax rate is 12% (6% CGST plus 6% SGST/UTGST
or 12% IGST). However, if service is supplied to educational institution, it would be exempt.
- same view in Maxwell Co P Ltd. In re (2020) 113 taxmann.com 527 (AAR-UP).
in Ashok Kumar Basu., In re [2018] 69 GST 775 = 97 taxmann.com 665 (AAR - West Bengal),
it has been held that service of printing Question Papers for Educational Institutions for
specific examination is classifiable under SAC 9992. Service to such Educational Institutions
 603

relating to conduct of examination, as described in 66(b)(iv) of Notification No.12/2017-

CT(Rate) dated 28-6-2017, includes supply of service of printing question papers, and is
exempt under GST Act. It is exempt supply.
Really the issue is whether the activity is supply of goods or service when the printer himself
is procuring the paper for printing.
Printing of question papers, OMR sheets, answer books etc. for educational Boards upto
HSC exempt - Supply of service of printing of pre-examination items like question papers,
OMR sheets (Optical Mark Reading), answer booklets and printing of post-examination items
like marks card, grade card, certificates to educational boards of up to higher secondary be
treated as exempt supply of service by virtue of Entry No. 66 of Notification No. 12/2017-
Central Tax (Rate), dated 28-6-2017 as amended by Notification No. 2/2018-Central Tax
(Rate), dated 25-1-2018 - Orient Press Ltd., In re [2019] 106 taxmann.com 240 (AAR -
Maharashtra).
Services supplied by Indian Institute of Management - Indian Institute of Management
(IIM) are institutions of national importance as per IIM Act w.e.f. 31-1-2018. They are
'educational institutions' w.e.f. 31-1-2018. All long duration programmes (one year or more)
conducted by IIM are exempt. However, GST is payable on short duration courses for
executives/professional where they get only participation certificates which are not
recognised in law - CBI&C circular No. 82/01/2019-GST dated 1-1-2019.
Earlier there was some controversy.
As per section 118 of Finance (No. 2) Act, 2019, Indian Institute of Management has been
exempted from service tax for the period 1-7-2003 to 31-3-2016 on its fellow management
programme and five year integrated programme on management.
Central and State Educational Boards are 'educational institution' for conduct of
examination - It is clarified that the Central and State Educational Boards shall be treated
as Educational Institution for the limited purpose of providing services by way of conduct of
examination to the students - para 3 Explanation (iv) to Notification No. 12/2017-CT (Rate)
and No. 9/2017-IT (Rate) both dated 28-6-2017 as inserted w.e.f. 27-7-2018.
Services supplied to educational institution of supply of online journals above HSC exempt
w.e.f. 25-1-2018 - Following service supplied to recognised educational institution is exempt
- supply of online educational journals or periodicals - Sr. No. 66(b)(v) of Notification No.
12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 25-1-2018
This exemption shall not apply to an institution providing services by way of,- (i) pre-school
education and education up to higher secondary school or equivalent; or (ii) education as a
part of an approved vocational education course - second proviso to Sr. No. 66 inserted w.e.f.
25-1-2018.
The wording of the second proviso seems to be faulty. Really, the intention seems to be to
grant exemption upto HSC and for vocational courses. [If no amendment is issued, then the
exemption is only for service above HSC].
In Indian Institute of Management, In re [2019] 73 GST 495 = 103 taxmann.com 156 (AAAR-
Karnataka), it has been held that IIM is exempt from payment of IGST in respect of supply of
online journals and periodicals received from person located in non-taxable territory.
 604

Supply of online journals to educational institutions through J-Gate platform on payment of

additional fees to publisher is supply of services in nature of subscription to J-Gate by
educational institutions. It is eligible for exemption from GST under SL. No. 66(b)(v) of
Notification No.12/2017-Central Tax (Rate), dated 28-6-2017 -Informatics Publishing Ltd., In
re [2020] 119 taxmann.com 7 (AAAR-Karnataka) [reversing decision in Informatics Publishing
Ltd., In re [2019] 110 taxmann.com 361 (AAR - Karnataka)]
Service of hire of motor vehicle for transportation of students, faculty and staff upto HSC
level is exempt w.e.f. 25-1-2018 - Service by way of giving on hire motor vehicle for
transport of students, faculty and staff, to a person providing services of transportation of
students, faculty and staff to an educational institution providing services by way of pre-
school education and education upto higher secondary school or equivalent are exempt
w.e.f. 25-1-2018 - Sr. No. 22(c) of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT
(Rate) both dated 28-6-2017 inserted w.e.f. 25-1-2018.
This hire may be with operator (under heading 9966) or without operator (under heading
9973). This distinction has been made w.e.f. 1-10-2019. In both the cases, exemption is
available. Even earlier, the exemption was available in both the cases.
Canteen services provided in recognized educational institution - If canteen service is
supplied in college by the educational institute itself, there is no tax liability. However, if the
service is supplied through contractor, tax @ 5% [CGST 2.5% plus SGST/UTGST 2.5%] is
payable - CBI&C circular No. 28/02/2018-GST dated 8-1-2018 - reiterated in CBI&C circular
No. 85/04/2019-GST dated 1-1-2019.
The circular dated 8-1-2018 was withdrawn w.e.f. 27-7-2018 - MF (TRU) circular No.
50/24/2018-GST dated 31-7-2018. However, there was still confusion and hence the
relevant notification has been suitably amended w.e.f. 1-1-2019 and earlier provision as
stated in circular dated 8-1-2018 has been reiterated.
Services supplied by Indian Institute of Management - Indian Institute of Management
(IIM) are institutions of national importance as per IIM Act w.e.f. 31-1-2018. They are
'educational institutions' w.e.f. 31-1-2018. All long duration programmes (one year or more)
conducted by IIM are exempt. However, GST is payable on short duration courses for
executives/professional where they get only participation certificates which are not
recognised in law - CBI&C circular No. 82/01/2019-GST dated 1-1-2019.
Earlier there was some controversy.
Services for recognised vocational training - Services provided under vocational training
courses recognized by National Council for Vocational Training (NCVT) are covered by
Heading No. 9992 and, thus, said services are exempt from tax - Leprosy Mission Trust India,
In re [2020] 117 taxmann.com 913 (AAR - AP). * Leprosy Mission Trust India, In re [2020] 80
GST 463 = 117 taxmann.com 501 (AAR - WB).
No GST on maritime courses conducted by Maritime Training Institutes of India, approved
by DGS - There is no GST on maritime courses conducted by Maritime Training institutes of
India, which are approved by Director General of Shipping (DGS), as the Maritime Institutes
are 'educational institutions' under GST Law and hence exempt from GST - CBI&C circular
No. 117/36/2019-GST dated 11-10-2019.
 605

Services supplied by private and Government ITI - Services supplied by private ITI in respect
of designated trades approved by NCVT or SCVT are exempt. Services relating to admission
and conduct of examination will also be exempt. However, there is no exemption from GST
in respect of trades not designated. In respect of Government ITI, II services provided by
them are exempt Services supplied by Government to individuals are exempt- MF(DR)
circular No. 55/29/2018-GST dated 10-6-2018.
Services supplied by National Skill Development Corporation (NSDC) - Services provided by
- (a) the National Skill Development Corporation set up by the Government of India (b) a
Sector Skill Council approved by the National Skill Development Corporation (c) an
assessment agency approved by the Sector Skill Council or the National Skill Development
Corporation (d) a training partner approved by the National Skill Development Corporation
or the Sector Skill Council, in relation to following are exempt:
(i) the National Skill Development Programme implemented by the National Skill
Development Corporation; or (ii) a vocational skill development course under the National
Skill Certification and Monetary Reward Scheme; or (iii) any other Scheme implemented by
the National Skill Development - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate)
both dated 28-6-2017, effective from 1-7-2017.
In IMS Proschool (P.) Ltd., In re [2019] 73 GST 360 = 104 taxmann.com 31 (AAAR-
Maharashtra) [affirming decision in MS Proschool (P.) Ltd., In re [2018] 98 taxmann.com 228
(AAR-Maharashtra), it was held that services of training partner in relation to National Skill
Development Programme implemented by NSDC which covers only actual schemes and
programmes of skill development undertaken by Government through its various ministries.
The main schemes and programmes that would be covered under National Skill
Development Programmes would be PMKVY, Sankalp, Udaan, STAR, Polytechnic Schemes,
Vocationalisation of education run by Ministry of Skill Development and Entrepreneurship
and similar other skill development schemes that are run by various ministries or
departments or their directorates. If services in relation are provided by training partners in
relation to schemes as mentioned above through partners approved by NSDC, then only
benefit of exemption Notification as claimed would be applicable and it would not be
applicable in respect of other services relating to skill development provided by appellant.
Services of assessment bodies under NSDC - Services of assessing bodies empanelled
centrally by the Directorate General of Training, Ministry of Skill Development and
Entrepreneurship by way of assessments under the Skill Development Initiative Scheme are
exempt.
Services under Deen Dayal Upadhyaya Yojana - Services provided by training
providers(Project implementation agencies) under Deen Dayal Upadhyaya Grameen
Kaushalya Yojana implemented by the Ministry of Rural Development, Government of India
by way of offering skill or vocational training courses certified by the National Council for
Vocational Training are exempt.
This service was taxable under service tax. However, retrospective exemption has been
granted to service tax vide Notification No. 1/2019-ST dated 6-3-2019.
 606

Training to Government where entire expenditure is borne by Government is exempt -

Service provided to Central Government, State Government or Union territory
administration under any training programme where entire expenditure is borne by Central
Government, State Government or Union territory administration is exempt under heading
- -Entry 72 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-
2017.
In M V Infra Services P Ltd. In re [2020] 80 GST 214 = 115 taxmann.com 61 (AAR-Karn), it was
held that this exemption is to main contractor providing training and not to sub-contractor,
as he is providing service to contractor and not to Government.
Training in recreational activities - Services by way of training or coaching in recreational
activities relating to-(a) arts or culture, or (b) sports by charitable entities registered under
section 12AA of the Income-tax Act are exempt.
In Omnisoft Technologies (P.) Ltd., In re [2018] 98 taxmann.com 135 (AAR - Gujarat),
appellant was undertaking activities provided by UCMAS (child development programme to
boost brainpower) using abacus. It was held that these are neither 'art' nor 'training or
coaching in recreational activities'. Hence, they do not qualify for exemption from payment
of GST. - view confirmed in Omnisoft Technologies (P.) Ltd., In re [2019] 72 GST 719 = 103
taxmann.com 214 (AAAR-Gujarat), where it was held that the service falls under heading
9996.
No GST on hostel accommodation provided by educational institution - Hostel
accommodation is part of service provided by educational institution to students. On such
charges GST is not payable even if amount is recovered on yearly basis - PIB press release
dated 13-7-2017 16:01 IST and CBE&C press release No. 77/2017 dated 13-7-2017.
Examination Support Service to Foreign Institute - In BC Examinations & English Services
India (P.) Ltd., In re [2018] 95 taxmann.com 215 (AAR - Haryana), applicant was providing
'Exam Support Services' and Student Facilitation Services to British Council, UK (BCUK) in
respect of International English Language Testing System ('IELTS'). It was held that activity
involved in exam support service constitute a composite supply and since principal supply is
conducting of IELTS exam, it is covered under Service Code 999299 Group 99929 and
Heading 9992 as education support service and taxable.
International schools and boarding schools not taxable - International schools giving
international certifications like IB upto HSC and boarding schools are not subject to service
tax - Paras 4.12.3 and 4.12.4 of CBE&C's 'Taxation of Services : An Education Guide' published
on 20-6-2012.
Private centres recognised in Kerala - In Kerala, University has entered into MOU with
private study centres/institutes. These centres/institutes provide coaching to students who
can appear for University examination after completion of coaching. Fees collected by the
coaching institutes are shared with University.
In CCE v. Tandem Integrated Services (2011) 30 STT 1 = 42 VST 340 (CESTAT), it has been held
that such parallel colleges are also eligible for the benefit of the circular and they are exempt
from service tax - view confirmed in UOI v. Kasargod District Parallel College Association
(2014) 47 GST 18 = 47 taxmann.com 399 = 72 VST 172 (Ker HC DB).[Earlier, in Thanjai Study
 607

Centre v. CCE (2007) 12 STT 136 (CESTAT), a prima facie view was held that these centres are
not liable to pay service tax]
Private coaching classes - Private coaching classes are subject to GST @ 18% - Simple
Rajendra Shukla In re (2018) 68 GST 73 = 93 taxmann.com 97 (AAR).
Education in unrecognised courses or of foreign universities is taxable - Conducting own
management courses leading to award of Certificate of Associate Fellow in Indian Institute
of Planning and Management (AFIIPM), Fellow Indian Institute of Planning and Management
of IIPM and also MBA, BBA Degrees of International Management Institute (IMI), Europe,
would fall under category of 'commercial training or coaching centre' and taxable - CST v.
Indian Institute of Planning & Management [2018] 92 taxmann.com 221 (CESTAT)
Foreign courses are not exempt - Foreign courses are not exempt from service tax as they
are not recognised by law in India - Para 4.12.9 of CBE&C's 'Taxation of Services : An
Education Guide' published on 20-6-2012.
Pre-school education and education upto HSC exempt - Pre-school education and
education upto HSC or equivalent is exempt. There is no condition that such education
should be recognised by any law.
Private tuition - Private tuitions are not exempt, but they can avail benefit of threshold
exemption - Para 4.12.8 of CBE&C's 'Taxation of Services : An Education Guide' published on
20-6-2012.
Placement services - Placement services are not exempt. They will be subject to service tax
- Para 4.12.11 of CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-
2012.
Postal coaching taxable - Service provided by postal coaching are taxable, including postal
charges collected for rendering postal tuition service - CBE&C circular No. 59/8/2003 dated
20-6-2003.
Online coaching or teaching - Online coaching or teaching is an interactive process. It is
taxable under commercial training or coaching service - Dewsoft Overseas v. CST (2008) 16
STT 376 (CESTAT).
Promoting foreign university course in India is not export of service, it is intermediary
service and taxable - In Global Reach Education Services (P.) Ltd., In re [2018] 96
taxmann.com 107 (AAAR - West Bengal), appellant was promoting courses of foreign
university in India. The activity was to find suitable prospective students to undertake
courses, and, in accordance with university procedures and requirements, assisting in
recruitment of suitable students. It was held that, appellant is to be considered as an
intermediary in terms of section 2(13) of IGST Act and, therefore, services of appellant are
not 'Export of Services' under GST Act, and are eligible to tax [confirming decision of AAR in
Global Reach Education Services (P.) Ltd., In re [2018] 92 taxmann.com 211 (AAR - Kol.)
[In my view, the decision is correct].
Training provided to members of co-operative educational institute on receiving annual
fees/contribution - Training provided to members of cooperative educational institute on
receiving annual fees/contribution is taxable under GST - Maharashtra Rajya Sahakri Sang
Maryadit, In re [2018] 100 taxmann.com 239 (AAR - MAHARASHTRA).
 608

Private coaching classes - Private coaching classes are subject to GST @ 18% - Simple
Rajendra Shukla In re (2018) 68 GST 73 = 93 taxmann.com 97 (AAR).
Private coaching for CA/CMA/CS taxable - Private coaching imparted by applicant for
preparing students for writing exams of CA/ICWA/CMA, cannot be regarded as a service by
way of 'education as a part of curriculum for obtaining a qualification recognized by any law
for time being in force', as such coaching is not mandatory. The activity is not eligible for
exemption - Master Minds, In re [2020] 117 taxmann.com 824 (AAR - AP) - same view in
Logic Management Training Institutes (P.) Ltd., In re [2020] 119 taxmann.com 49 (AAR -
KERALA), where it was held that the service would fall under SAC - 9992- 999293 -
Commercial training and coaching services.
Commercial coaching plus accommodation and mess services is composite supply -
Commercial coaching plus accommodation and mess services is a composite supply with
commercial coaching is dominant. Hence, entire bundle is composite supply with coaching
as principal supply, taxable @ 18% - Doctors Academy of Educational Society In re (2020) 121
taxmann.com 187 (Appellate Authority (GST) -AP).
33.2-1 Definitions relevant in respect of education services
"Approved vocational education course" means, -(i) a course run by an industrial training
institute or an industrial training centre affiliated to the National Council for Vocational
Training or State Council for Vocational Training offering courses in designated trades
notified under the Apprentices Act, 1961 or (ii) a Modular Employable Skill Course, approved
by the National Council of Vocational Training, run by a person registered with the
Directorate General of Training, Ministry of Skill Development and Entrepreneurship - para
2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017,
effective from 1-7-2017.
NGO providing vocational training courses recognised by NCVT is 'approved vocational
education' and is exempt from GST under Sr No. 66(1) of Notification No. 12/2017-CT (Rate)
dated 28-6-2019.
Educational Institution - "Educational institution" means an institution providing services
by way of- (i) pre-school education and education up to higher secondary school or
equivalent (ii) education as a part of a curriculum for obtaining a qualification recognised by
any law for the time being in force (iii) education as a part of an approved vocational
education course - para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate)
both dated 28-6-2017, effective from 1-7-2017.
'Recognised by law for the time being in force' means law in India - GST is not payable by
any institute or establishment imparting education as a part of curriculum for obtaining a
qualification recognised by law for the time being in force.
Law for the time being in force means laws such laws as are applicable in India. Thus, patent
held overseas is not recognised in India - Reliance Industries v. CCE (2016) 95 VST 551
(CESTAT).
Courses approved by Director General of Shipping, Ministry of Surface Transport,
Government of India, in consonance with provisions of the Merchant Shipping Act, 1958 are
assumed to be of statutory nature. These would qualify as being "recognised under the law"
 609

and consequently, eligible for claiming exclusion - Cochin Shipyard Ltd. v. CCEST, Cochin
[2020] 117 taxmann.com 841 (CESTAT).
33.3 Human health and social care service
This service falls under heading 9993.
Exemptions are provided vide Notification No. 12/2017-CT (Rate) and 9/2017-IT (Rate) both
dated 28-6-2017, effective from 1-7-2017.
Exemption to health care services - Services by way of- (a) health care services by a clinical
establishment, an authorised medical practitioner or para-medics (b) services provided by
way of transportation of a patient in an ambulance, other than those specified in (a) above
are exempt from GST.
Public Health - The phrase 'Public Health' is a general term and will cover number of
activities which ensure the health of the public. - - One of the core values of NHM (National
Health Mission) is to strengthen public health systems as a basis for universal access and
social protection against the rising cost of health care. NHM will essentially focus on
strengthening primary health care across the country - CBI&C circular No. 210/2/2018-ST
dated 30-7-2018 .
Health care services is entrusted to Panchayats and Municipalities under Articles 243G and
243W of the Constitution of India MF(DR) (TRU) circular No. 51/25/2018-GST dated 31-7-
2018.
Supply of medicines, consumables and implants during providing health care services -
Supply of medicines, consumables and implants during providing health care services
supplied to in-patients for diagnosis or treatment by hospital are naturally bundled and are
exempt under 'health care service' - KIMS Health Care Management Ltd. In re (2018) 70 GST
735 = 99 taxmann.com 37 (AAR-Kerala). * Starcare Hospital Kozhikode (P.)Ltd., In re [2019]
105 taxmann.com 225 (AAR - Kerala) * Kindorama Healthcare (P.)Ltd., In re [2019] 105
taxmann.com 224 (AAR - Kerala) * Royal Care Speciality Hospitals In re (2019) 110
taxmann.com 481 (AAR-TN) * CMC Vellore Association In re (2020) 113 taxmann.com 55
(AAR-TN). * Shifa Hospitals In re (2020) 78 GST 676 = 110 taxmann.com 483 (AAR-TN) * Baby
Memorial Hospital Ltd. In re (2020) 80 GST 342 = 110 taxmann.com 514 (AAR-Kerala).
Supply of medicines and food with healthcare services - Supply of medicines and food along
with and part of healthcare services is a composite supply. It is exempt. However, if food or
medicines are supplied separately on optional basis, it is not a composite supply - Columbia
Asia Hospitals (P.) Ltd., In re [2018] 100 taxmann.com 212 (AAR - Karnataka) - same view in
KIMS Health Care Management Ltd., In re [2018] 70 GST 735 = 99 taxmann.com 37 (AAR -
Kerala) * Ernakulam Medical Services P Ltd. In re (2018) 70 GST 617 = 98 taxmann.com 161
(AAR - Kerala) * Rajagiri Health Care & Education Trust, In re [2018] 99 taxmann.com 36 =
71 GST 19 (AAR - Kerala). * Terna Public Charitable Trust In re (2019) 75 GST 614 = 107
taxmann.com 356 (AAR-Maharashtra) * Ambara In re (2021) 83 GST 495 = 120 taxmann.com
369 (AAR-Karnataka).
Food supplies to patients as part of health care service is composite supply and not
separately taxable - FAQ on GST Chapter 4 Q No. 28 issued by CBI&C on 15-12-2018.
 610

However, GST is payable on supply of medicines, implants, consumables to out-patients

through hospital owned pharmacy to outpatients - Terna Public Charitable Trust In re (2019)
75 GST 614 = 107 taxmann.com 356 (AAR-Maharashtra). * Baby Memorial Hospital Ltd. In re
(2020) 80 GST 342 = 110 taxmann.com 514 (AAR-Kerala) * Ambara In re (2021) 83 GST 495
= 120 taxmann.com 369 (AAR-Karnataka).
No tax on room rent in hospital - Room rent in hospital is exempt from tax - CBE&C circular
No. 27/1/2018, dated 4-1-2018. [This is correct as really it is a composite service where
principal supply is of health care]. - same view in Kinder Women Hospital, In Re (2019) 74
GST 254 = 105 taxmann.com 223 (AAR-Kerala).
Waste treatment facility to medical establishment - Services provided by operators of the
common bio-medical waste treatment facility to a clinical establishment by way of
treatment or disposal of bio-medical waste or the processes incidental thereto are exempt.
Services of cord blood bank - Services provided by the cord blood banks by way of
preservation of stem cells or any other service in relation to such preservation are exempt.
Authorised Medical Practitioner - "Authorised medical practitioner" means a medical
practitioner registered with any of the councils of the recognised system of medicines
established or recognised by law in India and includes a medical professional having the
requisite qualification to practice in any recognised system of medicines in India as per any
law for the time being in force - para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-
IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Clinical Establishment - "Clinical establishment" means a hospital, nursing home, clinic,
sanatorium or any other institution by, whatever name called, that offers services or
facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality
or pregnancy in any recognised system of medicines in India, or a place established as an
independent entity or a part of an establishment to carry out diagnostic or investigative
services of diseases - para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate)
both dated 28-6-2017, effective from 1-7-2017.
Health Care Services - "Health care services" means any service by way of diagnosis or
treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised
system of medicines in India and includes services by way of transportation of the patient to
and from a clinical establishment, but does not include hair transplant or cosmetic or plastic
surgery, except when undertaken to restore or to reconstruct anatomy or functions of body
affected due to congenital defects, developmental abnormalities, injury or trauma - para 2
of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017,
effective from 1-7-2017.
No GST applicable on amounts paid to senior doctors by hospitals or retention money kept
by hospital from payments to consultants/technicians - In some cases, hospital allows
private doctors to use consulting rooms in hospitals. The patient pays fees to hospital out of
which hospital pays certain amount to the private doctor/technician. For example, the
hospital may collect fee of Rs 10,000 out of which Rs 7,500 are paid to the private
doctor/technician. The amount retained by hospital is to provide ancillary services like
infrastructure, nursing, paramedic care, emergency services etc. In some cases, the hospitals
 611

pay consultancy charges to senior doctors/consultants/technicians. However, there is no

employer employee relationship.
In both the cases, these are health care services and no GST is applicable on amounts paid
to senior doctors by hospitals or retention money kept by hospital from payments to
consultants/technicians - CBI&C circular No. 32/06/2018-GST dated 12-2-2018.
This view has been confirmed in Sir Ganga Ram Hospital v. CCT (2018) 94 taxmann.com 226
(CESTAT).
Consulting, diagnostic and treatment services and clinic services are exempt - Consulting,
diagnostic, treatment services provided by assessee doctor in India to recipient in India and
part time practicing in clinic in India are covered under healthcare services and medical
services which are exempt from tax as per entry 74 of Notification No. 12/2017-Central tax
(rate), dated 28-6-2017 and entry 77 of Notification No. 9/2017-Integrated Tax (Rate), dated
28-6-2017 - Dr. H.B. Govardhan In re [2021] 124 taxmann.com 302 (AAR - Karnataka).
Diagnosis and pre and post counselling service is health care service - In Sayre Therapuetics
(P.) Ltd., In re* [2018] 93 taxmann.com 418 (AAR-Karnataka), applicant was involved in
providing services of diagnosis, pre and post counselling, therapy and prevention of diseases
by providing tests that are sophisticated and relevant. Medical team of applicant was
facilitating diagnosis process. It was held that applicant qualifies to be a clinical
establishment and services provided by it qualify to be healthcare services which attract nil
rate of central tax. - similar view in Medivision Scan & Diagnostic Research Centre (P.) Ltd.,
In re [2019] 105 taxmann.com 226 (AAR - Kerala).
[In first case, the testing was done by outside agencies while in second case, testing was
done by appellant himself].
Diagnostic services provided to hospital (and not to individual patients) is healthcare service
and exempt from GST- Matrix Imaging Solutions In Re (2019) 110 taxmann.com 427 (AAR-
Karnataka).
Clinical testing done in laboratory on swabs and samples of humans (potential donors) is
'health care service by clinical establishment' under heading 9993 and exempt.- DKMS BMST
Foundation India In re (2020) 82 GST 263 = 116 taxmann.com 423 (AAR- Karnataka).
In contrary view, in J C Genetic India P Ltd. In re (2019) 73 GST 272 = 104 taxmann.com 88
(AAR-MP), the appellant was getting tests done from outside accredited laboratory and then
was giving consultancy. It was held that this is not clinical establishment and hence,
exemption is not available.
Clinical testing done in overseas laboratory on swabs and samples of humans is 'health
care service by clinical establishment' - Clinical testing done in overseas laboratory on swabs
and samples of humans (potential donors) is 'health care service by clinical establishment
and exempt. Hence, reverse charge does not apply - DKMS BMST Foundation India In re
(2020) 82 GST 263 = 116 taxmann.com 423 (AAR- Karnataka).
No tax on food supplied by hospital itself to patients made in own canteen but tax is
payable if supply of food is outsourced - There is no tax on food supplied by hospital itself
to patients made in own canteen as it is part of composite supply of healthcare. However,
tax is payable if food is supplied to attendants or visitors or out patients on chargeable basis.
 612

Further, tax is payable by supplier of foods if supply of food is outsourced - CBI&C circular
No. 32/06/2018-GST dated 12-2-2018 - same view in Navneeth Kumar Talla In re (2020) 120
taxmann.com 453 (AAR-Telangana).
GST or service tax not applicable on ambulance services provided to Government under
National Health Mission - GST or service tax is not applicable on ambulance services
provided to Government under National Health Mission - MF(DR) (TRU) circular No.
51/25/2018-GST dated 31-7-2018 in respect of GST and CBI&C circular No. 210/2/2018-ST
dated 30-7-2018 for service tax.
Tax payable if hospital gives part of premises on rent - GST is leviable on rent paid/payable
for premises, given on lease by hospital - Tathagat Health Care Centre LLP, In re [2018] 93
taxmann.com 419 (AAR-Karnataka)
Services provided by rehabilitation professionals exempt - Services provided by
rehabilitation professionals recognised under the Rehabilitation Council of India Act, 1992
by way of rehabilitation, therapy or counselling and such other activity as covered by the
said Act at medical establishments, educational institutions, rehabilitation centers
established by Central Government, State Government or Union territory or an entity
registered under section 12AA of the Income tax Act, 1961 (43 of 1961) are exempt w.e.f. 1-
1-2019 - Sr No. 74A of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017, inserted w.e.f. 1-1-2019.
GST payable on cleaning and security services provided to private and Government
hospital - GST is payable on cleaning and security services provided to hospital are subject
to GST - Altabur Rahaman Mollah In re (2019) 76 GST 355 = 109 taxmann.com 154 (AAR-
WB).
In the aforesaid case, it was held that cleaning services provided to Government hospital are
also not exempt [There can be two views on this as Eleventh Schedule to Constitution (Article
243G of Constitution of India) covers 'health and sanitation, including hospitals']
Clinical research services is not 'healthcare service' and is taxable - Service of clinical
research activities to determine safety and effectiveness (efficacy) of medications, devices,
diagnostic products and treatment regimens intended for human use and services are not
in connection with diagnosis or treatment or care for illness. They related to support services
for research, it would be covered under SAC 998599 as other support services taxable at
18%. They are not covered under healthcare services and not exempt - Vevaan Ventures, In
re [2021] 124 taxmann.com 331 (AAR - Karnataka).
Pathology or diagnostic services supplied to the client for research is taxable - Sterling
Accuris Wellness (P.) Ltd., In re [2021] 124 taxmann.com 387 (AAR - Gujarat).
Therapy package consisting of Naturopathy, Yoga and meditation with stay and food is
not exempt - Therapy package consisting of Naturopathy, Yoga and meditation with stay
and food is not exempt. It is not 'health care service' under 9993. The service would fall
under heading 9963 (accommodation service) as it is composite supply - Oswal Industries
Ltd. In re (2021) 83 GST 261 = 119 taxmann.com 269 (AAR-Gujarat) - contrary decision in
Alcon Resort Holdings P Ltd. In re (2019) 107 taxmann.com 259 (AAR-Goa).
[really, intention of people going there is for cure and not for holidaying].
 613

33.4 Sanitation and similar services

These services fall under service group 99945.
Services by way of public conveniences such as provision of facilities of bathroom,
washrooms, lavatories, urinal or toilets is exempt - Notification No. 12/2017-CT (Rate) and
No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
33.4-1 Services of effluent treatment, sewage and waste collection
These services fall under heading 9994.
Services by way of treatment of effluents by a Common Effluent Treatment Plant are subject
to tax @ 12% [6% CGST plus 6% SGST/UTGST] w.e.f. 25-1-2018 - Sr. No. 32(i) of Notification
No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 inserted on 25-1-
2018.
Sewage and waste collection, treatment and disposal and other environmental protection
services other than (i) above are subject to tax @ 18% [9% CGST plus 9% SGST/UTGST] w.e.f.
1-7-2017.
33.5 Services of membership organisations (clubs and associations)
This service falls under heading 9995. The GST rate is 18% [CGST - 9% plus SGST/UTGST -
9%].
In State of West Bengal v. Calcutta Club Ltd. [2019] 76 GST 614 = 110 taxmann.com 47 (SC 3
member bench), it has been held that Clubs cannot be treated as distinct from their
members and there is no sale transaction between a club and its members. Hence, there can
be no sales tax or service tax on supplies by club to its members.
Though this decision was not in respect of provisions under GST Act, the principle could apply
in GST.
There are many decisions of Authority for Advance Ruling (AAR) that GST does not apply to
amounts received by club or associations from its members.
To get over these decisions and to remove ambiguity, section 7(1)(aa) of CGST Act has been
inserted vide Section 108 of Finance Act, 2021 w.r.e.f. 1-7-2017 to provide that for purposes
of CGST Act, the expression 'supply' includes the activities or transactions, by a person, other
than an individual, to its members or constituents or vice versa, for cash, deferred payment
or other valuable consideration.
To remove any ambiguity or doubt, a 'deeming' provision has been made, vide Explanation
to section 7(1)(aa) of CGST Act inserted vide Section 108 of Finance Act, 2021 w.r.e.f. 1-7-
2017, stating that for the purposes of clause (aa), it is hereby clarified that, notwithstanding
anything contained in any other law for the time being in force or any judgment, decree or
order of any Court, tribunal or authority, the person and its members or constituents shall
be deemed to be two separate persons and the supply of activities or transactions inter se
shall be deemed to take place from one such person to another.
In view of insertion of the deeming provision, paragraph 7 of Schedule II of CGST Act (which
stated that supply of goods by unincorporated association to is member for consideration
shall be treated as supply of goods) has been omitted vide Section 122 of Finance Act, 2021
w.r.e.f. 1-7-2017.
 614

It is true that intention of Parliament has always been to tax transactions between club or
association and its members.
Section 2(84)(f) of CGST Act specifically stated that 'person' includes an association of
persons or a body of individuals, whether incorporated or not, in India or outside India.
Thus, really the amendment as such cannot be faulted. However, the only issue is regarding
its retrospective application.
When BJP came to power, BJP had specifically stated that there will be no retrospective
amendment to tax laws. The most classic and worst example of retrospective amendment is
that of Vodafone. The retrospective amendment was specifically made to overturn decision
of Supreme Court favouring Vodafone. The company went for international arbitration and
the Arbitral Tribunal gave unanimous verdict in favour of Vodafone [which included the
nominee of Central Government]. Government should have gracefully accepted that
decision, but instead, it has gone in appeal. Mostly, in appeal, Government will get another
slap.
Many clubs and associations must have acted upon the judgment of Supreme Court and
orders of Authority for Advance Ruling. At this stage, after three and half years, it may be
difficult for many clubs or associations to collect past dues for over three and half years (with
18% interest) from its members. Many members may refuse to pay and the Associations
(which are not for profit) will be saddled with huge tax liability.
It is true that Parliament has plenary powers and can pass any law with retrospective effect.
However, arbitrary and irrational provision is violative of constitutional provisions.
In Tata Motors v. State of Maharashtra 2004 AIR SCW 3543 = (2004) 5 SCC 783 = 136 STC 1
(SC), a retrospective amendment and validation was held unreasonable and arbitrary, as it
was for withdrawal of benefit only for a particular period, without giving any reason - quoted
with approval in Jayam and Co v. AC (2016) 15 SCC 125 = 96 VST 1 (SC).
A law cannot be held to be unreasonable merely because it operates retrospectively. The
un-reasonability must be in some other additional factors. The retrospective operation of a
fiscal statute would have to be found to be unduly oppressive and confiscatory before it can
be held to be unreasonable as to violate constitutional norms. Court can strike down a taxing
statute only if it is plainly discriminatory or it is confiscatory - RC Tobacco P Ltd. v. UOI (2005)
7 SCC 725 = 188 ELT 129 (SC).
In Bangalore Club v. ACCT (2010) 27 VST 489 (Karn HC DB), retrospective amendment was
held bad in law as tax cannot be collected in respect of past transactions - relying on National
Agricultural Coop Marketing Federation v. UOI 2003 AIR SCW 1743 = AIR 2003 SC 1329 = 260
ITR 548 = 128 Taxman 361 = 2003(5) SCC 23.
Of course, what view Supreme Court will take in this case is unpredictable, but in my view,
making provision retrospective is highly unfair and against specific promise of BLP.
Some earlier decisions about taxability of services of clubs and associations - Contribution
received by Banking Codes & services Board of India from its members towards Annual
Membership fees and registration fees for spending on its object is eligible to GST - Banking
Codes & Standards Board of India, In re [2018] 100 taxmann.com 404 (AAR - Maharashtra).
 615

Services of club (except food supplied in restaurant) fall under heading 9995 and taxable @
18% - Bengal Rowing Club, In re [2019] 73 GST 97 = 103 taxmann.com 451 (AAR-West
Bengal).
In Association of Inner Wheel Clubs in India, In re [2018] 100 taxmann.com 92 = 71 GST 248
(AAR-West Bengal), it has been held that the activities of club (affiliated to International
Inner Wheel, an organisation involved in social welfare work) involve providing space for
advertisements, raising sponsorship etc. This is supply of services classifiable under SAC
Heading 99959 against consideration received in form of subscription and membership fees.
Sale of souvenirs is to be considered as a supply of goods - view confirmed in Association of
Inner Wheel Clubs in India, In re [2019] 73 GST 719 = 104 taxmann.com 87 (AAAR-West
Bengal).
Alumni Association liable to GST - Alumni Association is liable to GST - IIT Madras Alumni
Association In re (2021) 83 GST 761 = 120 taxmann.com 388 (AAR-Tamil Nadu).
Now, these decisions are valid w.e.f. 1-7-2017.
Contrary decisions that Clubs like rotary club, lions club, Inner wheel are not liable to pay
GST - In view of retrospective amendments, validity of following decisions is now doubtful.
In Rotary Club of Mumbai Queens Necklace, In re [2020] 80 GST 515 = 117 taxmann.com 449
(AAAR-Maharashtra), it was held that where entire subscription/membership amount
collected by rotary club from its members was not being utilized for providing any facility or
benefit to any of its members, it was to be concluded that appellant was not doing any
business as envisaged under section 2(17) and therefore, activities carried out by appellant
would not come under scope of supply as envisaged under section 7(1) of CGST Act -
reversing decision in Rotary Club of Mumbai Queens Necklace, In re [2019] 74 GST 762 = 107
taxmann.com 224 (AAR - Maharashtra).
In Rotary Club of Mumbai Nariman Point, In re [2020] 120 taxmann.com 51 (AAAR-
Maharashtra), it was held that since entire membership subscription and admission fees
amount received by Rotary Club from its members was utilized solely towards meetings and
administrative expenditure only and since assessee was not providing any specific facility or
benefits to its members against such subscription charged by it, activities undertaken by
assessee would not come under scope of supply under section 7(1). Amount collected as
subscription and admission fees from members was not liable to GST as supply of services
[reversing decision in Rotary Club of Mumbai Nariman Point, In re [2019] 76 GST 260 = 108
taxmann.com 212 (AAR - Maharashtra)].
In Rotary Club of Mumbai Western Elite, In re [2019] 76 GST 825 = 110 taxmann.com 182
(AAR - Maharashtra), it was held that membership fee recovered by club from their
members, which is spent towards incurring various administrative expenses will be exempt
from GST. If fee is used for expenses other than for administrative expenses, it will be against
supply of service, subject to GST.
In Lions Club of Poona Kothrud, In re [2020] 78 GST 346 = 111 taxmann.com 135 (AAAR -
Maharashtra), it was held that membership fees collected from members will not be
construed as consideration. However, fees received by Lions Club for training will be
construed as supply of service and GST will be payable - modifying decision in Lions Club of
 616

Poona Kothrud, In re [2018] 100 taxmann.com 222 (AAR - Maharashtra), where it was held
that Lions Club a non profit organisation, pursues its charitable objective in multifarious ways
by building/running hospitals, clinics, schools, playgrounds, etc., other health care,
charitable activities. The club is not formed to provide any supply of goods or services to its
members qua the fees received from them. There is no furtherance of business. Hence, Lions
club does not render any 'Supply' for the purposes of the GST Act. [modification only to the
extent that GST will be payable on training fees].
Now, these decisions are not valid in view of retrospective amendment w.e.f. 1-7-2017.
Services of Trade Union - Service by an unincorporated body or a non- profit entity
registered under any law for the time being in force, to its own members by way of
reimbursement of charges or share of contribution as a trade union are exempt.
33.5-1 Services of associations for welfare of labour, farmer or promotion of trade,
commerce, sports, welfare etc. exempt if annual fee upto Rs. 1,000
Services provided by an unincorporated body or a non-profit entity registered under any law
for the time being in force, engaged in,- (i) activities relating to the welfare of industrial or
agricultural labour or farmer; or (ii) promotion of trade, commerce, industry, agriculture, art,
science, literature, culture, sports, education, social welfare, charitable activities and
protection of environment, to its own members against consideration in the form of
membership fee upto an amount of one thousand rupees (Rs. 1,000) per member per year
- Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 as
inserted w.e.f. 27-7-2018.
33.6 Services of religious ceremony or renting of precincts of religious premises
This service falls under heading 999591.
Services of religious ceremony are exempt. Services of renting of precincts are also exempt
subject to limit of Rs 1,000 per day for accommodation or Rs 10,000 per day for functions or
Rs 10,000 per month for renting of shops - Notification No. 12/2017-CT (Rate) and 9/2017-
IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
The statutory provisions are as follows:
Services by a person by way of-(a) conduct of any religious ceremony; (b) renting of precincts
of a religious place meant for general public, owned or managed by an entity registered as
a charitable or religious trust under section 12AA of the Income-tax Act, 1961 (hereinafter
referred to as the Income-tax Act) or a trust or an institution registered under sub-clause (v)
of clause (23C) of section 10 of the Income-tax Act or a body or an authority covered under
clause (23BBA) of section 10 of the said Income-tax Act:
Provided that nothing contained in entry (b) of this exemption shall apply to,-(i) renting of
rooms where charges are one thousand rupees or more per day; (ii) renting of premises,
community halls, kalyanmandapam or open area, and the like where charges are ten
thousand rupees or more per day; (iii) renting of shops or other spaces for business or
commerce where charges are ten thousand rupees or more per month.
Religious place - "Religious place" means a place which is primarily meant for conduct of
prayers or worship pertaining to a religion, meditation, or spirituality - para 2 of Notification
 617

No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-
2017.
No GST on free food supplied in religious places - There will be no GST on free food supplied
in anna kshetras run by religious institutions. Further, prasadam supplied by religious places
like temples, mosques, churches, gurudwaras attracts Nil rate of tax. However, ITC will not
be available - - PIB press release dated 11-7-2017 15:44 IST and CBI&C press release No.
75/2017 dated 11-7-2017.
Sale of prasadam is exempt from tax as per entry 98 of Notification No. 2/2017-CT (Rate)
dated 28-6-2017 - Sri Malai Mahadeshwara Swamy Kshetra Development Authority In re
(2020) 82 GST 698 = 116 taxmann.com 430 (AAR-Karnataka).
33.7 Services of housing societies or Resident Welfare Association for monthly
contribution upto Rs. 7,500
This service is 'Home Owners' Association' and falls under service classification tariff 999598.
There was some ambiguity about taxability of services of housing society or RWA. To remove
ambiguity, section 7(1)(aa) of CGST Act has been inserted vide Section 108 of Finance Act,
2021 w.r.e.f. 1-7-2017 to provide that for purposes of CGST Act, the expression 'supply'
includes the activities or transactions, by a person, other than an individual, to its members
or constituents or vice versa, for cash, deferred payment or other valuable consideration.
Activities a co-operative housing society, such as obtaining conveyance from builder,
managing, maintaining and administering property of society, raising funds for achieving
objects of society, undertaking and providing any social, cultural or recreational activities,
can be considered as rendering of 'supply' of services to its members under section 7 of CGST
Act - Apsara Co-operative Housing Society Ltd., In re [2020] 117 taxmann.com 746 (AAR -
Maharashtra) - confirmed in Apsara Co-operative Housing Society Ltd., In re [2020] 121
taxmann.com 225 (AAAR-Maharashtra)- same view in Gnanaganga Gruha Nirmana
Sahakara Sangh In re (2020) 119 taxmann.com 431 (AAR-Karn) * Vaishnavi Splendour Home
Owners Welfare Association In re (2020) 80 GST 256 = 110 taxmann.com 249 (AAR-
Karnataka).
Such associations are normally formed as RWA (Resident Welfare Association) or Housing
Society.
Service by an unincorporated body or a non-profit entity registered under any law for the
time being in force, to its own members by way of reimbursement of charges or share of
contribution up to an amount of Rs 7,500 per member (the limit was Rs 5,000 upto 25-1-
2018) for sourcing of goods or services from a third person for the common use of its
members in a housing society or a residential complex are exempt - Sr No. 77(c) of
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017. The
exemption limit has been increased from Rs. 5,000 to Rs. 7,500 w.e.f. 25-1-2018.
GST payable only if aggregate turnover exceeds Rs 20 lakhs and contribution more than Rs
7,500 - When the monthly subscription payable to RWA/Housing Society is less than Rs
7,500 per month (Rs 5,000 per month upto 25-1-2018), GST will not be applicable even if
aggregate turnover is more than Rs 20 lakhs/10 lakhs. Further, even where monthly
contribution exceeds Rs 7,500 (earlier Rs 5,000), GST will apply only if aggregate turnover
 618

exceeds Rs 20 lakhs/10 lakhs. Rate of GST is 18% but ITC is available and hence there is no
increase in taxes under GST - PIB press release dated 13-7-2017 15:48 IST and CBI&C press
release No. 76/2017 dated 13-7-2017 - reiterated in CBI&C circular No. 109/28/2019-GST
dated 22-7-2019.
If monthly contribution exceeds Rs 7,500, entire amount is taxable - In TVH Lumbini Square
Owners Association, In re [2019] 107 taxmann.com 329 (AAR - Tamilnadu), it has been held
that GST is payable on entire amount including initial Rs 7,500 - same view in CBI&C circular
No. 109/28/2019-GST dated 22-7-2019. - also in Vaishnavi Splendour Home Owners Welfare
Association In re (2020) 80 GST 256 = 110 taxmann.com 249 (AAR-Karnataka).
Really, the words used are 'upto Rs 7,500' [It was upto Rs 5,000 till 25-1-2018]. Hence, in my
view, only contribution exceeding Rs 7,500 paid to RWA/Housing Society should be subject
to GST and if such amount is less than Rs 20 lakhs/10 lakhs, then GST will not be payable.
However, in view of CBI&C circular dated 22-7-2019 and decision of AAR, safe view is to pay
GST on entire amount.
If a person holds more than one apartment in same society or residential complex, he gets
separate exemption of Rs 7,500 for each apartment - CBI&C, vide circular No. 109/28/2019-
GST dated 22-7-2019, has clarified that if a person holds more than one apartment in same
society or residential complex, he gets separate exemption of Rs 7,500 for each apartment.
For example, if a person owns two residential apartments in a residential complex and pays
Rs. 15,000 per month as maintenance charges towards maintenance of each apartment to
the RWA (Rs. 7,500 per month in respect of each residential apartment), the exemption from
GST shall be available to each apartment.
Services provided by housing society or RWA for provision of service which is exempt from
GST - Service by an unincorporated body or a non- profit entity registered under any law for
the time being in force, to its own members by way of reimbursement of charges or share
of contribution for the provision of carrying out any activity which is exempt from the levy
of Goods and services Tax is exempt [This provision applies when the housing society or RWA
undertakes activity which is exempt from GST like medical camp, social activities etc.]
GST liability on various amounts collected from members and others by RWA/Housing
Society - Tax is payable on sinking fund, repairs and maintenance fund, car parking charges,
non occupancy charges or interest for late payment of taxes attract GST. Tax is not payable
on property tax, water tax, NA tax, electricity charges collected under Statutes from
individual members and paid to concerned authorities. Tax is payable on rent of community
hall.
If such charges cumulatively exceed Rs 20/10 lakhs per annum, tax is payable even if monthly
contribution per member is less than Rs 5,000 (Now Rs 7,500 w.e.f. 25-1-2018) - FAQ by
CBI&C vide F No. 332/04/2017-TRU issued in September, 2017.
Water charges recovered from members - Supply of water is part of maintenance services
provided to housing society/Resident Welfare Association and GST is payable on charges for
supply of water even if there are two separate contracts - Ashiana Maintenance Services LLP,
In re [2021] 124 taxmann.com 54 (AAR - Haryana).
 619

In a contrary view, in Gnanaganga Gruha Nirmana Sahakara Sangh In re (2020) 83 GST 276
= 119 taxmann.com 431 (AAR-Karn), it was held that If water charges are collected
separately, these are exempt as 'water' as 'goods' is exempt [In my view, this would be so
only if charges are collected on actual basis and not when recovery is on ad hoc basis].
GST on corpus/sinking fund collected from members - In Capital Commercial Co-op.
(Service) Society Ltd., In re [2021] 123 taxmann.com 403 (AAR - Gujarat), it has been held
that money collected by Housing Society from members under Common Maintenance
Fund/Deposit (one-time basis) is in nature of a non-returnable deposit towards unforeseen
events or planned events and such deposit is never to be returned to members. It will be
used as and when required in future for maintenance, repair, etc., of common amenities,
facilities, services, conveniences, utilities and common infrastructure of Scheme. Such
deposits are supply of service and, hence, will be liable to tax.
In Olety Landmark Apartment Owner's Association, In re [2021] 125 taxmann.com 381 (AAR
- Karnataka), it has been held that amounts collected by resident welfare association (RWA)
towards Sinking Fund meant for future supply of services to members are covered under
SAC 9995 as 'Services of Membership Association' and are taxable to GST @ 18% in terms of
Sl. No. 33 of Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017. These amounts
are liable to GST as they are advances towards future supply of services but not deposits.
There are some slightly contrary views also. In Prestige South Ridge Apartment Owners
Association In re (2019) 79 GST 215 = 110 taxmann.com 235 (AAR-Karnataka), it has been
held that corpus/sinking fund is mandatory in nature and is in nature of deposit towards
unforeseen or unplanned event. No service is involved. Hence, there is no GST on
corpus/sinking fund collected from members. However, if these funds are utilised for supply
of services, GST will be payable - same view in Vaishnavi Splendour Home Owners Welfare
Association In re (2020) 80 GST 256 = 110 taxmann.com 249 (AAR-Karnataka).
[really GST is payable on advance received for services also. In my view, GST should be
payable on sinking fund also].
Transfer charges collected from member when they sale the site are taxable - In
Gnanaganga Gruha Nirmana Sahakara Sangh In re (2020) 83 GST 276 = 119 taxmann.com
431 (AAR-Karn), it was held that Transfer charges collected by society from member when
they sale the site are taxable.
33.8 Recreational, cultural and sporting services
This service falls under 9996.
Amusement park and similar services fall under service heading 999691.
GST rates as notified in Sr. No. 34 of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT
(Rate) both dated 28-6-2017 as amended are as follows -
Services by way of admission to amusement parks including theme parks, water parks, joy
rides, merry-go rounds, go-carting and ballet - tax rate 18% [9% CGST plus 9% SGST/UTGST]
w.e.f. 25-1-2018 [During 1-7-2017 to 25-1-2018, the GST rate was 28% (CGST 14% and SGST
14%)]
Services by way of admission to entertainment events or access to amusement facilities
including (*), casinos, race club, any sporting event such as Indian Premier League and the
 620

like - the GST rate is 28% (CGST 14% and SGST 14%) or IGST rate 28% [from 1-7-2017]. [* -
The words were 'exhibition of cinematograph films'. These words have been omitted w.e.f.
1-1-2019 as in case of exhibition of cinematograph films, the GST rate has been lowered to
18% irrespective of price of admission ticket].
In case of services by way of admission to exhibition of cinematograph films where price of
admission ticket is one hundred rupees or less, the GST rate is 12% (CGST 6% and
SGST/UTGST 6%) w.e.f. 1-1-2019 - Sr No. 34(ii) of Notification No. 11/2017-CT (Rate) and
8/2017-IT (Rate) both dated 28-6-2017, as amended on 1-1-2019. [Till 1-1-2019, the GST rate
was 18%].
In case of services by way of admission to exhibition of cinematograph films where price of
admission ticket is above one hundred rupees, the GST rate is 18% (CGST 9% and
SGST/UTGST 9%) or IGST rate 18% w.e.f. 1-1-2019 - Sr No. 34(iia) of Notification Nos.
11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017, as amended on 1-1-2019.
[Till 1-1-2019, the GST rate was 28%].
For services by way of admission or access to circus, Indian classical dance including folk
dance, theatrical performance, drama or planetarium, the GST rate is 18% (CGST 9% and
SGST 9%) or IGST rate 18% w.e.f. 1-7-2017 [The words in italics inserted w.e.f. 22-8-2017]
[for exemption when admission fee is less than Rs 500, see below].
For all other recreational, cultural and sporting services, the GST rate is 18% (CGST 9% and
SGST 9%) or IGST rate 18%.
Rate of GST on fees collected for entry into Subhash Udhyan (Municipal Park), ticket charges
for toy train facility and ticket charges for pedal boat facility provided is @ 18 per cent -
Chandmal Narayandas Consortium, In re [2020] 119 taxmann.com 357 (AAR - Rajasthan).
Supply of amusement services in amusement park by way of access to merry-go-rounds and
other rides shall be classifiable under Heading No. 99969/999691, taxable at 18 per cent GST
- Superstar Amusement (P.) Ltd., In re [2020] 121 taxmann.com 133 (AAR - Gujarat).
Tax rate during 1-7-2017 to 25-1-2018 on certain services - In case of supply of services by
way of admission to entertainment events or access to amusement facilities including
exhibition of cinematograph films, theme parks, water parks, joy rides, merry-go rounds, go-
carting, casinos, race-course, ballet, any sporting event such as Indian Premier League and
the like, the GST rate was 28% (CGST 14% and SGST 14%) or IGST rate 28% [Now these rates
are split between 18% and 28% as stated above].
Exemption for admission of fee upto Rs 500 per person in circus, drama, sporting event etc.
- Services by way of right to admission to- (a) circus, dance, or theatrical performance
including drama or ballet; (b) award function, concert, pageant, musical performance or any
sporting event other than a recognised sporting event (c) recognised sporting event (d)
planetarium, where the consideration for admission is not more than Rs 500 per person (the
limit was Rs 250 per person upto 25-1-2018) as referred to in (a), (b), (c) and (d) above are
exempt - Sr. No. 81 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017, effective from 1-7-2017. The words in italics have been inserted w.e.f. 25-
1-2018.
 621

Gaming equipment in mall is 'amusement facility' with SGT rate of 28% and not
'amusement park' - In Bandai Namco India (P.) Ltd. In re [2019] 107 taxmann.com 42 (AAR
- Maharashtra), applicant-company was providing amusement facility services and running
family entertainment center in a mall. The centre had various gaming equipment and
machines for different age groups, either coin operated or card operated. It was held that
this would not fall within the expression an 'amusement park', but fall under 'amusement
facilities'. The reason is that to be called as a park, it must have a large area of land whereas
to be called a 'facility', it is sufficient if it has a place or a building in mall. Hence, GST rate on
operating gaming zone in malls is @ 28%.
Elephant rides, camel ride, boat ride, rickshaw ride - Elephant ride, camel ride, boat ride,
rickshaw ride is a recreational activity, falling under heading 9996. It is not transport service.
The GST rate is 18% (CGST 9% and SGST 9%) - CBI&C circular No. 32/06/2018-GST dated 12-
2-2018.
Gaming equipment in mall is 'amusement facility' with GST rate of 28% and not
'amusement park' In Bandai Namco India (P.) Ltd. In re [2019] 107 taxmann.com 42 (AAR -
Maharashtra), applicant-company was providing amusement facility services and running
family entertainment center in a mall. The centre had various gaming equipment and
machines for different age groups, either coin operated or card operated. It was held that
this would not fall within the expression an 'amusement park', but fall under 'amusement
facilities'. The reason is that to be called as a park, it must have a large area of land whereas
to be called a 'facility', it is sufficient if it has a place or a building in mall. Hence, GST rate on
operating gaming zone in malls is @ 28% from 25-1-2018.
Producing film out of India for Indian customer- Line producer engaged by appellant for
shooting of a feature film in Brazil was supplying motion picture production service,
classifiable under SAC 999612 (Motion picture production services). The place of supply is
India. It is import of service and the appellant is liable to pay IGST - Udayan Cinema (P.) Ltd.,
In re [2019] 73 GST 59 = 103 taxmann.com 219 (AAR-West Bengal).
Admission to FIFA U-17 Women's World Cup 2020 - Service by way of right to admission to
the events organised under FIFA U-17 Women's World Cup 2020 are exempt from tax - Sr
No. 82A of Notification No. 12/2017-CT (Rate) and 9/2017-IT (Rate) both dated 28-6-2017
effective from 1-10-2019.
33.9 Services of performing artists and models
Service of performing artists like singers, actors, dancers, models, fall under 999631.
Services by an artist by way of a performance in folk or classical art forms of - (a) music, or
(b) dance, or (c) theatre; are exempt, if the consideration charged for such performance is
not more than one lakh and fifty thousand rupees. This exemption shall not apply to service
provided by such artist as a brand ambassador - Notification No. 12/2017-CT (Rate) and No.
9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Brand ambassador - "Brand ambassador" means a person engaged for promotion or
marketing of a brand of goods, service, property or actionable claim, event or endorsement
of name, including a trade name, logo or house mark of any person - para 2 of Notification
 622

No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-
2017.
33.10 Museum and preservation services
Museum services fall under service tax 999641.
Services by way of admission to a museum, national park, wildlife sanctuary, tiger reserve or
zoo are exempt -Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-
6-2017, effective from 1-7-2017.
Services by way of admission to a protected monument so declared under the Ancient
Monuments and Archeological Sites and Remains Act or any of the State Acts are exempt -
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 as
amended w.e.f. 15-11-2017.
33.11 Services to recognised sports body
Sports and recreational sports services fall under service group 99965.
Services provided to a recognised sports body by-(a) an individual as a player, referee,
umpire, coach or team manager for participation in a sporting event organised by a
recognized sports body; (b) another recognised sports body are exempt from GST -
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective
from 1-7-2017.
"Recognised sporting event" means any sporting event,- (i) organised by a recognised sports
body where the participating team or individual represent any district, state, zone or country
(ii) organised -(A) by a national sports federation, or its affiliated federations, where the
participating teams or individuals represent any district, state or zone (B) by Association of
Indian Universities, Inter-University Sports Board, School Games Federation of India, All India
Sports Council for the Deaf, Paralympic Committee of India or Special Olympics Bharat (C)
by Central Civil Services Cultural and Sports Board (D) as part of national games, by Indian
Olympic Association; or (E)under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme
- para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-
2017, effective from 1-7-2017.
"Recognised sports body" means -(i) the Indian Olympic Association (ii) Sports Authority of
India (iii) a national sports federation recognised by the Ministry of Sports and Youth Affairs
of the Central Government, and its affiliate federations (iv) national sports promotion
organisations recognised by the Ministry of Sports and Youth Affairs of the Central
Government (v) the International Olympic Association or a federation recognised by the
International Olympic Association; or(vi) a federation or a body which regulates a sport at
international level and its affiliated federations or bodies regulating a sport in India - para 2
of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017,
effective from 1-7-2017.
Exemption to Services provided to or by Fédération Internationale de Football Association
(FIFA) and its subsidiaries for U-17 Women's World Cup 2020 - Services provided by and to
Fédération Internationale de Football Association (FIFA) and its subsidiaries directly or
indirectly related to any of the events under FIFA U-17 Women's World Cup 2020 to be
hosted in India are exempt, if Director (Sports), Ministry of Youth Affairs and Sports certifies
 623

that the services are directly or indirectly related to any of the events under FIFA U-17
Women's World Cup 2020 - Sr No. 9AA of Notification Nos. 12/2017-CT (Rate) and 9/2017-
IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-10-2019.
33.12 Gambling and betting and racing service
Gambling and betting service falls under service tariff 999692.
In cases of services provided by a race club by way of totalisator or a license to bookmaker
in such club, gambling and betting, the GST rate is 28% (14% CGST and 14% SGST/UTGST) -
Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 effective
from 1-7-2017.
Value of actionable claim in the form of chance to win in betting, gambling or horse racing
in a race club shall be 100% of the face value of bet or the amount paid into the totalizator -
rule 31A of CGST Rules inserted w.e.f. 23-1-2018. This was also clarified in CBI&C circular No.
27/1/2018 dated 4-1-2018 e.g. if bet value is Rs 100, tax is payable @ 28% on entire Rs 100.
[This is really only clarificatory, as even earlier, the value was same].
If separate amount is charged for entry in casino, tax will be charged on entry fee @ 28%
(14% CGST and 14% SGST/UTGST) - CBI&C circular No. 27/1/2018 dated 4-1-2018.
'Business' includes activities of race club - As per section 2(17)(h) of CGST Act, 'business'
includes activities of a race club including by way of totalisator or a license to book maker or
activities of a licensed book maker in such club [The words in italics substituted vide CGST
(Amendment) Act, 2018 w.e.f. 1-2-2019].
Till 1-2-2019, the words were as follows - 'services' provided by a race club by way of
totalisator or a licence to book maker in such club. In my view, this is only correcting a
drafting mistake. The activities were even otherwise taxable, as the definition of 'business'
is inclusive. Further, 'services' includes anything other than goods as per section 2(102) of
CGST Act.
Competitions where success depends on substantial skills is not gambling - Competitions
where success depends on substantial skills is not gambling. Despite being an element of
chance, if a game is predominantly a game of skill, it would nevertheless be a game of mere
skill - Dr K R Lakshmanan v. State of Tamil Nadu AIR 1996 SC 1153 = (1996) 2 SCC 226 (SC 3
member bench).
Horse racing is game of skill and hence legal - Horse racing is game of skill as it depends on
several factors like form and fitness of animal, ability of jockey, weight carried and distance
of race. Unlike lottery, the prediction of the result of race is an outcome of knowledge, study
and observation - K R Kakshmaman (Dr) v. State of Tamil Nadu AIR 1996 SC 1153.
Prize money received to horse owner from horse race not taxable - In Vijay Baburao Shirke,
In re [2020] 120 taxmann.com 103 (AAAR-Maharashtra), applicant owned horses. The horses
participated in races organised at different race clubs. Upon winning, applicant gets prize
money In respect of horse which wins race. It was held that the prize money would not be
subject to GST as there is no element of service when applicant's horse wins race and gets
prize. There is no direct nexus between activities carried out by horse owners viz. by
providing thoroughbred horses to race clubs for organizing horse race events, and prize
 624

money received by such horse owners. For occurrence of any taxable event, there must be
direct and immediate link between supply made and consideration received.
Earlier, in Vijay Baburao Shirke, In re [2019] 76 GST 814 = 110 taxmann.com 181 (AAR -
Maharashtra), it was held that receipt of prize money from horse race conducting entities,
in event horse owned by applicant wins race, would amount to 'supply' under section 7 of
Central Goods and Services Tax Act, 2017, liable to GST at rate of 18 per cent (9 per cent
each of CGST and SGST). Now, this decision has been set aside by AAAR.
Online gaming is not gambling and GST rate 18% under 998439 - Online Fantasy Sports
Gaming are not gambling services, rather are games of skills. Hence, they fall under entry
998439 for its on-line gaming activities and GST rate is 18% - Gurdeep Singh Sachar v. UOI
[2019] 75 GST 258 = 106 taxmann.com 290 (Bombay HC DB) - relying on Dr K R Lakshmanan
v. State of Tamil Nadu AIR 1996 SC 1153 = (1996) 2 SCC 226 (SC 3 member bench).
Online Fantasy Sports game is a 'game of skill' and not betting & gambling and their business
has protection under Article 19(1)(g) of Constitution of India - Ravindra Singh Chaudhary v.
UOI [2020] 120 taxmann.com 327 (Rajasthan HC DB).
33.13 Lottery Service
Lottery service falls under 999694.
However, it has been considered as goods in GST.
In case of supply of lottery by State Government, lottery distributor or selling agent is liable
to pay GST under reverse charge - Notification No. 4/2017-CT(Rate) and 4/2017-IT (Rate)
both dated 28-6-2017 effective from 1-7-2017.
GST rate on lottery is 28% w.e.f. 1-3-2020 [Sr No. 228 of Schedule IV of Notification No.
1/2017-CT (Rate) dated 28-6-2017 as amended w.e.f. 1-3-2020].
Till 1-3-2020, the GST rate was 12% in case of lotteries run by Government and 28% in case
of lotteries authorised by State Government. Now, the rate is 28% in case of all lotteries.
In case of supply of lottery by State Government, lottery distributor or selling agent is liable
to pay GST under reverse charge - Notification Nos. 4/2017-CT(Rate) and 4/2017-IT (Rate)
both dated 28-6-2017 effective from 1-7-2017.
Value of supply of lottery will be 100/128 of the face value w.e.f. 1-3-2020 - rule 31A of CGST
Rules amended w.e.f. 1-3-2020.
Till 1-3-2020, the value of supply of lottery was as follows - 100/112 of the face value or the
price notified in the Official Gazette by the organising State, whichever is higher, in case of
lottery run by State Government. In case of lottery authorised by State Government, value
of supply of lottery was 100/128 of the face value or the price notified in the Official gazette
by the organising State, whichever is higher - para 3 of Notification Nos. 11/2017-CT (Rates)
and 8/2017-IT (Rates) dated 28-6-2017, effective from 1-7-2017 and as existing upto 1-3-
2020.
This value of supply is now specified in rule 31A of CGST Rules also w.e.f. 23-1-2018.
Sale of lottery tickets of State of Mizoram to distributor in State of Maharashtra is inter-state
transaction. IGST is payable by distributor in Maharashtra under reverse charge under
 625

section 5(3) of IGST Act - Ecool Gaming Solutions P Ltd. In re (2018) 99 taxmann.com 237
(AAR - Maharashtra).
Lottery is actionable claim and can be taxed under GST - Teesta Distributors v. UOI (2018) 99
taxmann.com 162 (Cal HC).
Distributor or selling agent - "Distributor or selling agent" means an individual or a firm or
a body corporate or other legal entity under law so appointed by the Organising State
through an agreement to market and sell lotteries on behalf of the Organising State - para 2
of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017,
effective from 1-7-2017.
Subsequent sale of lottery tickets by sub-agents exempt - Once the distributor or selling
agent pays GST on lottery tickets, subsequent sale of lottery tickets by sub-agents exempt -
Sr No. 149 of Notification No. 2/2012-CT (Rate) dated 28-6-2017.
Issue of unsold lottery tickets - In lottery business, unsold lottery tickets are inevitable.
However, there is no provision in GST. In absences of such provision, lottery business is
unworkable.
HSN code of lottery ticket for Payment of GST - Though lottery tickets have been considered
as goods in GST, there is no HSN code. Hence, GST should be paid under heading 'Any
Chapter' of first Schedule to Customs Tariff Act- CBI&C Circular No. 06/06/2017-CGST dated
27-8-2017.
GST on lottery tickets is constitutionally valid, prize money cannot be excluded from
taxable value of supply - Inclusion of actionable claim in definition of 'goods' as given in
section 2(52) is not contrary to legal meaning of goods and is neither illegal nor
unconstitutional. While determining taxable value of supply, prize money is not to be
excluded for purpose of levy of GST - Skill Lotto Solutions (P.) Ltd. v. Union of India [2020]
122 taxmann.com 49 = 43 GSTL 289 (SC 3 member bench).
33.14 Amusement and recreational services
Amusement and recreational services not specified elsewhere falls under service tariff
999699.
33.15 Sponsorship service
Services involving commercial use or exploitation of event falls under heading 999791.
This heading should cover sponsorship services. Sponsorship services are akin to
advertisement. In case of Services provided by any person by way of sponsorship to any body
corporate or partnership firm, the body corporate or partnership firm located in the taxable
territory is liable to pay GST under reverse charge - Notification Nos. 13/2017-CT (Rates) and
10/2017-IT (Rates) both dated 28-6-2017, effective from 1-7-2017.
"Body Corporate" has the same meaning as assigned to it in section 2(11) of the Companies
Act, 2013.
Distinction between sponsorship and donation -In donation or grant, there is no
consideration. However, in sponsorship, consideration is involved as name of sponsor is
announced, which is indirect advertisement.
33.15-1 Sponsorship of recognized sports event exempt
 626

Services by way of sponsorship of sporting events organised -(a) by a national sports

federation, or its affiliated federations, where the participating teams or individuals
represent any district, State, Zone or Country (b) by Association of Indian Universities, Inter-
University Sports Board, School Games Federation of India, All India Sports Council for the
Deaf, Paralympic Committee of India or Special Olympics Bharat (c) by the Central Civil
Services Cultural and Sports Board (d) as part of national games, by the Indian Olympic
Association; or (e) under the Panchayat Yuva Kreeda Aur Khel Abhiyaan Scheme, are exempt
from GST - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-
2017, effective from 1-7-2017.
Distinction between sponsorship and donation - In donation or grant, there is no
consideration. However, in sponsorship, consideration is involved as name of sponsor is
announced, which is indirect advertisement.
Mere putting name of donor without any reference or mention of business activity is not for
advertisement. The recipient institutions place a name plate only as expression of gratitude
and is not aimed at giving publicity to the donor in such manner as would be an advertising
or promotion of business of donor. In that case, there is no supply of service for a
consideration in the form of donation. In that case, there is no GST liability on such donations
received - CBI&C circular No. 116/35/2019-GST dated 11-10-2019.
Thus, if the donor is getting some business advantage by putting his name as donor, that
would be 'consideration'. In that case it will be 'sponsorship' and the donor will be liable to
pay GST under reverse charge. If reverse charge is not applicable, the recipient receiving the
sponsorship will be liable to pay GST under forward charges.
33.16 Refrain from Act or tolerating an Act
The group of this service in services classification is 99979.
Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do
an act is supply of service - para 5(e) of Schedule II of CGST Act, read with section 7(1)(d) of
CGST Act.
[similar provision in Section 66E(e) of Finance Act, 1994 where it was defined 'declared
service'].
This should cover following under GST net.
Demurrage charges for not clearing goods within prescribed period.
Cancellation charges charged by hotels, airlines, builders, contractors etc.
L D Charges (Late Delivery Charges)
Non-compete fees payable for agreeing not to compete for particular period.
Forfeiture of deposit or advance as penalty (like quality, late delivery, violation of any
term of contract etc.)
Agreeing not to appear for opposite party in Court.
Penalty for breach of contract.
 627

Advance forfeited for cancellation of agreement, security deposits forfeited for damages
done, demurrage are subject to service tax (now GST) - Para 2.3.2 of CBI&C's 'Taxation of
Services : An Education Guide' published on 20-6-2012.
Departmental clarification - Para 2.2.8 of Annexure A of MF(DR) TRU DO F. No. 334/1/2012-
TRU dated 16-3-2012 has clarified as follows —
Returnable security deposit is not taxable. However, if deposit is forfeited, it would be
taxable. No service tax (now GST) is payable on fines and penalties for violation of law.
Demurrage payable for use of service beyond period is taxable.
Non-compete fees would be subject to service tax (now GST) - Para 6.7.1 of CBI&C's 'Taxation
of Services : An Education Guide' published on 20-6-2012.
Penal interest for late payment of instalment is not 'tolerating an act or situation' - CBI&C,
vide circular No. 102/21/2019-GST dated 28-6-2019 has clarified that Penal interest for late
payment of instalment is not 'tolerating an act or situation'. It is exempt if charged by finance
company (as interest) and taxable as part of value of goods (if charged by seller himself).
In Infrastructure Development Finance Co. Ltd. v. ACIT (2019) taxmann.com 205 (Mad HC), it
has been held that liquidated damages recovered from borrowers in case of default in case
of payment of interest and other dues (which was 2.10%), was really 'interest'. [Decision
under section 10(23G) of Income-tax Act but principle can apply to GST].
In a contrary view, it was held that Receipt of penal charges by finance companies on delayed
payment of EMIs would be receipt of amounts for tolerating act of their customers for having
delayed/defaulted on their EMI payments and would be taxable as supply as per Sr. No. 5(e)
of Schedule II of CGST Act - Bajaj Finance Ltd., In re [2018] 99 taxmann.com 236 (AAR -
Maharashtra). - confirmed in Bajaj Finance Ltd., In re [2020] 77 GST 119 = 108 taxmann.com
1 (AAAR - Maharashtra).
Non-compete fees under income tax - Non-compete fees has been specifically included as
business income as per section 28(va) of Income-tax Act. Earlier, in Gillanders Arbuthnot &
Co. Ltd. v. CIT (1964) 53 ITR 283 (SC), it was held that non-compete fees is a capital receipt
and hence not taxable under Income Tax Act - quoted and explained in Guffic Chem P Ltd. v.
CIT (2011) 198 Taxman 78 = 10 taxmann.com 105 = 332 ITR 602 (SC).
Liquidated damages for breach of contract - Liquidated damages for breach of contract are
considered as 'tolerating an act or situation' and held taxable.
Forfeiture of deposit for non-fulfilment of terms of contract is 'agreeing to tolerate an act'
and is service under heading 9997 94 - Paravatiya Plywood P Ltd. In re (2020) 82 GST 310 =
115 taxmann.com 62 (AAR-Uttarakhand).
Forfeiture of deposit received for sale of land is taxable as 'tolerating an act or situation'.
This is not transaction in land - Fastrack Deal Comm (P.) Ltd., In re [2021] 124 taxmann.com
399 (AAR - Gujarat).
However, in South Eastern Coalfields Ltd. v. CCE (CESTAT Order No. 51651/2020 dated 10-
12-2020), it was held that an activity can be said as service only when it is carried out by one
person for another for consideration. Thus, compensation charges received for breach of
contract, in the form of penalty amount, forfeiture of earnest money deposit and liquidated
damages cannot be said as consideration for tolerating an act as neither the appellant is
 628

carrying on any activity to receive compensation nor can there be any intention of the other
party to breach or violate the contract and suffer a loss [This decision was under service tax
provisions, where definitions were quite different. Validity of this decision under GST law is
doubtful].
Notice pay recovered from employee - If an employee leaves job without giving required
notice, Notice pay is recovered from employee. On such amount, service tax (now GST) has
to be charged and paid by the employer. This is actually supply of service of tolerating an act
or situation provided by employer to employee. This is not a reverse charge. The employer
cannot avail Cenvat credit of such service tax charged to and recovered from employee.
GST is payable on notice pay recovered from employee - Amneal Pharmaceuticals Pvt. Ltd In
re [2021] 123 taxmann.com 191 (AAR - Gujarat).
Services by Government of tolerating an act or situation - Services provided by the Central
Government, State Government, Union territory or local authority by way of tolerating non-
performance of a contract for which consideration in the form of fines or liquidated damages
is payable to the Central Government, State Government, Union territory or local authority
under such contract.
Thus, in this case, the recipient (contractor) is not liable to pay GST under reverse charge if
Government levies LD charges or penalties for non-fulfilment of contracts etc.
Penalty imposed by District Magistrate on accounted stock of River Bed Material (RBM) is
taxable under heading 9997 as 'other services'. The recipient is liable under reverse charge
- Purewal Stone Crusher In re (2018) 70 GST 444 = 98 taxmann.com 137 (AAR-Uttarakhand).
[The second part of decision is not correct, probably because the exemption was not brought
to notice of AAR].
Forfeiture by airlines for cancellation or no-show by passengers - Airlines forfeit the ticket
amount if passenger does not show up. They also charge heavy amount for cancellation of
ticket. In Air France KLM v. Ministere des Finances et des Competes publics (C-250/14
decision dated 23-12-2015 (ECJ), it has been held that the transaction is subject to Vat. This
decision fully applies in Indian context, for forfeiture or cancellation charges, as this activity
comes under 'tolerating an act or situation', which is deemed service as per para 5(e) of
Schedule II of CGST Act, read with section 7(1)(d) of CGST Act.
Liquidated damages recovered for delay in supply of goods are subject to GST - GST is
payable on liquidated damages recovered for delay in supply of goods, as it is tolerating an
act for delay, but for a price or damages - Maharashtra State Power Generation Company
Ltd., In re [2018] 68 GST 494 = 93 taxmann.com 266 (AAR - Maharashtra) - view confirmed
in Maharashtra State Power Generation Company Ltd., In re [2018] 70 GST 411 = 97
taxmann.com 408 (AAAR - MAHARASHTRA). It was held by AAAR that service is classified
under service code 9997. The recipient can avail ITC, subject to other conditions of CGST Act
and Rules. The time of supply will be as per contract terms.
Granting easement right of pathway is 'tolerating an act' - Granting easement right of
pathway to a person through land of applicant is 'tolerating an act' and taxable - Chennai
Metro Rail Ltd. In re (2021) 83 GST 463 = 120 taxmann.com 349 (AAR-TN).
 629

Recovery of penalty from labour for damage of material - Recovery of penalty from labour
for damage of material is taxable under 9997 94 (agreeing to tolerate an act) - Paravatiya
Plywood P Ltd. In re (2020) 82 GST 310 = 115 taxmann.com 62 (AAR-Uttarakhand).
Compensation paid to parties as purpose for which lease was given did not materialise -
In Goa Industrial Development Corporation (GIDC) In re [2020] 78 GST 426 = 115
taxmann.com 171 (AAR-Goa), GIDC had given land to parties on lease to set up SEZ units.
However, the project did not materialise due to protests from public. GIDC refunded the
lease deposit. Later, GIDC also paid compensation to parties @ 8.25% on orders of Supreme
Court. It was held that the compensation is for 'agreeing to tolerate an act' and GST is
payable [really payable by parties which receive compensation, though decision does not
specifically say so].
Tenant getting rent for alternate accommodation for vacating flat for redevelopment or
getting compensation for late completion for redevelopment - Amount received by tenant
towards alternate accommodation or delayed possession of new premises would be receipt
of amounts for doing an act i.e. vacating premises for redevelopment as well as tolerating
construction cum redevelopment work till possession of new redeveloped premises and
further for tolerating an act of not having completed redevelopment period within time,
would be a 'supply' and therefore, GST to be levied on such amount - Zaver Shankarlal
Bhanushali, In re [2018] 68 GST 730 = 95 taxmann.com 3 (AAR - Maharashtra).
Of course, taxability will arise only if the tenant is getting amount exceeding Rs 20 lakhs per
annum, or where tenant is registered under GST.
Cheque bouncing charges -Cheque Bounce charges collected for dishonour of EMI cheques
for repayment of loans by its customers would be 'tolerating an act or situation' and would
be treated as 'supply' as per Sr. No. 5(e) of Schedule II of CGST Act - Bajaj Finance Ltd., In re
[2018] 100 taxmann.com 396 (AAR - Maharashtra) - view confirmed in Bajaj Finance Ltd., In
re [2019] 108 taxmann.com 6 (AAAR-Maharashtra).
Surrender of tenancy rights - Surrender of tenancy rights is subject to GST. However,
surrender of tenancy rights of residential property is not subject to tax - CBI&C Circular No.
44/18/2018-CGST dated 2-5-2018 [This issue arises in States where statutory protection is
available to tenants].
This is really 'tolerating an act or situation' though CBI&C circular does not specifically say
so.
Damages awarded by Court for wrongful act of respondent are not liable to GST - In Bai
Mamubai Trust v. Suchitra (2019) 109 taxmann.com 300 (Bom HC), it has been held that if
plaintiff alleges violation of legal rights and seeks damages from a Court to make good the
violation, it is not a supply, as no reciprocal relationship exists. It is wrongful unilateral act
which results in damages. Hence, no GST is payable in such cases.
33.16-1 Compensation received from Government is not 'tolerating an act or situation'
In Jiirgen Mohr v. Finanzamt Bad Segeberg (2012) 36 STT 5 = 23 taxmann.com 13 (ECJ), a
farmer undertook to discontinue milk production under German Government policy to
reduce milk production. Department demanded service tax as it was 'tolerating an act or
situation'. It was held that Government is acting in public interest. No service is acquired by
 630

Government for own use/consumption. There is no supply of service as no compensation is

involved. The compensation is not a consideration for any service. Hence, the transaction is
not liable to service tax - similar decision in Landboden-Agrardienste GmbH & Co. v.
Finanzamt Calau (2012) 36 STT 11 = 23 taxmann.com 15 (ECJ), where a farmer had got
compensation to reduce potato production.
33.16-2 Will each deduction from invoice be subject to service tax?
Price negotiations, reduction for quality differences etc. are very common in commercial
word. In many cases, deductions are made on invoice itself without issuing separate debit
note. Sometimes, Bill is passed for lower amount after certification from concerned
authority.
Each such deduction cannot be treated as 'tolerating an act', without taking note of
commercial realities.
Issue Credit Note instead of debit note - Instead of issuing debit note by recipient of service,
it is advisable that supplier of service issues credit note to recipient of service.
33.17 Services provided by Charitable Organisations
The services of charitable institutions can fall under heading 999799.
Specified services supplied by an entity registered under section 12AA of the Income-tax Act,
1961 by way of charitable activities are exempt from GST - Notification No. 12/2017-CT
(Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Note that all services provided by charitable organisations are not exempt. Only following
activities are exempt.
"Charitable activities" means activities relating to —
(i) public health by way of -(A) care or counselling of (I) terminally ill persons or persons
with severe physical or mental disability (II) persons afflicted with HIV or AIDS (III)
persons addicted to a dependence-forming substance such as narcotics drugs or
alcohol; or (B) public awareness of preventive health, family planning or prevention
of HIV infection.
(ii) advancement of religion, spirituality or yoga.
(iii) advancement of educational programmes or skill development relating to - (A)
abandoned, orphaned or homeless children (B) physically or mentally abused and
traumatized persons (C) prisoners; or(D) persons over the age of 65 years residing in
a rural area.
(iv) preservation of environment including watershed, forests and wildlife [para 2(r) of
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017,
effective from 1-7-2017].

Rural area - "Rural area" means the area comprised in a village as defined in land revenue
records, excluding-the area under any municipal committee, municipal corporation, town
area committee, cantonment board or notified area committee; or any area that may be
notified as an urban area by the Central Government or a State Government - para 2 of
 631

Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective
from 1-7-2017.
Training in recreational activities - Services by way of training or coaching in recreational
activities relating to-(a) arts or culture, or (b) sports by charitable entities registered under
section 12AA of the Income-tax Act are exempt.
Exemption to services received by charitable organisations from non-taxable territory -
Services received by Charitable organisations supplying specified charitable services
following from supplier from non-taxable territory are exempt.
This exemption is not applicable to OIDAR services as in that case, supplier of OIDAR service
himself is liable.
This exemption is also not applicable to transportation of vessel from a place outside India
as in that case, the importer himself is liable to pay GST under reverse charge.
Note that this exemption is not provided in Notification issued under CGST Act, as it relates
only to import of services where only IGST can apply - Notification No. 12/2017-CT (Rate)
and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Services by an old age home run by Government or trust - Services by an old age home run
by Central Government, State Government or entity under section 12AA of Incomes Tax Act,
to its residents (aged 60 years or more) against consideration upto Rs. 25,000 per month
(inclusive of charges for boarding, lodging and maintenance) are exempt from GST -
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 as
inserted w.e.f. 27-7-2018.
Adoption fees received by charitable trust for arranging adoption of abandoned children
is exempt - Adoption fees received by charitable trust for arranging adoption of abandoned
children is exempt from GST [Held as relating to educational or skill development relating to
abandoned, orphaned or homeless children - by stretching the words] - Children of The
World India Trust In re (2019) 111 taxmann.com 134 (AAR- Maharashtra).
Residential programmes or camps meant for advancement of religion, spirituality or yoga
by religious or charitable trusts exempt from GST - Residential programmes or camps
meant for advancement of religion, spirituality or yoga by religious or charitable trusts
exempt from GST, where the fee charged includes cost of lodging and boarding, as long as
the primary and predominant activity, objective and purpose of such residential
programmes or camps is advancement of religion, spirituality or yoga. However, if charitable
or religious trusts merely or primarily provide accommodation or serve food and drinks
against consideration in any form including donation, such activities will be taxable.
Similarly, activities such as holding of fitness camps or classes such as those in aerobics,
dance, music etc. will be taxable - CBI&C Circular No. 66/40/2018-GST [F.NO.354/314/2017-
TRU] dated 26-9-2018.
Services relating to sanitation to various entities by trust - Services relating to sanitation
provided to various entities including Non Profit Organisations by entity registered under
section 12AA of Income Tax Act are exempt as they are relating to preservation of
environment - Ecoscan Services Foundation, In re [2019] 103 taxmann.com 385 (AAR-
Maharashtra).
 632

Sale of spiritual goods, providing accommodation and food by charitable organization is

taxable - Sale of spiritual goods (like booklets, DVD, MP3), providing accommodation and
food by charitable organization is 'business' and is taxable under GST - Shrimad Rajchandra
Adhyatmik Satsang Sadhana Kendra In re (2018) 69 GST 627 = 97 taxmann.com 20 (AAR). -
view confirmed in Shrimad Rajchandra Adhyatmik Satsang Sadhana Kendra, In re [2019] 71
GST 541 = 101 taxmann.com 2 (AAAR).
Hostel service supplied by charitable trust is not exempt - Hostel service supplied by
charitable trust is not exempt (though exemption available if charges less than Rs 1,000 per
day] -Students' Welfare Association In re (2019) 73 GST 650 = 103 taxmann.com 449 (AAR-
Maharashtra).
Renting service not directly related to advancement of religion, spirituality or yoga are
taxable - Renting service not directly related to advancement of religion, spirituality or yoga
are not exempt. They are taxable as in the course of renting - Acharya Shree Mahashraman
Chaturma Pravas Vyavastha Samiti Trust In re (2020) 77 GST 254 = 110 taxmann.com 282
(AAR - Karn).
Renting of 2 BHK unit and bed in dormitory is not 'renting of room' and no exemption even
if charges less than Rs 1,000 per day per room or per day, if total charges exceed Rs 1,000
- Renting of 2 BHK unit is not 'renting of room' and exemption from GST not available even
if charges 'per room' are less than Rs 1,000 per day [total charges per unit more than Rs
1,000 per day is each unit consisted of more than one 'rooms']. In case of bed in dormitory,
the dormitory room consisted of 12 beds. Charge per bed was Rs 250, but charge per 'room'
was more than Rs 1,000. It was held that in both case, exemption is not available Acharya
Shree Mahashraman Chaturma Pravas Vyavastha Samiti Trust In re (2021) 83 GST 222 = 120
taxmann.com 342 (AAR - Karn). - confirming Acharya Shree Mahashraman Chaturma Pravas
Vyavastha Samiti Trust In re (2020) 77 GST 254 = 110 taxmann.com 282 (AAR - Karn).
Charitable organisation engaged in disaster mitigation and management is exempt need
not register under GST - The activities of the organisation is to mitigate disaster prevention,
mitigation and management, which are related to 'preservation of environment' which is
exempt. Exempt charitable organisations need not register under GST - All India Disaster
Mitigation Institute In re (2020) 82 GST 752 = 120 taxmann.com 165 (AAR - Guj).
33.18 Services provided by director of company or body corporate
In absence of any specific head, this service can only fall under residual tariff head i.e.
999799.
In case of services supplied by a director of a company or a body corporate to the said
company or the body corporate, is liable to pay GST under reverse charge - Notification No.
13/2017-CT (Rate) and 10/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
"Body Corporate" has the same meaning as assigned to it in section 2(11) of the Companies
Act, 2013.
Whether IGST or CGST plus SGST/UTGST to be paid when Director is from out of State? - If
Advocate providing service is from out of State, where IGST should be paid or CGST and
SGST/UTGST should be paid under reverse charge? There are divergent views but in my
opinion, safe course is to pay CGST and SGST/UTGST under reverse charge. If Director is from
 633

out of India, it will be import of service and IGST should be payable. The issue is discussed in
chapter 'reverse charge'.
Whether IGST or CGST plus SGST/UTGST to be paid when Director is from out of State? - If
Director providing service is from out of State, where IGST should be paid or CGST and
SGST/UTGST should be paid under reverse charge? There are divergent views but in my
opinion, safe course is to pay CGST and SGST/UTGST under reverse charge. If Director is from
out of India, it will be import of service and IGST should be payable. The issue is discussed in
chapter 'reverse charge'.
Renting, consultancy and other services supplied by director to company - Often a director
provides other services like Renting, consultancy etc. to company. Really, these services are
supplied in different capacity and not as director. The director himself is liable to pay GST.
However, to avoid litigation, if company is in position to avail ITC, safe course is to pay GST
and avail ITC instead of entering into litigation.
Services of Managing and whole-time director - Services of Managing or whole-time
directors who are in employment of company are not liable to GST as there is employer
employee relation and services of employee to employer are out of definition of 'service'.
Thus, really, only sitting fees, commission and other payments made to non-whole time
directors and independent directors are subject to GST.
This view has been confirmed in CBI&C Circular No. 140/10/2020 - GST dated 10-6-2020.
In Anil Kumar Agrawal, In re [2020] 116 taxmann.com 428 (AAR - Karn), it has been held that
GST is payable on salary (remuneration) paid to non-executive director under reverse
charge, but GST is not payable on salary received by an executive director.
This view has been confirmed in CBI&C Circular No. 140/10/2020 - GST dated 10-6-2020
In Allied Blenders and Distillers P Ltd. v. CCE (2019) 101 taxmann.com 462 = 24 GSLT 207
(CESTAT), it has been held that where assessee-company paid remuneration to its four
whole time Directors for managing day-to-day affairs of company and made necessary
deductions on account of Provident fund, Professional Tax and TDS as applicable and
declared these Directors to all statutory authorities as employees of company, remuneration
paid to Directors was nothing but salary and assessee was not required to discharge service
tax on remuneration paid to Directors.
In this judgment, the Supreme Court judgments (as discussed below) were also noted and
replied upon.
Though the judgment is in respect of service tax, the principle applies to GST also, as the
provisions are identical.
In Rentworks India P Ltd. v. CCE (2016) 43 STR 634 = 2016-TIOL-1199 (CESTAT), the foreign
director was providing marketing consultancy services to company. Company contended
that it was salary to foreign director and Income Tax department was treating this amount
as salary. It was held by Tribunal that if an amount paid to an individual was treated as salary
by the income tax department, it could not be held by the service tax department as amount
paid for consultancy charges and service tax demanded on the same.
No GST/service tax on commission paid to Managing Director - As per section 197(6) of
Companies Act, remuneration to director can be by way of monthly payment or specified
 634

percentage of net profits or partly one way and partly by other. Some companies pay
remuneration to directors based on profits, which is sometimes termed as 'commission'.
Really, it is part of his salary. The director is not commission agent.
In McDowell & Co v. CIT (2002) 123 Taxman 912 (Mad HC DB), it was held that commission
payable to directors on turnover basis is 'remuneration' for purpose of ceiling under section
40(c) of Income Tax Act - following Metal Powder Co v. CIT (1999) 238 ITR 756 (Mad).
Whole Time Directors essentially are employees of the Company. The variable pay based on
percentage of profit will not in any way alter or dilute the position of employer-employee
status between them service tax (now GST) is not levied on reverse charge basis on such
compensation - Bengal Beverages (P.) Ltd. v. Central Goods and Services Tax & Excise,
Howrah [2020] 122 taxmann.com 111 (Kolkata - CESTAT).
In CBE&C circular No. 115/09/2009-ST, dated 31-7-2009, it was clarified that some
Companies make payments to Managing Director/Directors (Whole-time or Independent),
terming the same as 'Commission'. The said amount paid by a company to their Managing
Director/Directors (Whole-time or Independent) even if termed as commission, is not the
'commission' that is within the scope of business auxiliary service and hence service tax
would not be leviable on such amount.
MCA clarification in respect of service tax on services supplied by director - Ministry of
Corporate Affairs (MCA), vide circular No. 24/2012 dated 9-8-2012 had clarified that the
service tax (now GST) paid by company will be treated as part of remuneration to non-whole-
time directors and if it exceeds the ceiling of 1%/3%, approval of Central Government would
be required.
This entire circular is on the basis that GST is payable on non-whole-time directors only.
The circular was issued after introduction of reverse charge on 7-8-2012, on services
supplied by director.
Director is not employee of a company but an employee can be director of a company - A
Company is controlled by Board of Directors. The Board may consist of (a) non-executive
directors (can be termed as 'ordinary directors' or 'non-whole-time directors' or 'non-
executive directors' for ease of understanding) and (b) whole-time/executive directors.
The non-whole-time directors may be independent or from promoter group. The non-
whole-time directors get sitting fees for attending meetings of Board or its committees. In
some companies, they may be paid commission also. Such payment to them is not as
employee of company.
Generally, the whole-time directors or executive directors get regular salary and hence are
not paid 'sitting fees'. Even if sitting fees are paid, this would be part of 'managerial
remuneration' to the whole-time director and will be subject to restrictions under
Companies Act, 2013.
An ordinary director is not an employee of the company. An employee of a company may be
appointed as a Director, but in that case, he is acting in dual capacity. As an employee, he is
responsible to company as the company is its employer. However, as a director, he is
responsible to act in good faith as representative of the shareholders.
 635

If a director is performing duties and is working for the company, he will come within
purview of an 'employee' - Monitron Securities v. Mukundlal Khushalcnand 2001 LLR 339
(Guj HC).
'Whole-time director' - "Whole-time director" includes a director in the whole-time
employment of the company [section 2(94) of Companies Act, 2013].
This definition recognises that a whole-time employee of company can be director of the
company, though every 'whole-time director' need not be employee of a company.
A person cannot be appointed as 'whole-time director' in more than one companies, as such
person is expected to be either 'whole-time employee' of one company or at least devote
whole-time to work of the company.
Executive Director - Executive Director means a whole-time director as defined in section
2(94) of Companies Act, 2013 - Rule 2(1)(k) of Companies (Specification of definitions details)
Rules, 2014.
Thus, 'executive director' and 'whole-time director' mean the same thing.
Test whether a director is employee - In employment, there is master servant relation. It is
contract of service and not contract for services. The normal rule of thumb tests are - (a)
Whether TDS of income tax is on basis of salary under section 192 of Income Tax Act (b)
whether provident fund and ESI is deducted and paid where applicable (c) whether he is
eligible for gratuity (d) Terms for removal from company (e) Nature of agreement with the
director.
This view has been reiterated in CBI&C Circular No. 140/10/2020 - GST dated 10-6-2020.
Managing Director can be employee of a company - Managing Director of a company may
be executive or non-executive. A Managing Director of company may or may not be
'employee' of a company.
In ESIC v. Apex Engineering Ltd. 1997 LLR 1097 = (1998) 1 Comp LJ 10 = 1998(1) SCC 86, it
was rightly held that for purpose of ESIC, company is the 'owner'. The MD is not the 'owner'.
Even if the MD is declared as 'Principal Employer' to ESIC, he can still be an 'employee'.
In Ram Prasad v. CIT AIR 1973 SC 637 = (1972) 42 Comp Cas 544 = 86 ITR 122 (SC), it was
observed as follows, 'A director of a company is not a servant but an agent inasmuch as the
company cannot act in its own person but has only to act through directors who qua the
company have the relationship of an agent to its principal. A Managing Director may have a
dual capacity. He may both be a Director as well as employee, depending upon the nature
of his work and the terms of his employment. Whether or not a Managing Director is a
servant of the company apart from his being a Director can only be determined by the
articles of association and the terms of his employment. - - Where the articles of association
and terms and conditions of the agreement definitely indicate that the assessee was
appointed to manage the business of the Company in terms of the articles of association and
within the powers prescribed therein and under the terms of the agreement he can be
removed for not discharging the work diligently or if he is found not to be acting in the
interest of the Company as Managing Director, then it can hardly be said that he is an agent
of the Company and not a 'servant' (In this case, it was held that payment made to MD is
'salary') - quoted and followed in Sajid Mowjee v. ITO (2005) 148 Taxman 502 (Cal HC DB).
 636

However, if a person does not draw any remuneration over and above as a director on Board,
he will not be 'employee' - ESIC v. Navchetan Press P Ltd. 2004 LLR 1047 (Del HC).
Remuneration to whole-time director as employee of the company - Remuneration paid to
whole-time director as employee of the company is considered as 'salary' and TDS as per
Income tax provisions is done under section 192 of Income Tax Act. Normally, sitting fees
are not paid to such directors. These are shown as salary expenses in P&L account of
company. However, details of managerial remuneration are required to be shown separately
as per provisions of Companies Act, 2013.
Services by employee to employer is neither supply of goods nor supplier of service - As per
Schedule III of CGST Act, Services by an employee to the employer in the course of or in
relation to his employment shall be treated neither as a supply of goods nor a supply of
services.
Thus, services supplied by employee to employer is non-GST supply.
Reverse charge in case of services of director - In absence of any specific head, service
provided by director to a company can only fall under residual tariff head i.e. 999799.
In case of services supplied by a director of a company or a body corporate to the said
company or the body corporate, the company or the body corporate located in taxable
territory is liable to pay GST under reverse charge - Notification No. 13/2017-CT (Rates) and
10/2017-IT (Rates) both dated 28-6-2017, effective from 1-7-2017.
It may be noted that the 'reverse charge' provision does not impose any levy of GST. It only
transfers the liability of payment of GST from supplier of goods/services to recipient of
goods/services.
The reverse charge provision can apply only when, in absence of the provision of reverse
charge, the supplier of service is liable. Thus, if supplier of service is not liable to pay GST
(even in absence of reverse charge provision), the recipient cannot be made liable to pay
GST.
There was parallel provision in service tax, where reverse charge on services of directors was
introduced w.e.f. 7-8-2012.
Thus, reverse charge applies only in respect of remuneration paid to non-executive and
independent directors where there is no employer-employee relation. Reverse charge is no
applicable where salary is paid to whole-time director or Managing Director where there is
employer-employee relationship.
This view has been confirmed in CBI&C Circular No. 140/10/2020 - GST dated 10-6-2020
A person can act in more than one capacity - A person can act in different capacities e.g. a
single person can be son, father, husband, son-in law, employee, trustee and what not.
A person can act in dual capacity - one as director and other as employee - Ram Prasad v.
CIT AIR 1973 SC 637 = (1972) 42 Comp Cas 544 = 86 ITR 122 (SC).
A person who is director of company may lease his immovable property to company. In that
case he is acting as lessor. A person who is director of company may offer additional services
as consultant to that company. In that case, he is acting as 'consultant' and not as 'director'.
 637

Thus, one individual may offer different services as director, employee, lessor, landlord and
consultant in different capacities. What is subject to reverse charge is services supplied to
company in capacity of director. In case of other services supplied to company, the person
himself will be liable to pay GST under forward charge, where applicable.
However, in Clay Craft (India) P Ltd. In re (2021) 123 taxmann.com 364 (AAAR-Rajasthan), it
was held that reverse charge is not applicable to salary paid to director if Income Tax TDS is
made, but reverse charge applies to professional fees paid to directors (other than salary).
Summary - What is subject to reverse charge is the services supplied by person in capacity
as 'director' of the company. If he supplies some other services (like employee, lessor or
consultant), he himself will be liable to GST under forward charge, if GST is applicable. If he
is employee of the company the supply is neither of goods nor of services.
Renting, consultancy and other services supplied by director to company - Often a director
provides other services like Renting, consultancy etc. to company. Really, these services are
supplied in different capacity and not as director. The director himself is liable to pay GST.
However, to avoid litigation, if company is in position to avail ITC, safe course is to pay GST
and avail ITC instead of entering into litigation.
33.19 Other services (Residual entry)
Heading 9997 reads as follows - Other services (washing, cleaning and dyeing services,
beauty and physical well being services and other miscellaneous services including services
nowhere classified) - 18% (CGST 9% plus SGST/UTGST 9%) or IGST - 18%.
The service code (tariff) for residual entry is 999799 - 'Other services nowhere else specified.
Pollution testing of commercial and non-commercial vehicles- Pollution testing of
commercial and non-commercial vehicles is not covered under entry 9991, as service is not
provided to Government. The service falls under residual entry and is taxed @ 18% -
Venkatesh Automobiles In re (2018) 70 GST 606 = 98 taxmann.com 337 (AAR-Goa).
Selling tenders online or offline is 'service' under 9997 - Service of selling tender documents
online (electronically) or offline (physical form) is service, classifiable under 'other services'
under heading 9997 and is taxable - Navi Mumbai Municipal Corporation In re (2019) 75 GST
294 = 107 taxmann.com 331 (AAR-Maharashtra).
Coal handling services - Coal handing services fall under residual heading 9997 and GST rate
is 18% (even if GST rate on coal is 5%) - Agarwal Coal Corpn P Ltd. In re [2020] 80 GST 760 =
117 taxmann.com 961 (AAR-MP).
Coal beneficiation (washing) service under 9997 - Coal beneficiation (washing) service falls
under 9997 with GST @ 18% and coal transportation service falls under 9965 - Madhya
Pradesh Power Generating Co. Ltd. In re [2020] 78 GST 479 = 111 taxmann.com 182 (AAR-
MP).
 638

Government related activities

34.1 Public administration services
Service Accounting Code for public administration and other services provided to
community is 9991. Groups in this heading are - Administrative services of Government
(99911), Public administrative services to community as whole (99912) and Administrative
services relating to compulsory social security schemes (99913).
These are core activities of Government. However, Government is engaged in many other
activities also.
34.1-1 Government and local authorities are subject to GST unless exempted
Government is defined as 'person'.
Any activity or transaction undertaken by the Central Government, State Government or any
Local Authority in which they are engaged as public authorities have been specifically
defined as 'business' under section 2(17)(i) of CGST Act.
Thus, supply to and by Government is taxable, unless specifically exempted. However, GST
cannot be imposed on sovereign activities of Government.
Central Government and State Government is 'person'. These are constitutional entities -
State of Punjab v. Okara Buyers Syndicate Ltd. AIR 1964 SC 669.
Government is 'juristic person' - Chief Conservator of Forests v. Collector (2003) 3 SCC 472.
As per section 2(23) of General Clauses Act, 'Government' includes Central Government and
State Government and Union Territories.
Under service tax, with few exceptions, any service provided by Government or local
authority was subject to service tax. In most of the cases, service tax was payable by service
receiver under reverse charge basis. This provision is continuing under GST also.
Insurance services provided by Government are taxable - In Karnataka Government
Insurance Department v. ACCE (2012) 34 STT 260 = 17 taxmann.com 95 = 54 VST 226 (Karn
HC DB), the department was providing insurance services. It was held that this is not
statutory activity and is taxable.
In Kerala State Insurance Department v. UOI (2013) 30 taxmann.com 324 = 39 STT 227 = 54
VST 231 (Ker HC), it was held that activities under statutory obligation, relating to life
insurance coverage to Government employees and general insurance coverage for assets of
Government are not taxable, but insurance of commercial institutions and individuals is
taxable.
Guarantees provided by Government against guarantee commission are subject to tax -
The service provided by Central Government/State Government to any business entity
including PSUs by way of guaranteeing the loans taken by them from financial institutions
against consideration in any form including Guarantee Commission is taxable - MF(DR)(TRU)
circular No. 34/8/2018-GST dated 1-3-2018.
34.1-2 Meaning of 'public authority'
The term 'public authority' has not been defined in CGST Act or SGST Act.
This term has been used in Right to Information Act (RTI Act) in a very broad sense.
 639

As per European Commission, 'public authority means: (a) any government or other public
administration, including public advisory bodies, at national, regional or local level; (b) any
natural or legal person performing public administrative functions under national law,
including specific duties, activities or services in relation to the environment; and (c) any
natural or legal person having public responsibilities or functions, or providing public services
relating to the environment under the control of a body or person falling within (a) or (b).
Member States may provide that when bodies or institutions are acting in a judicial or
legislative capacity, they are not to be regarded as a public authority for the purposes of this
Directive.
As per Wiktionary, any authority which has a legal mandate to govern, administrate a part
or aspect of public life, such as all branches of the executive power of a state, province,
municipality etc.
As per Wikipedia, a public authority is a type of public-benefit corporation that takes on a
more bureaucratic role, such as the maintenance of public infrastructure, that often has
broad powers to regulate or maintain public property. These agencies are also known in
other countries as statutory authorities, statutory boards, government owned corporations,
regulatory agency, QUANGO and independent government agency.
Thus, the term is very broad. Any activity of Central Government, State Government or any
Local Authority where public is involved would get covered under activity as 'public
authority'.'
Thus, PWD, MCA, RTO, DGFT, DGCA etc. would be 'public authorities'.
CBDT or CBE&C engaged in administration of tax laws cannot be termed as 'public authority'.
Similarly, armed force cannot be termed as 'public authority'.
34.1-3 Meaning of Government
"Government" means the Central Government - section 2(9) of IGST Act and section 2(53)
of CGST Act.
In SGST Act, 'Government' will be defined as 'State Government'.
Ordnance Factory is not 'Government'? - In General Manager Ordnance Factory Bhandara,
In re [2019] 106 taxmann.com 246 (AAR - MAHARASHTRA), it has been held that Ordinance
Factory under Ministry of Defence is industrial Establishment and is not 'Government' [It is
very difficult to agree that Ordinance Factory which is directly under Ministry of Defence is
not 'Government'. However, even if it is Government, it will be liable to pay GST if it is
carrying on business, unless specifically exempted].
34.1-4 Meaning of 'local authority'
Section 2(69) of CGST Act reads as follows —
"Local authority" means:
(a) a "Panchayat" as defined in clause (d) of Article 243 of the Constitution.
(b) a "Municipality" as defined in clause (e) of Article 243P of the Constitution.
 640

(c) a Municipal Committee, a Zilla Parishad, a District Board, and any other authority
legally entitled to, or entrusted by the Central Government or any State Government
with the control or management of a municipal or local fund.
(d) a Cantonment Board as defined in section 3 of the Cantonments Act, 2006.
(e) a Regional Council or a District Council constituted under the Sixth Schedule to the
Constitution.
(f) a Development Board constituted under Article 371 and article 371J of the
Constitution [The words in italics i.e. 'and article 371J' inserted vide CGST
(Amendment) Act, 2018 w.e.f. 1-2-2019], or
(g) a Regional Council constituted under Article 371A of the Constitution.

NOIDA is not local authority - NOIDA is not 'local authority' - NOIDA v. CIT (Appeals) (2018)
9 SCC 342 * NOIDA v. CIT (2018) 9 SCC 351.
Local body is not local authority - Local bodies constituted by State or Central Law are not
'local authorities' - Para 2.4.9 of CBE&C's Taxation of Services : An Education Guide'
published on 20-6-2012.
34.1-5 Meaning of 'Governmental Authority'
"Governmental Authority" means an authority or a board or any other body, - (i) set up by
an Act of Parliament or a State Legislature; or (ii) established by any Government, - - with 90
per cent or more participation by way of equity or control, to carry out any function
entrusted to a municipality under article 243W of the Constitution or to a Panchayat under
article 243G of the Constitution - para 2(zf) of Notification No. 12/2017-CT (Rate) and No.
9/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 13-10-2017. [The words in italics
inserted w.e.f. 13-10-2017. Thus, scope has been widened].
The definition in IGST Act - For the purposes of this clause, "governmental authority" means
an authority or a board or any other body: (i) set up by an Act of Parliament or a State
legislature; or (ii) established by Government, with 90% or more participation by way of
equity or control, to carry out any function entrusted to a Panchayat under Article 243G or
to a municipality under article 243W of the Constitution - explanation to Section 2(16) of
IGST Act. [The words in italics inserted vide IGST (Amendment) Act, 2018 w.e.f. 1-2-2019.]
The definition till 1-2-2019 was as follows - "Governmental authority'' means an authority
or board or any other body - (i) set up by an Act of the Parliament or a State Legislature or
(ii) established by Government - - with 90% or more participation by way of equity or control,
to carry out any function entrusted to a municipality under article 243W of the Constitution
- Explanation to section 2(16) of IGST Act.
Jaipur Development Authority (JDA) is 'Governmental Authority'.
Indian Institute of Technology (IIT) is 'Governmental Authority' - - IT Development Agency
(ITDA) In re (2018) 68 GST 449 = 94 taxmann.com 329 (AAR - Uttarakhand).
34.1-6 Meaning of Government entity
 641

"Government Entity" means an authority or a board or any other body including a society,
trust, corporation, (i) set up by an Act of Parliament or State Legislature; or (ii) established
by any Government, with 90 per cent or more participation by way of equity or control, to
carry out a function entrusted by the Central Government, State Government, Union
Territory or a local authority - para 2(zfa) of Notification No. 12/2017-CT (Rate) and No.
9/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 13-10-2017.
NOIDA (New Okhla Industrial Development Authority) is established under an Act - CIT v.
Canara Bank (2018) 9 SCC 322.
Greater Noida Industrial Development Authority (GNOIDA) and NOIDA are established under
an Act - NOIDA v. CIT (Appeals) (2018) 9 SCC 342 = 95 taxmann.com 58 = 256 Taxman 396
(SC).
Urban Improvement Trust constituted under Rajasthan Urban Improvement Act is not a
'Municipal Committee' within meaning of section 10(20) of Income-tax Act - Income Tax
Officer v. Urban Improvement Trust (2018) 259 Taxman 61 = 98 taxmann.com 237 (SC).
CIDCO which is covered under definition of 'Government Entity' being established by State
Government of Maharashtra with 100 per cent participation by way of Equity or Control to
carry out function of development of new township of New Bombay. It is covered under
definition of Government Entity - Leena Power Tech Engineers (P.) Ltd., In re [2018] 100
taxmann.com 220 (AAR - Maharashtra).
NHPC Ltd. is a 'Government entity' as President of India and his nominee holds 100% shares
in the company - NHPC Ltd., In re [2018] 100 taxmann.com 16 (AAR - Uttarakhand).
Uranium Corporation of India Ltd. is Government entity as 100% equity of company is held
by President of India - P K Agarwala, In re (2019) 72 GST 530 = 103 taxmann.com 107 (AAR-
Jharkhand).
In Sri Satya Sai Water Supply Project Board, In re [2020] 117 taxmann.com 826 (AAR - AP),
only seven out of nine members in Board were of State Government (less than 90%). It was
held that the Authority wouldn't qualify as Govt Authority.
34.1-7 Functions entrusted to municipality are neither goods nor service
Activities or transactions undertaken by the Central Government or State Government or
Union Territory or Local Authority in which they are engaged as public authority i.e. services
by way of any activity in relation to a function entrusted to a Panchayat under Article 243G
of Constitution or to a Municipality under Article 243W of the Constitution of India, are
neither supply of goods nor supply of services - Notification No. 14/2017-CT (Rate) and No.
11/2017-IT (Rate) both dated 28-6-2017 [words in italics inserted w.e.f. 27-7-2018].
Functions entrusted to municipality under Article 243W of Constitution of India have been
listed in Para 7.3.2 of CBE&C's 'Taxation of Services : An Education Guide' published on 20-
6-2012. These cover services like urban planning, regulation of land use, roads and bridges,
water supply, public health, fire services, slum improvement, public amenities, functions
entrusted to them by Government etc.
The detailed list is as follows -
TWELFTH SCHEDULE (Article 243W)
 642

1. Urban planning including town planning.

2. Regulation of land-use and construction of buildings.
3. Planning for economic and social development.
4. Roads and bridges.
5. Water supply for domestic, industrial and commercial purposes.
6. Public health, sanitation conservancy and solid waste management.
7. Fire services.
8. Urban forestry, protection of the environment and promotion of ecological aspects.
9. Safeguarding the interests of weaker sections of society, including the handicapped
and mentally retarded.
10. Slum improvement and upgradation.
11. Urban poverty alleviation.
12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.
13. Promotion of cultural, educational and aesthetic aspects.
14. Burials and burial grounds; cremations, cremation grounds; and electric
crematoriums.
15. Cattle pounds; prevention of cruelty to animals.
16. Vital statistics including registration of births and deaths.
17. Public amenities including street lighting, parking lots, bus stops and public
conveniences.
18. Regulation of slaughter houses and tanneries.

Amount paid to municipal authorities for restoring road is subject to tax - Reinstatement
charges paid to Municipal Authorities for restoring patches which have been dug up by
business entities cannot be equated to performing a sovereign function as envisaged under
article 243W of Constitution, hence, attracts GST at rate of 18 per cent - Reliance
Infrastructure Ltd., In re. [2018] 93 taxmann.com 100 (AAR - Mah.)
34.1-8 Statutory body, corporation or authority are not Government or local authority
A statutory body, corporation or an authority created by the Parliament or a State
Legislature is neither 'Government' nor a 'local authority'. It is a settled position of law
(Agarwal v. Hindustan Steel AIR 1970 SC 1150) that the manpower of such statutory
authorities or bodies do not become officers subordinate to the President under Article
53(1) of the Constitution and similarly to the Governor under Article 154(1). - - Thus
regulatory bodies and other autonomous entities which attain their entity under an act
 643

would not comprise either Government or local authority - Para 2.4.10 of CBE&C's 'Taxation
of Services : An Education Guide' published on 20-6-2012.
34.1-9 Government company is not 'Government'
Government is 'State' only for purpose of enforcement of fundamental rights under
Constitution. For all other purposes, it is not 'Government' or 'Government department'.
In Steel Authority of India v. National Union Water Front Workers 2001 LLR 961 = AIR 2001
SC 3527 = 2001(7) SCC 1 = 2001 AIR SCW 3574 (SC 5 member Constitution Bench), it was
held that the principle that while discharging public functions and duties, the Government
companies/Corporations/Societies which are instrumentalities or agencies of the
Government must be subjected to the same limitations in the field of public law -
constitutional or administrative law - as the Government itself, does not lead to the
inference that they become agents of the Centre/State Government for all purposes so as
to bind such Government for all their acts, liabilities and obligations under various Central
and/or State Acts or under private law.
Government company is not a department of Government. It has separate legal existence
and is not a Government concern. It is not an industry run under authority of Union
Government - Praga Tools v. C V Imanual (1969) 39 Comp Cas 889 (SC) = (1969) 1 SCC 585 =
AIR 1969 SC 1306 * Dr. S L Agarwal v. Hindustan Steel Ltd. AIR 1970 SC 1150 = (1970) 1 SCC
177 (SC Constitution Bench).
A corporation formed under an Act is not 'Government'. It is an autonomous body. It may
sue or be sued by its own name - State of Punjab v. Raja Ram AIR 1981 SC 1694.
Even if all shares of company are owned by Government of India, the company is not a
department of Government. It has personality distinct from Government of India. - Steel
Authority of India Ltd. v. Shri Ambica Mills Ltd. - 1998(16) SCL 429 = 1997 AIR SCW 4408 =
(1998) 1 SCC 465 = 92 Comp Cas 120 (SC) * Bharat Sanchar Nigam Ltd. v. Pawan Kumar
Gupta (2016) 1 SCC 363.
In Hindustan Steel Works v. State of Kerala AIR 1997 SC 2275 = (1998) 2 CLJ 383 (SC) also, it
was held that a government company is not a department of Government.
34.2 Services provided by Government which will not be subject to GST
Some services supplied by Government are not subject to GST.
In other cases, mostly service receiver will be liable to pay GST under reverse charge.
However, in case of services provided by post, port, insurance, transport of goods and
passengers by Government or local body, the Government itself may be liable to pay GST,
as at present.
34.2-1 Activities in relation to functions under Article 243G or Article 243W are neither
goods nor services
Activities or transactions undertaken by the Central Government or State Government or
Union Territory or Local Authority in which they are engaged as public authority i.e. services
by way of any activity in relation to a function interested to a Panchayat under Article 243G
of Constitution or to a Municipality under Article 243W of the Constitution of India, are
 644

neither supply of goods nor supply of services - Notification No. 14/2017-CT (Rate) and No.
11/2017-IT (Rate) both dated 28-6-2017 [words in italics inserted w.e.f. 27-7-2018].
Functions under Article 243G relate to (a) preparation of plans for economic development
and (b) implementation of schemes for economic development and social justice as may be
entrusted to them including those in relation to matters listed in Eleventh Schedule.
The eleventh schedule covers 29 items, as follows —
1. Agriculture, including agricultural extension.
2. Land improvement, implementation of land reforms, land consolidation and soil
conservation.
3. Minor irrigation, water management and watershed development.
4. Animal husbandry, dairying and poultry.
5. Fisheries.
6. Social forestry and farm forestry.
7. Minor forest produce.
8. Small scale industries, including food processing industries.
9. Khadi, village and cottage industries.
10. Rural housing.
11. Drinking water.
12. Fuel and fodder.
13. Roads, culverts, bridges, ferries, waterways and other means of communication.
14. Rural electrification, including distribution of electricity.
15. Non-conventional energy sources.
16. Poverty alleviation programme.
17. Education, including primary and secondary schools.
18. Technical training and vocational education.
19. Adult and non-formal education.
20. Libraries.
21. Cultural activities.
22. Markets and fairs.
23. Health and sanitation, including hospitals, primary health centres and dispensaries.
24. Family welfare.
 645

25. Women and child development.

26. Social welfare, including welfare of the handicapped and mentally retarded.
27. Welfare of the weaker sections, and in particular, of the Scheduled Castes and the
Scheduled Tribes.
28. Public distribution system.
29. Maintenance of community assets.

34.2-2 Construction services of dwelling units and commercial space supplied by

Government
Service of construction of dwelling units and commercial space by executing agent of
Government of India (Ministry of Housing and Urban Affairs) is taxable under GST. The
service is not covered under Article 243W - NBCC (India) Ltd. In re (2018) 70 GST 662 = 98
taxmann.com 333 (AAR - New Delhi) [The applicant was Government of India enterprise and
was appointed as agent of GOI].
34.3 Exemptions in respect of services supplied by Government
Following services are exempt under Notification No. 12/2017-CT (Rate) and No. 9/2017-IT
(Rate) both dated 28-6-2017, effective from 1-7-2017.
Services by 'Governmental authority' relating to functions under Article 243W - Services by
(*) governmental authority by way of any activity in relation to any function entrusted to a
municipality under article 243W of the Constitution are exempt from GST - Sr No. 4 of
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017.
* - The words were 'Central Government, State Government, Union territory, local authority
or'. These words have been omitted w.e.f. 27-7-2018. However, there is no change in
exemption as activities or transactions undertaken by the Central Government or State
Government or Union Territory or Local Authority in which they are engaged as public
authority i.e. services by way of any activity in relation to a function interested to a
Panchayat under Article 243G of Constitution or to a Municipality under Article 243W of the
Constitution of India, are neither supply of goods nor supply of services - Notification No.
14/2017-CT (Rate) and No. 11/2017-IT (Rate) both dated 28-6-2017 [words in italics inserted
w.e.f. 27-7-2018].
Services by Governmental Authority relating to Article 243G - Services by (*) Governmental
Authority by way of any activity in relation to any function entrusted to a Panchayat under
article 243G of the Constitution are exempt from GST [The words in italics inserted w.e.f. 13-
10-2017] - Sr No. 5 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017
* - The words were 'Central Government, State Government, Union territory, local authority
or'. These words have been omitted w.e.f. 27-7-2018. However, there is no change in
exemption as activities or transactions undertaken by the Central Government or State
Government or Union Territory or Local Authority in which they are engaged as public
authority i.e. services by way of any activity in relation to a function interested to a
Panchayat under Article 243G of Constitution or to a Municipality under Article 243W of the
 646

Constitution of India, are neither supply of goods nor supply of services - Notification No.
14/2017-CT (Rate) and No. 11/2017-IT (Rate) both dated 28-6-2017 [words in italics inserted
w.e.f. 27-7-2018].
Thus, services supplied by Central Government, State Government, Union territory, local
authority in relation to any function entrusted to a Panchayat under article 243G of the
Constitution are anyway not taxable GST.
Note that other activities of Governmental Authority are not exempt from GST. Also note
that a Government company is not 'Governmental Authority'.
Services by Government to non-business entity - Services by the Central Government, State
Government, Union territory or local authority excluding the following services are exempt
from GST — (a) services by the Department of Posts by way of speed post, express parcel
post, life insurance, and agency services provided to a person other than the Central
Government, State Government, Union territory (b) services in relation to an aircraft or a
vessel, inside or outside the precincts of a port or an airport (c) transport of goods or
passengers; or (d) any service, other than services covered under entries (a) to (c) above,
provided to business entities - Sr No. 6 of Notification No. 12/2017-CT (Rate) and No. 9/2017-
IT (Rate) both dated 28-6-2017.
In case of services excluding services covered under clauses (a) to (c), the Business Entity is
liable to pay GST under reverse charge.
Services by Government to business entity having turnover upto such amount in the
preceding financial year as makes it eligible for exemption from registration under the
CGST Act - Services provided by the Central Government, State Government, Union territory
or local authority to a business entity with an aggregate turnover of up to such amount in
the preceding financial year as makes it eligible for exemption from registration under the
CGST Act in the preceding financial year are exempt from GST - Sr No. 7 of Notification No.
12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 [The words in italics
inserted w.e.f. 1-10-2019. Till 1-10-2019, the words were 'twenty lakh rupees (ten lakh
rupees in case of a special category state)']
This exemption is not applicable to services supplied by post, railways, renting of immovable
property and in relation to aircraft or vessel. In case of these services, the Government or
local authority providing these services is itself liable to pay GST under forward charge.
Services by Government to individuals are exempt - Services provided by Government to
individual are exempt from tax. Hence, insurance services provided by Government to
individuals is exempt from tax - MF(DR) circular No. 16/16/2017-GST dated 15-11-2017.
Services by Government to Government or local authority - Services provided by the
Central Government, State Government, Union territory or local authority to another
Central Government, State Government, Union territory or local authority are exempt from
GST - Sr No. 8 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-
6-2017.
This exemption is not applicable to services supplied by post, railways, renting of immovable
property and in relation to aircraft or vessel. In case of these services, the Government or
local authority providing these services is itself liable to pay GST under forward charge.
 647

Really, this exemption is redundant, as services supplied to non-business entity are even
otherwise exempt under aforesaid provisions.
Service supplied by Indian Institute of Technology (IIT) to Information Technology Agency
(ITDA) is exempt, as ITDA is 'local authority' under control of Government of Uttarakhand
and IIT is 'Governmental Authority' - IT Development Agency (ITDA) In re (2018) 68 GST 449
= 94 taxmann.com 329 (AAR - Uttarakhand).
Guarantees provided by Government against guarantee commission are exempt from tax
- Services supplied by Central Government, State Government, Union territory to their
undertakings or Public Sector Undertakings (PSUs) by way of guaranteeing the loans taken
by such undertakings or PSUs from the financial institution are exempt from GST. This falls
under service heading 9971 - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate)
both dated 28-6-2017 as inserted w.e.f. 27-7-2018.
Earlier, MF(DR)(TRU) circular No. 34/8/2018-GST dated 1-3-2018 had clarified that the
service provided by Central Government/State Government to any business entity including
PSUs by way of guaranteeing the loans taken by them from financial institutions against
consideration in any form including Guarantee Commission is taxable.
Services up to Rs. 5,000 supplied by Government - Services provided by Central
Government, State Government, Union territory or a local authority where the
consideration for such services does not exceed five thousand rupees are exempt from GST
- Sr No. 9 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-
2017.
In such cases, reverse charge will not apply to business entity receiving these services.
This exemption is not applicable to services supplied by post, railways, renting of immovable
property and in relation to aircraft or vessel. In case of these services, the Government or
local authority providing these services is itself liable to pay GST under forward charge.
If it is continuous supply service, then the exemption applies only if the amount does not
exceed Rs. 5,000 in a year.
Service supplied by Government to operate telecom tower or use radio frequency spectrum
on receiving license fee - Permission by Government to operate telecom tower or use radio
frequency spectrum is exempt [This exemption is required, as otherwise, the telecom
companies would be required to pay GST under reverse charge on license fees paid to
Government] - Sr No. 42 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017
Services provided by the Central Government, State Government, Union territory or local
authority by way of allowing a business entity to operate as a telecom service provider or
use radio frequency spectrum during the period prior to 1-4-2016, on payment of licence fee
or spectrum user charges, as the case may be.
These services fall under heading 9973 or 9991.
Services by Government for issue of passport, license, certificates - Services provided by the
Central Government, State Government, Union territory or local authority by way of
issuance of passport, visa, driving licence, birth certificate or death certificate are exempt
 648

from GST - Sr No. 61 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017.
Registration and testing services supplied by Government - Services provided by the
Central Government, State Government, Union territory or local authority by way of-(a)
registration required under any law for the time being in force (b) testing, calibration, safety
check or certification relating to protection or safety of workers, consumers or public at
large, including fire license, required under any law for the time being in force are exempt
from GST - Sr No. 47 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017
These services fall under heading 9983 or 9991.
Registration and testing services supplied by Food Safety and Standards Authority - -
Services by way of licensing, registration and analysis or testing of food samples supplied by
the Food Safety and Standards Authority of India (FSSAI) to Food Business Operators -
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 as
inserted w.e.f. 27-7-2018.
These services fall under heading 9983 or 9991.
Services by Government of tolerating an act or situation - Services provided by the Central
Government, State Government, Union territory or local authority by way of tolerating non-
performance of a contract for which consideration in the form of fines or liquidated damages
is payable to the Central Government, State Government, Union territory or local authority
under such contract - Sr No. 62 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT
(Rate) both dated 28-6-2017.
Thus, in this case, the recipient (contractor) is not liable to pay GST under reverse charge if
Government levies LD charges or penalties for non-fulfilment of contracts etc.
Fines or penalties imposed by Government - Fine and penalty is imposed for breaking law.
It is not consideration for an activity. Hence, it is not supply of service - FAQ No. 49 issued
by CBI&C on banking sector on 27-12-2018.
Services by Government of assignment of rights to farmers - Services provided by the
Central Government, State Government, Union territory or local authority by way of
assignment of right to use natural resources to an individual farmer for cultivation of plants
and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw
material or other similar products are exempt from GST - Sr No. 63 of Notification No.
12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017.
Services by Government of assignment of natural resources - Services provided by the
Central Government, State Government, Union territory or local authority by way of
assignment of right to use any natural resource where such right to use was assigned by the
Central Government, State Government, Union territory or local authority before 1-4-2016.
This exemption shall apply only to tax payable on one time charge payable, in full upfront or
in instalments, for assignment of right to use such natural resource - Sr No. 64 of Notification
No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017.
Merchant Overtime Charges for export cargo exempt - Services provided by the Central
Government, State Government, Union territory by way of deputing officers after office
 649

hours or on holidays for inspection or container stuffing or such other duties in relation to
import export cargo on payment of Merchant Overtime charges are exempt from GST - Sr
No. 65 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017.
Thus, the service recipient will not be liable to pay GST under reverse charge.
Services by an old age home run by Government or trust - Services by an old age home run
by Central Government, State Government or entity under section 12AA of Income-tax Act,
to its residents (aged 60 years or more) against consideration upto Rs. 25,000 per month
(inclusive of charges for boarding, lodging and maintenance) are exempt from GST -
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 as
inserted w.e.f. 27-7-2018.
Services by State Government to Excess Royalty Collection Contractor (ERCC) - Services
supplied by a State Government to Excess Royalty Collection Contractor (ERCC) by way of
assigning the right to collect royalty on behalf of the State Government on the mineral
dispatched by the mining lease holders.
"Mining lease holder" means a person who has been granted mining lease, quarry lease or
license or other mineral concession under the Mines and Minerals (Development and
Regulation) Act, 1957 (67 of 1957), the rules made thereunder or the rules made by a State
Government under sub-section (1) of section 15 of the Mines and Minerals (Development
and Regulation) Act, 1957.
ERCC shall submit an account to State Government that amount of GST deposited by mining
lease holder is more than the GST exempted of assignment of rights to collect royalty -
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 as
inserted w.e.f. 27-7-2018.
34.4 Exemptions in respect of services supplied to Government
Following services are not subject to GST.
Pure services to Government without material, in respect of functions relating to Articles
243W and 243G - Pure services (excluding works contract service or other composite
supplies involving supply of any goods) provided to the Central Government, State
Government or Union territory or local authority or a Governmental authority or a
Governmental entity, by way of any activity in relation to any function entrusted to a
Panchayat under article 243G of the Constitution or in relation to any function entrusted to
a Municipality under article 243W of the Constitution are exempt from GST - Sr No. 3 of
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective
from 1-7-2017 [The words in italics inserted w.e.f. 25-1-2018].
Note that this exemption is not applicable to works contract services or supplies of goods.
For exemption to certain composite services including goods, see below.
Services of solid waste management exempt - Services of solid waste management, water
supply operation, garbage collection and cleaning provided to Chhattisgarh Housing Board
is exempt - Dhananjay Kumar Singh, In re (2019) 72 GST 554 = 102 taxmann.com 13 (AAR-
Chhattisgarh).
Services of collection, segregation, storing, transport and disposal of solid waste provided to
Municipal Corporation is exempt from GST under Sr No. 3 of Notification No. 12/2017-CT
 650

(Rate) both dated 28-6-2017. The supplier of service is not required to register under GST.
Provision of TDS under section 51 of CGST Act is not applicable as service is exempt from
GST - Time Tech Waste Solutions P. Ltd., In re (2019) 75 GST 95 = 106 taxmann.com 382 (AAR
- West Bengal). * Singh Transport Agency, In re [2019] 76 GST 847 = 110 taxmann.com 407
(AAR - West Bengal). * Dolphin Techno Waste Management P Ltd. In re (2020) 81 GST 356 =
115 taxmann.com 134 (AAR-WB). * Dipak Kanti Mazumder Dynamic Engineers In re (2021)
83 GST 789 = 115 taxmann.com 136 (AAR-West Bengal).
Service of shifting waste by using earth moving equipment and tipper is exempt, as it is pure
service -Roopesh Kumar In re (2020) 78 GST 145 = 110 taxmann.com 395 (AAR-Karn).
Services rendered by a Municipal Solid Waste (MSW) Management Company, to a
Governmental Authority involving design, erection, operation and maintenance of bio-
mining plant, are classifiable as 'pure services' under Heading No. 9994 -Zigma Global
Environ Solutions (P.) Ltd., In re [2020] 117 taxmann.com 850 (AAR - AP).
Interestingly, in a contrary view, in Nepra Resources Management (P.) Ltd., In re [2021] 124
taxmann.com 39 (AAR - Gujarat), it was held that solid waste management service is not
exempt. It is not pure service as it involves supply of goods also [not clear what 'goods' they
were supplying to Notified Area Authority, Vapi].
Operating and maintaining metro rail project - Operating and maintaining metro rail
project is 'pure service' falling under 998339 and exempt - Kochi Metro Rail Ltd. In re (2021)
83 GST 713 = 119 taxmann.com 38 (AAR-Kerala).
Operation and management of street lighting - Operation and Management of street
lighting is composite supply of goods and services, with supply of services being
predominant. The service falls under heading 999112. Rate of tax is 18%. The exemption
under entry 3A of Notification No. 12/2017-CT (Rate) dated 28-6-2017 (as the appellant
failed to prove that the material content is less than 25%). The time of supply is when invoice
is issued or payment is received - Karnataka State Electronics Development Corpn Ltd. In re
(2021) 84 GST 309 = 122 taxmann.com 188 (AAAR-Karn)
Operation and Maintenance of plant Services to Government - Operation and Maintenance
of plant Services to Tamil Nadu Water Supply and Drainage Board (100% Government
control) are exempt if value of supply of goods is less than 25% - Indian Hume Pipe Co. Ltd.
In re (2020) 82 GST 522 = 115 taxmann.com 102 (AAR-TN).
Cleaning services to Railways are not exempt - Cleaning services supplied to Railways are
not exempt under this exemption notification, as railways are not covered under Article
243W - VPSSR Facilities, In Re (2018) 67 GST 695 = 93 taxmann.com 268 (AAR).
Services of Financial Management Specialist and Institutional Development Specialist
exempt - Services as a Financial Management Specialist and Institutional Development
Specialist in relation to functions such as irrigation, water management and watershed
development in Tamilnadu, and development of roads and bridges in Mizoram are projects
involve functions entrusted to a panchayat or a Municipality under Article 243G or 243W of
Constitution. These services supplied to State Governments is, eligible for exemption under
Sl. No. 3 of Notification No. 9/2017 - Integrated Tax (Rate) dated 28-6-2017, as amended
from time to time - Sumitabha Ray, In re [2019] 109 taxmann.com 430 (AAR-West Bengal).
 651

Supply of conservancy/solid waste management service is exempt and hence no TDS -

Supply of conservancy/solid waste management service to Municipal Corporation was
exempt from payment of GST under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate)
dated 28-6-2017. Thus, Notification No. 50/2018- Central Tax dated 13-9-2018 in respect of
TDS, did not apply to his supply - Mahendra Roy, In re [2019] 109 taxmann.com 445 (AAR-
WB).
Service of removal of garbage and sweeping provided to Military Station - Service of
removal, collection and disposal of garbage, rubbish, filth etc., sweeping and clearing of
roads, drains and open areas, cutting and pruning of tree including removal of undergrowth
and foliage on drain and roads, and lifting of dead animals is exempt as pure service -
Lokenath Builders, In re [2020] 122 taxmann.com 131 (AAR-WB).
Management of Supply of water through tankers - Supply of management of water supply
through tankers with help of GPRS system is exempt - Vidarbha Infotech (P.) Ltd., In re [2019]
75 GST 462 = 107 taxmann.com 387 (AAR - Maharashtra).
Plots given on lease by Govt. entity to Municipal Corporation for construction of public
amenities exempt from GST - Plots given on lease by Govt. entity to Municipal Corporation
for construction of public amenities exempt from GST under Sr No. 3 of Notification No.
12/2017-CT(Rate) dated 28-6-2017. In respect of transfer of services by way of lease of
vacant plots to PMC Commissioner's residence and PMC Mayor's residence will be taxable
at rate of 18% under Chapter Heading 9972, Sr. No. 16, clause (iii) of Notification No.
11/2017-CT(Rate) dated 28-6-2017- City & Industrial Development Corporation of
Maharashtra Ltd (CIDCO), In re [2019] 106 taxmann.com 257 (AAR - Maharashtra).
Services of Solid Waste Management provided to Municipal Corporation are exempt under
GST -Conservancy/solid waste management service to Conservancy Department of
Municipal Corporation, is a function mentioned under Sl. No. 6 of the Twelfth Schedule, i.e.,
public health, sanitation, conservancy and solid waste management and is exempt from
payment of GST under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28-6-
2017 -Indrajit Singh, In re [2019] 106 taxmann.com 109 (AAR-West Bengal).
Service of maintenance of park provided to Government - In Nursery Men Co-operative
Society, In re [2018] 97 taxmann.com 321 (AAR - Karnataka), applicant was providing service
of maintenance of parks to State Government, Central Government, Local Authority or a
Governmental Authority. There was no transfer of property in goods either as a component
of a works contract or a composite supply. It was held that this is pure services and exempt
from GST.
Project management consultancy service is pure labour service - In Egis India Consulting
Engineers (P.) Ltd., In re [2018] 96 taxmann.com 48 (AAR-Madhya Pradesh), appellant was
providing Project Development and Management Consultancy Services (PDMC) to recipient
under contract for Atal Mission for Rejuvenation and Urban Transformation (AMRUT) for
transforming urban India; and Project Management Consultancy Services (PMC) under
contract for Pradhan Mantri Awas Yojana - Housing for All (PMAY) to improve civic
infrastructure and increase supply of affordable housing to target segments. It was held that
would qualify as an activity in relation to function entrusted to Panchayat or Municipality
under Article 243G or Article 243W respectively, of Constitution of India.
 652

Such services provided by applicant would qualify as 'Pure services' (excluding works
contract service or other composite supplies involving supply of any goods) as provided in
serial number 3 of Notification No. 12 of 2017-Central Tax (Rate) dated 28-6-2017 as
amended by Notification No. 2 of 2018-Central Tax (Rate) dated 25-1-2018 issued under
CGST Act, 2017 and corresponding notifications issued under MPGST Act, 2017 in respect of
cost of service rendered alongwith reimbursement of cost of procurement of goods for
rendering such service, and, thus, be eligible for exemption from levy of CGST and MPGST,
respectively. However, disposal of tangible goods at end of contract shall be subject to GST
depending upon circumstances and manner of disposal of such tangible goods.
Pure consultancy services like project management consultancy services including
construction, supervision, quality control, rejuvenation and development of lakes and
preparation of detailed project report for pumping treated water and other development
civil works, etc., mainly to Municipalities, Corporations is exempt as per Sl. No. 3 of
Notification No. 12/2017 - CT (Rate), dated 28-6-2017 - Pure management consultancy
services are exempt - Vimos Technocrats (P.) Ltd., In re [2020] 120 taxmann.com 410 (AAR -
Karnataka).
In Consulting Engineers Group Ltd., In re [2020] 117 taxmann.com 842 (AAR - AP), the
applicant has agreed to render project management consultancy services to local authority
in respect of construction of roads so as to provide connectivity to village areas. It was held
that the said services are classifiable under Chapter 99 as 'pure services' and are eligible for
exemption.
In PDCOR Ltd. In re (2018) 70 GST 147 = 97 taxmann.com 458 (AAR - Rajasthan), applicant
was providing Project Management Consultancy (PMC) to Jaipur Development Authority
(JDA) for cleaning of river. It was held that JDA is 'Governmental Authority'. The service falls
under service code 9983 (Other professional, technical and business services, other than
selling of space for advertisement in print media). The service is pure service in relation to
function entrusted to a Panchayat under Article 243G of Constitution and is exempt from
GST.
Management consultancy services for water related projects to Government authority are
'pure services' and exempt - Tamil Nadu Water Investment Co. Ltd., In re (2019) 72 GST 154
= 102 taxmann.com 33 (AAR-Tamil Nadu).
In a contrary view, in Sheladia Associates Inc. In re [2020] 80 GST 177 = 114 taxmann.com
225 (AAR-Mizoram), it was held that consultancy services for upgrading State Highways and
major district roads are not in relation to any function under Article 243G and Article 243W
[really roads are specifically covered in both Articles 243G and 243W].
In another contrary view, in MSV International Inc. In re (2021) 84 GST 384 = 123
taxmann.com 1 (AAR-Haryana), it was held that consultancy services provided to Public
Works Department for designing, engineering, construction, operation and maintenance of
Highway roads on BOT basis are not exempt (as the function is not entrusted to Panchayat
or Municipality) [really, the provision does not say that the service is exempt only if
entrusted to Panchayat or Municipality].
 653

Project management consultancy for sewage project to State level nodal agency is not
taxable - Project management consultancy for sewage project to State level nodal agency
is not taxable - Sewage and Infrastructural Development Corporation of Goa Ltd. In re (2020)
77 GST 32 = 110 taxmann.com 400 (AAR - Goa).
Inspection services for water supply scheme - Inspection services to Government Authority
for procurement of equipment for implementing water supply scheme, sewage scheme etc.
are exempt - Dr Amin Controllers P Ltd. In re (2019) 72 GST 162 = 102 taxmann.com 36 (AAR
- Tamil Nadu).
Architectural services to local authorities exempt - Architectural services provided without
goods to local authorities are 'pure services' and are exempt - Jayesh Anilkumar Dalal, In re
[2019] 108 taxmann.com 535 (AAR-Gujarat).
In a contrary decision, in INI Design Studio P Ltd. In re (2021) 123 taxmann.com 435 (AAR-
Gujarat), it was held that architectural and consultancy services supplied for construction of
town hall involves some goods also (which goods - not clear). The contract stated that
contract includes all taxes. Hence, GST is payable (a very spacious reasoning indeed).
Consultancy charges for construction of educational building - Centage
Charges/Consultancy Charges received by applicant in respect of pure services provided to
State Government by way of activity in relation to function entrusted to a
Panchayat/Municipality under 243G/243W of Constitution are exempt (It was consultancy
for school and students hostel) - Kerala State Construction Corporation Ltd., In re [2019] 105
taxmann.com 222 (AAR - Kerala).
Labour service to forest department - Labour services directly provided to State Forest
Department which include services for setting up fire lines, plantation of trees in forest, river
maintenance in forest, clearing of truck path in forest, are pure services clearly falling within
purview of term "Protection of Environment 'Road'/'Fire services'" as covered in 12th
Schedule under Article 243W of the Constitution. Therefore, these services are exempted as
per SL. No. 3 of Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 - Puthoor
Unnikrishnan, In re [2019] 106 taxmann.com 236 (AAR - Kerala).
Mapping services for town planning are 'pure services' and exempt - Mapping services
rendered by applicant to Municipal Corporations in order to do town planning, urban
planning and control land use by general public, have to be classified as 'pure services' under
Chapter 99 - Core Project Engineers & Consultants (P.) Ltd., In re [2020] 117 taxmann.com
749 (AAR - Maharashtra)
Research for good governance and policy analysis - Research works and study conducted
by applicant (which is a registered society under section 12AA) for various Government
departments on matter of good governance and policy analysis is a 'pure service contract'
classifiable under Chapter 99. The work undertaken by applicant is in relation to functions
entrusted to Municipalities under article 243W and to Panchayats under article 243G of
Constitution and is exempt - Atal Bihari Vajpayee Institute of Good Governance and Policy
Analysis, In re [2020] 118 taxmann.com 33 (AAR - MP).
Services supplied by Governmental authority in respect of metro rail project is exempt - In
Amaravathi Metro Rail Corporation Ltd. (AMRCL), In re [2018] 99 taxmann.com 104 (AAR -
 654

Andhra Pradesh), Applicant (AMRCL) was 100% owned by Government of Andhra Pradesh
G.O.Ms 141 of MA UD for development of Vijayawada Metro Rail Project. It was held that
AMRCL is a Governmental Authority'. The consultation service relating to metro-rail comes
within purview of functions of Municipality under article 243. Accordingly, it falls within
purview of aforesaid exemption Notification No. 12/2017-Central Tax (Rate), dated 28-6-
2017 and is exempt from GST.
Security support services provided to municipal corporation exempt? - Security support
services provided to municipal corporation are exempt as these are pure services relating to
functions entrusted to Corporation under Article 243W - National Security Services, In re
[2018] 100 taxmann.com 126 (AAR - Maharashtra) [seems doubtful as there is only remote
connection between security services and functions under Article 243W].
In fact, in Ex-Servicemen Resettlement Society, In re [2019] 72 GST 439 = 101 taxmann.com
477 (AAR-West Bengal) it has been held that Supply of Security Guards and Scavenging
Services to Government medical colleges and hospitals is not exempt from GST as these are
not covered under article 243G and article 243W of Constitution, nor do they constitute
'health care services'.
In A B Enterprise In re (2020) 80 GST 485 = 117 taxmann.com 412 (AAR-Guj), it was held that
security and manpower supply services in relation to function under Articles 243G and 243W
are exempt as these are 'pure services'.
Manpower supply services to Governmental authority for data entry, software
development, peon, watchmen etc. are not exempt from GST - In Wisdon Security Services
In re (2020) 77 GST 4 = 110 taxmann.com 362 (AAR - Karn), the applicant was providing
Manpower to Governmental authority (Karnataka Rural Road Development Agency) for data
entry, software development, peon, watchmen etc. are not exempt from GST. The
Governmental authority was involved in creating rural infrastructure like roads etc. It was
held that the manpower supply service is not directly in the activity of maintenance of
construction of roads. It is only a support service. This service is not exempt [really borderline
case, as the words used are 'in relation to'].
Manpower supply services to Government hospitals, cleaning services to Government
offices not exempt from GST - Services like supply of staff for cleaning District Collector's
office premises; providing manpower in form of skilled assistants and technicians, to
Hospitals and Dispensaries run by Government medical college, are not covered under
clauses 1 & 2 of Twelfth Schedule of Article 243W and hence, cannot be said to be related
to functions specified under clauses 1 and 2 of Twelfth Schedule of Article 243W - Janki
Sushikshit Berojgar Nagrik Seva Sahakari Sanstha Ma Amravati, In re [2020] 122
taxmann.com 206 (AAR - Maharashtra) * Work Group Sushikshit Berojgar Nagrik Sewa
Sahkari Sanstha Maryadit Amravati, In re [2020] 122 taxmann.com 295 (AAR - Maharashtra).
Accounting and tax services relating to project are not exempt - Accounting/Tax services
are not 'in relation to' project undertaken under Article 243G/243W of Constitution of India.
The services are not exempt - Dhirubhai Shah & Co. LLP, In re [2020] 119 taxmann.com 221
(AAR - Gujarat).
 655

Facilitation Centres for collection of taxes on behalf of Municipal Corporation - Service of

Citizen Facilitation Centres for collection of taxes on behalf of Municipal Corporation is not
activity relating to service or activity in relation to any function entrusted to Municipality
and is not exempt - VFS Global Services P Ltd. In re (2020) 76 GST 873 = 110 taxmann.com
180 (AAR - Maharashtra) [The contention of the department as reproduced in the order is
worth reading - classic example of poor quality of English and confused thinking]. The order
of Advance Ruling Authority also lacks clarity.
Sweeping service in housing estate is not exempt, but otherwise should be exempt as pure
labour service - Sweeping service supplied to Housing Directorate of Government of West
Bengal, cannot be classified as an activity in relation to any function entrusted to a Panchayat
under Article 243G of Constitution or in relation to any function entrusted to a Municipality
under Article 243W of Constitution - NIS Management Ltd., In re [2019] 72 GST 699 = 101
taxmann.com 476 (AAR-WEST BENGAL) [The sweeping service was in respect of buildings in
the Housing Estate. However, sweeping service for any activity covered under Article 243G
or 243W should be exempt as it is pure labour service].
Composite supply of service plus upto 25% goods to Government exempt w.e.f. 25-1-2018
- Composite supply of goods and services in which the value of supply of goods constitutes
not more than 25 per cent of the value of the said composite supply provided to the Central
Government, State Government or Union territory or local authority or a Governmental
authority or a Government Entity by way of any activity in relation to any function entrusted
to a Panchayat under article 243G of the Constitution or in relation to any function entrusted
to a Municipality under article 243W of the Constitution is exempt from GST - Sr No. 3A of
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 inserted
w.e.f. 25-1-2018.
In Kailash Chandra, In re [2018] 100 taxmann.com 11 (AAR- Rajasthan), applicant was having
contract of O&M of Fluoride Control Project on ESCO Model and O&M for a Government
Department. The given work is a contract for improvement of the pumping system under
the Fluoride control project. That Works contract in itself is a composite supply. It was held
that if value of supplied goods under this contract is below 25 per cent of total value of
composite supply, then rate of tax would be Nil. If in duration of contract applicant crosses
benchmark of 25 per cent value of goods then the rate of tax will shift from Nil to 12 per
cent.
Service of re-sectioning of river is exempt - Service of re-sectioning of Jamuna river to
Irrigation and Waterways Directorate which involves earthwork in excavation of drainage
channels and deposit of excavated materials to locations outside Government land is in
relation to functions listed under Sl. No. 5 of the Eleventh Schedule and is exempt from
payment of GST under Sl. No. 3A of Notification No. 9/2017-IT (Rate) dated 28-6-2017 -
Arihant Dredging Developers (P.) Ltd., In re [2019] 106 taxmann.com 107 (AAR-West Bengal).
Re-sectioning of river is exempt from payment of GST under Sl. No. 3A of Notification No.
9/2017-IT (Rate) dated 28-6-2017- Dredging & Desiltation Company (P.) Ltd., In re [2019] 75
GST 237 = 106 taxmann.com 385 (AAR-West Bengal)
Service of reviving water flow in river i.e. resuscitation of river - Service of reviving water
flow in river i.e. resuscitation of river to Irrigation Directorate is relatable to function listed
 656

in Article 243G of Constitution and hence is exempt from GST - Neo Built Corporation, In re
(2019) 75 GST 429 = 108 taxmann.com 324 (AAR-WB).
Dredging of lake is works contract - Contract for dredging of lake involving supply of various
services & goods, qualifies as works contract involving earth work exceeding 75 of contract
value and taxable under Sl. No. 3(vii) of Notification- Reach Dredging Ltd., In re [2020] 119
taxmann.com 101 (AAR-West Bengal).
Contract with a Government authority for dredging of lake is works contract service involving
earthwork in excavation and re-excavation of drainage channels. It consisted more than 75%
of value of contract, and taxable @ 5% - RDL-ZYCHL-JV, In re [2021] 124 taxmann.com 385
(AAR-West Bengal).
Services of improving navigability along riverbed provided to government entity is exempt
- Service of sectioning of Makara River in Orissa to improve navigability of riverbed and
channels, said activity toward development of irrigation and waterways is an activity in
relation to function listed under Sl. No. 5 of Eleventh Schedule, as entrusted to a Panchayat
under Article 243G of Constitution of India and is exempt w.e.f. 25-1-2018 - Dredging &
Desiltation Company (P.) Ltd., In re [2019] 106 taxmann.com 385 (AAR-West Bengal)
Pure labour services in relation to Housing for All (Urban) mission or Pradhan Mantri Awas
Yojana - Services provided by way of pure labour contracts of construction, erection,
commissioning, installation, completion, fitting out, repair, maintenance, renovation, or
alteration of a civil structure or any other original works pertaining to the beneficiary-led
individual house construction or enhancement under the Housing for All (Urban) Mission or
Pradhan Mantri Awas Yojana are exempt from GST - Sr No.10 of Notification No. 12/2017-
CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Note that this exemption is not applicable to works contract services or supplies of goods.
In Sevk Ram Sahu In re (2020) 113 taxmann.com 502 (AAR-Rajasthan), it was held that the
exemption is project specific and not person-specific. Hence, even a sub-contractor
providing pure labour services for such scheme would be exempt from GST.
Services of insurance supplied to Government - Services provided to Central Government,
State Government, Union Territory, under any insurance scheme where total premium is
paid by Central Government, State Government, Union Territory is exempt. The service falls
under heading 9971. Re-insurance service is also exempt - Notification No. 12/2017-CT
(Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 as inserted w.e.f. 27-7-2018.
Services received by Government, charitable organisations and individuals from supplier
from non-taxable territory - Services received by following from supplier from non-taxable
territory are exempt - (a) Services received by Central Government, State Government,
Union Territory, local authority, a Governmental authority or an individual in relation to any
purpose other than commerce, industry, business or profession (b) Charitable organisations
providing specified charitable activities (c) person located in non-taxable territory - Sr No. 10
of Notification No. 9/2017-IT (Rate) dated 28-6-2017 [no parallel notification under CGST as
only IGST can be imposed on this transaction].
This exemption is not applicable to OIDAR services provided to (a) and (b) as in that case,
supplier of OIDAR service himself is liable.
 657

This exemption is also not applicable to transportation of vessel from a place outside India
as in that case, the importer himself is liable to pay GST under reverse charge.
Note that this exemption is not provided in Notification issued under CGST Act, as it relates
only to import of services where only IGST can apply.
Services supplied by Government entity to Government by receiving consideration in form
of grants - Supply of service by a Government Entity to Central Government, State
Government, Union territory, local authority or any person specified by Central Government,
State Government, Union territory or local authority against consideration received from
Central Government, State Government, Union territory or local authority, in the form of
grants - Sr No. 9C of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated
28-6-2017 as amended w.e.f. 13-10-2017.
In NHPC Ltd., In re [2018] 100 taxmann.com 16 (AAR - Uttarakhand), NHPC Ltd. (Government
Entity) was entrusted with work of construction of road by Ministry of External Affairs, Govt.
of India wherein funds were to be provided by MEA to NHPC in form of grants. NHPC had
sub-contracted the work to PWD. It was held that activity of NHPC Ltd. is exempted under
Notification No. 12/2017-CT (Rate) [Sr No. 9C] - Central Tax (Rate) dated 28-6-2017. It was
also held that when original supply of service, i.e., work contract is exempted, sub-letting of
same to PWD is also exempt.
Tourism Development Board, established by Government with 100% control to carry out
function of promotion and regulation of tourism activities in Himachal Pradesh, fulfils
criterion laid down for 'Government entity'. The amount credited in favour of H.P. Tourism
Development Board by Department of Tourism, Government of H.P., as grant in aid or
financial assistance is exempt under GST as per Sl. No. 9C of Notification No. 32/2017 -
Central Tax (Rate), dated 13-10-2017 - HP Tourism Development Board, In re [2020] 122
taxmann.com 135 (AAR-Himachal Pradesh).
Services to Government relating to transport of passengers from and to regional
connectivity airport i.e. subsidy given to develop small airports - Services provided to the
Central Government, by way of transport of passengers with or without accompanied
belongings, by air, embarking from or terminating at a regional connectivity scheme airport,
against consideration in the form of viability gap funding are exempt from GST. - - This
exemption will not apply on or after the expiry of a period of three years (earlier words were
-one year) from the date of commencement of operations of the regional connectivity
scheme airport as notified by the Ministry of Civil Aviation - Sr No. 16 of Notification No.
12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
[The words in italics substituted for 'one year' w.e.f. 25-1-2018].
Thus, in this case, GST is not payable under reverse charge in respect of viability gap funding
provided by Government to the supplier of services of passenger transport by air to and from
such airports.
Services supplied by GSTN to Government - Services provided by the Goods and Services Tax
Network to the Central Government or State Governments or Union territories for
implementation of Goods and Services Tax are exempt from GST - Sr No. 51 of Notification
No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017.
 658

Services by Arbitral Tribunal to Government - Services provided by an arbitral tribunal to

the Central Government, State Government, Union territory, local authority, Governmental
Authority or Government Entity, are exempt from GST w.e.f. 25-1-2018 - - Sr No. 45(a)(iii) of
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017 w.e.f. 25-
1-2018.
Really, Government, Governmental Authority etc. are not business entities and exemption
was available even prior to 25-1-2018.
Services supplied by Advocates to Government exempt w.e.f. 25-1-2018 - Services supplied
by a partnership firm of advocates or an individual as an advocate other than a senior
advocate, by way of legal services to the Central Government, State Government, Union
territory, local authority, Governmental Authority or Government Entity, are exempt from
GST - - Sr No. 45(b)(iv) of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017 inserted w.e.f. 25-1-2018.
Really, Government, Governmental Authority etc. are not business entities and exemption
was available even prior to 25-1-2018.
Services of Senior Advocate to Government are exempt - Services of senior advocate by way
of legal services to the Central Government, State Government, Union territory, local
authority, Governmental Authority or Government Entity are exempt - Sr No. 45(c) of
Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective
from 1-7-2017. The words in italics inserted w.e.f. 25-1-2018.
Really, Government, Governmental Authority etc. are not business entities and exemption
was available even prior to 25-1-2018.
Sub-contractor is not exempt, even if main contractor is providing services to Government
and is exempt - Sub-contractor is no exempt, as he is providing service to main contractor
and not to Government - Nurserymen Coop Society In re [2020] 80 GST 75 = 110
taxmann.com 363 (AAR-Karn). * Sumeet Facilities Ltd. In re (2021) 123 taxmann.com 151
(AAR-Tamil Nadu).
34.4-1 Exemption to main contractor does not mean sub-contractor is also exempt
In some cases, the service provider is exempted from GST. This does not mean that sub-
contractor providing service to main contractor is also exempt - M.V. Infra Services (P.) Ltd.,
In re [2020] 115 taxmann.com 61 (AAR - Karnataka). Sumeet Facilities Ltd. In re (2021) 123
taxmann.com 151 (AAR-Tamil Nadu).
However, if the service itself is exempt, then exemption would be available to sub-contractor
also e.g. of service of construction of dam is exempt, that exemption is available to sub-
contractor also who is undertaking contract of construction of dam. However, if service of
construction of dam provided to Government is exempt, the exemption will not be available
to sub-contractor as he is providing service to contractor and not to Government.
34.5 Concessional rate in respect of certain services provided to Government
In following cases, tax is payable at concessional rate on services supplied to Government,
Governmental Authority, Governmental Entity etc.
 659

34.5-1 Works contract services relating to historical monuments, canal, water supply to
Government, local authority, Government entity etc.
In respect of following works contract services provided to Government, local authority or
Governmental authority or a Governmental Entity, the tax rate is 12% [IGST - 12%, CGST and
SGST/UTGST - 6% each] - - Sr No. 3(iii) Notification No. 11/2017-CT (Rate) and No. 8/2017-IT
(Rate) both dated 28-6-2017 as amended on 22-8-2017 and 21-9-2017.
Composite supply of works contract as defined in section 2(119) of the CGST Act, supplied
to the Government, a local authority, a Governmental authority or a Governmental entity by
way of construction, erection, commissioning, installation, completion, fitting out, repair,
maintenance, renovation, or alteration of, -
(a) a historical monument, archaeological site or remains of national importance,
archaeological excavation, or antiquity specified under the Ancient Monuments and
Archaeological Sites and Remains Act, 1958.
(b) canal, dam or other irrigation works;
(c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage
treatment or disposal.

Where the services are supplied to a Government Entity, they should have been procured
by the said entity in relation to a work entrusted to it by the Central Government, State
Government, Union territory or local authority, as the case may be.
- - Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 as
amended on 22-8-2017 and 13-10-2017 [The words in italics inserted w.e.f. 13-10-2017].
Supply, design, installation and testing of solar energy based water pumping system and
O&M works is works contract and liable to tax @ 12% under aforesaid notification - Kailash
Chandra, In re [2019] 102 taxmann.com 210 = 72 GST 248 (AAR-Rajasthan).
34.5-2 Works contract services relating to construction, erection, commissioning of
specified services provided to Government, local authority, governmental authority or
government entity
In respect of following works contract services provided to Government, local authority or
Governmental authority or a Governmental Entity, the tax rate is 12% [IGST - 12%, CGST and
SGST/UTGST - 6% each] - - Sr No. 3(vi) of Notification No. 11/2017-CT (Rate) and No. 8/2017-
IT (Rate) both dated 28-6-2017 as amended on 22-8-2017 and 21-9-2017.
Tax on composite supply of works contract as defined in section 2(119) of CGST Act, provided
to the Central Government, State Government, Union Territory, a local authority, a
Governmental authority or a Government Entity other than that covered by items (i), (ia),
(ib), (ic), (id), (ie) and (if) above, is as follows. [The words in italics inserted w.e.f. 1-4-2019.
Thus, the rates specified in Sr. No. 3(vi) do not apply to real estate projects of residential
apartments and commercial apartments].
The works contract service by way of construction, erection, commissioning, installation,
completion, fitting out, repair, maintenance, renovation, or alteration of -
 660

(a) a civil structure or any other original works meant predominantly for use other than
for commerce, industry, or any other business or profession
(b) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an
art or cultural establishment; or
(c) a residential complex predominantly meant for self-use or the use of their employees
or other persons specified in paragraph 3 of the Schedule III of the Central Goods and
Services Tax Act, 2017.

Where the services are supplied to a Government Entity, they should have been procured by
the said entity in relation to a work entrusted to it by the Central Government, State
Government, Union territory or local authority, as the case may be.
-- Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 as
amended on 21-9-2017 and 13-10-2017 [The words in last para in italics inserted w.e.f. 13-
10-2017]. The opening words in italics replaced w.e.f. 14-11-2017 in place of 'Services' w.e.f.
14-11-2017].
'Business' shall not include activity undertaken as public authority - For purpose of item
3(vi) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017,
the term 'business' shall not include any activity or transaction undertaken by the Central
Government, a State Government or any local authority in which they are engaged as public
authorities - Explanation added w.e.f. 27-7-2018.
Though the explanation has been inserted w.e.f. 27-7-2018, it is with retrospective effect
from 1-7-2017, as the explanation has been inserted under section 11(3) of CGST Act - CBI&C
circular No. 120/39/2019-GST dated 11-10-2019.
Sub-contractor also eligible for concessional rate of 12% w.e.f. 25-1-2018 - Sub-contractor
providing service to main contractor who is providing any of aforesaid service is also eligible
for concessional rate of 12% [IGST - 12%, CGST and SGST/UTGST - 6% each] w.e.f. 25-1-2018.
- Sr No. 3(ix) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-
6-2017 inserted w.e.f. 25-1-2018.
However, in case of service supplied by main contractor to a Government entity, the
concessional rate is available only if the service has been procured by Government Entity in
relation to work entrusted to it by the Central Government, State Government, Union
Territory or Local Authority as the case may be.
The concession is only to sub-contractor and not to sub-sub-contractor.
Service of construction of sewage treatment plant - Service of construction of sewage
treatment plant supplied to Jainpur Development Authority is covered under Sr No 3(vi)(a)
of notification No. 11/2017-CT (Rate) dated 28-6-2017 and subject to tax @ 12% - Tata
Projects Ltd. In re (2018) 68 GST 420 = 94 taxmann.com 86 (AAR-Rajasthan).
Service of EPC contract for multi modal terminal provided to Inland Waterways Authority
of India - Service to Inland Waterways Authority of India (IWAI), a statutory body established
under Inland Waterways Authority of India Act, 1985, for construction of multi-modal IWT
terminal at Haldia, West Bengal on EPC (Engineering, Procurement, Construction) basis is
 661

works contract falling under serial No. 3(vi) of Notification No. 11/2017-Central Tax (Rate),
dated 28-6-2017, and supply of service by appellant is taxable at rate of 12% as IWAI is
'Government Entity - ITD Cementation India Ltd., In re [2019] 74 GST 277 = 105 taxmann.com
350 (AAAR-West Bengal) [reversing decision in ITD Cementation India Ltd., In re [2019] 71
GST 589 = 101 taxmann.com 137 (AAR-West Bengal).
Works contract relating to launch of spacecraft - Work of design, realisation, integration
and commissioning of Trisonic Wind Tunnel as a turnkey project for test set up which would
be used purely for research and development purpose to design launch vehicle and re-entry
space craft for Central Government would fall under definition of works contract - Vikram
Sarabhai Space Centre, In re [2019] 105 taxmann.com 239 (AAR - Kerala).
Turnkey project of wind tunnel for Vikram Sarabhai Space Centre - Turnkey project of wind
tunnel for Vikram Sarabhai Space Centre is works contract. It is eligible for concessional rate
of 12% under Sl No. 3(vi) of notification No. 8/2017-CT (Rate) dated 28-6-2017 [as provided
to Central Government] - Tata Projects Ltd. In re (2020) 77 GST 504 = 110 taxmann.com 512
(AAR-Ker).
Works contract of construction of electrical equipment for electricity generation of
distribution is in relation to business and GST rate is 18% - In Manipal Energy and Infratech
Ltd. In re (2020) 77 GST 310 = 110 taxmann.com 279 (AAR-Karn), applicant was awarded
works contract of construction of electrical equipment for electricity distribution by
electricity distribution companies, wholly owned by State Government. It was held that the
work is in relation to business and hence, concessional GST rate of 12% is not applicable.
GST rate will be normal i.e. 18%.
Concessional rate of 12% is not applicable to service of construction of residential flats
provided to Government entity - Concessional rate of 12% is not applicable to service of
construction of residential flats provided to Government entity. The tax rate will be 18% -
Shreeji Infrastructure India (P.) Ltd., In re [2018] 98 taxmann.com 438 (AAR - Madhya
pradesh).
34.5-3 Concessional rate of 5% in respect of works contract predominantly relating to
earth work provided to Government, local authority, Government entity etc.
In case of composite supply of works contract as defined in section 2(119) of the CGST Act,
2017, involving predominantly earth work (that is, constituting more than 75% of the value
of the works contract) provided to the Central Government, State Government, Union
territory, local authority, a Governmental Authority or a Government Entity, tax rate is 5% -
IGST 5% or CGST 2.5% plus SGST/UTGST - 2.5% -- Sr No. 3(vii) of Notification No. 11/2017-CT
(Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 as amended on 13-10-2017.
This concession is w.e.f. 13-10-2017.
Dredging of lake is works contract, involving earth work more than 75% value - Contract
for dredging of lake involving supply of various services & goods, qualifies as works contract
involving earth work exceeding 75 of contract value and taxable under Sl. No. 3(vii) of
Notification- Reach Dredging Ltd., In re [2020] 119 taxmann.com 101 (AAR-West Bengal).
Contract with a Government authority for dredging of lake is works contract service involving
earthwork in excavation and re-excavation of drainage channels. It consists more than 75%
 662

of value of contract, hence the contract is supply and taxable @ 5% - RDL-ZYCHL-JV, In re

[2021] 124 taxmann.com 385 (AAR-West Bengal).
Earthwork includes excavation of tunnel and concessional rate of 5% applies - Earthwork
includes excavation of tunnel and if excavation constitutes more than 75% of contract value,
concessional rate of 5% applies - Soma Mohite Joint Venture In re (2020) 122 taxmann.com
276 (AAAR-Maharashtra).
Sub-contractor also eligible for concessional rate of 5% w.e.f. 25-1-2018 - Sub-contractor
providing service to main contractor who is providing the aforesaid service is also eligible for
concessional rate of 5% [IGST - 5%, CGST and SGST/UTGST - 2.5% each] w.e.f. 25-1-2018 - -
Sr No. 3(x) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-
2017 inserted w.e.f. 25-1-2018.
However, in case of service supplied by main contractor to a Government entity, the
concessional rate is available only if the service has been procured by Government Entity in
relation to work entrusted to it by the Central Government, State Government, Union
Territory or Local Authority as the case may be.
The concession is only to sub-contractor and not to sub-sub-contractor.
34.5-4 Main contractor is entitled to partial or full exemption does not mean sub-
contractor is also exempt or entitled to concessional rate
Main contractor is entitled to partial or full exemption does not mean sub-contractor is also
exempt or entitled to concessional rate -Giriraj Renewables P Ltd. In re [2018] 69 GST 64 =
94 taxmann.com 286 (AAR - Karnataka).
However, in NHPC Ltd., In re [2018] 100 taxmann.com 16 (AAR - Uttarakhand), NHPC Ltd.
(Government Entity) was entrusted with work of construction of road by Ministry of External
Affairs, Govt. of India wherein funds were to be provided by MEA to NHPC in form of grants.
NHPC had sub-contracted the work to PWD. It was held that activity of NHPC Ltd. is
exempted under Notification No. 12/2017-CT (Rate) [Sr No. 9C] - Central Tax (Rate) dated
28-6-2017. It was also held that when original supply of service, i.e., work contract is
exempted, sub-letting of same to PWD is also exempt.
34.6 Reverse charge in respect of services provided by Government
In case of services supplied by Government or local authority to a business entity, the
business entity is liable to pay GST under reverse charge.
The exceptions are - (a) renting of immovable property to person not registered under CGST
Act (the wording in italics applicable w.e.f. 25-1-2018. Till then there was no reverse charge
even if service of renting of immovable property was supplied to person registered under
CGST Act). (b) postal services (c) services in relation to an aircraft or vessel (d) transport of
goods or passengers (mainly railways).
In case of renting of immovable property, reverse charge applies w.e.f. 25-1-2018, if
recipient of service is registered under CGST Act.
These services provided to business entity whose aggregate turnover is up to Rs. 25 lakhs
are also exempt. These services are also exempt if consideration does not exceed Rs. 5,000
 663

vide Notification Nos. 12/2017-CT (Rate) and 9/2017-IT (Rate) both dated 28-6-2017,
effective from 1-7-2017. In these cases, reverse charge will not apply.
The business entity is also not liable when the supply of service is exempted by a notification
or excluded from definition of service.
The statutory wording is as follows -
In case of services supplied by the Central Government, State Government, Union territory
or local authority to a business entity excluding, - (1) renting of immovable property to
person not registered under CGST Act (the wording in italics applicable w.e.f. 25-1-2018), and
(2) services specified below-(i) services by the Department of Posts by way of speed post,
express parcel post, life insurance, and agency services provided to a person other than
Central Government, State Government or Union territory or local authority (ii) services in
relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport (iii)
transport of goods or passengers, the recipient of service, who is any business entity located
in the taxable territory, is liable to pay GST under reverse charge - Notification No. 13/2017-
CT (Rate) and 10/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
34.6-1 All services provided by Government or local authority to business entity subject
to GST
CBI&C has clarified that all payments made to Government (or fee charged) for service
provided (where there is quid pro quo for service received) has to be regarded as
consideration for service. It is immaterial whether such activities are statutory or mandatory
requirements under the law and whether the amount charged is laid down in statute or not.
Service tax is payable on any payment, in lieu of any permission or license granted by
Government or a local authority - para 5.1 of CBI&C circular No. 192/02/2016-ST dated 13-
4-2016.
34.6-2 Fee for getting authorisations, permissions, licenses
A business entity is required to pay fees for getting various authorisations, permissions,
licenses etc. for various purposes like import and export etc. GST should be payable on such
fees.
GST is payable on license fees except license of alcoholic liquor for human consumption -
CBI&C circular No. 121/40/2019-GST, dated 11-10-2019.
Fee is a charge for a special service rendered to individuals or a class by some governmental
agency. A fee is a sort of return or consideration for services rendered, though it may not be
based upon expenses or costs incurred by Government. Fee is a payment for a special benefit
or privilege [e.g. licence fees]. On the other hand, tax is levied as a part of common burden
under statutory powers. The imposition is made for public purposes without any special
benefit conferred on the payer of tax. It is not a payment for service rendered - Om Prakash
Agarwal v. Giri Raj Kishori (1987) 164 ITR 376 = AIR 1986 SC 726 = 1986(1) SCC 722 - similar
views in Commissioner, Hindu Religion Endowment v. Sri Lakshmindra Tirtha Swamier 1954
SCR 1005 = AIR 1954 SC 282.
In Jindal Stainless Ltd. v. State of Haryana (2006) 7 SCC 241 = 152 Taxman 561 = 145 STC 544
(SC 5 member bench), it has been held that regulatory fees can be only compensatory in
 664

nature - quoted in Jantia Hill Truck Owners v. Shailang Area Coal Dealer and Truck Owners
Association (2009) 8 SCC 492 = AIR 2009 SC 3041.
Main difference in tax and fee is source of power. A charge or fee, if levied for purpose of
raising revenue under taxing power is a 'tax'. Similarly, imposition of fees for the primary
purpose of regulation and control may be classified as fees, as it is in exercise of 'police
power' i.e. power to regulate, control and prohibit), but if revenue is the primary purpose
and regulation is merely incidental, it is a 'tax' - Calcutta Municipal Corporation v. State of
West Bengal AIR 2005 SC 1879 = (2005) 4 SCC 245 (SC 3 member bench).
Further, even in case of fees, 'quid pro quo' in strict sense is not necessary. There should be
a 'reasonable relationship' between levy of fee and the services rendered. Exact
mathematical exactitude is not necessary - Sreenivasa General Traders v. State of AP - (1983)
3 SCR 843 (SC) = (1983) 4 SCC 353 = AIR 1983 SC 1246 - followed in Municipal Corporation,
Baroda v. Babubhai Himatlal - (1990) 76 STC 225 (SC).
In Agricultural Marketing Committee v. Rajam Jute and Oil Millers Association 2003 AIR SCW
1169 = 131 STC 472 (SC) it was observed that though quid pro quo between levy of fees and
facilities provided is necessary, exactitude in such matters is neither required nor possible.
Traditional view about actual quid pro quo has undergone a sea change. The extent of
service/amenities cannot have correlation with the fee levied. Secondly, it is not that all
required services must be in place before a fee can be levied.
Similar views have been expressed in Sri Krishna Das v. Town Area Committee, Chirgaon -
AIR 1991 SC 2096 = 77 STC 395 = 183 ITR 401 = (1990) 3 SCC 645 * Kewal Krishna Puri v. State
of Punjab - AIR 1980 SC 1008 = (1980) 1 SCC 416 (SC Constitution Bench) * Southern
Pharmaceuticals v. State of Kerala AIR 1981 SC 1863 * (1982) 1 SCR 519 * Dewan Chand
Builders v. UOI (2011) 274 ELT 161 (SC) = (2012) 1 SCC 101 = 2012 LLR 1 (SC) * Delhi Race
Club Ltd. v. UOI (2012) 8 SCC 680 = 347 ITR 593 = 53 VST 1 (SC).
34.6-3 GST can be imposed on fee but not on tax
Based on above principles, it can be stated that GST can be imposed on fee as there is
'consideration', but not on 'tax' as there is no 'consideration'.
If a levy is unilaterally imposed, it is not 'at the desire of promisor' and then service tax
cannot apply, as there is no 'consideration'.
However, if some amount or fee is payable only when someone applies (actually or through
an act), service tax should be applicable.
House property tax - Service tax should not be imposed as there is no 'consideration'.
Fees collected from vehicles engaged in mining work in lieu of use of forest road is taxable
- In Divisional Forest Officer In re (2018) 94 taxmann.com 71 (AAR- Uttarakhand), the
applicant was collecting 'Marg Sudharan Shulk' or 'Abhivahan Shulk' [fees for improvement
of roads or vehicle fees] from non-Government private and commercial vehicles engaged in
mining work, in lieu of use of forest road (probably what is meant is 'use of forest road'). The
charge was on the basis of forest produce carried in vehicles. The view has been confirmed
in Divisional Forest Officer In re (2018) 70 GST 395 = 97 taxmann.com 565 (AAAR-
Uttarakhand). It was held that the service falls under residuary heading 9997 and GST rate
is 18% [In this case, really reverse charge can apply, though AAAR did not express any view
 665

on this] - same view in Purewal Stone Crusher In re (2018) 70 GST 444 = 98 taxmann.com 137
(AAR - Uttarakhand).
34.6-4 License, authorization, registration or permission is a privilege granted by
Government or local authority
License, authorization, registration or permission is a privilege granted by Government or
local authority to the applicant. It is an activity carried out by Government for consideration.
It squarely falls within the definition of 'service'.
CBI&C has clarified that service tax is (now GST) payable on any payment, in lieu of any
permission or license granted by Government or a local authority - para 5.1 of CBI&C circular
No. 192/02/2016-ST dated 13-4-2016.
Services for regulation of land use, approval of construction of building etc. not subject to
GST - Services for regulation of land use, approval of construction of building, utility services
and other services listed in Article 243W are exempt from service tax (now GST) and hence
not taxable, whether provided by Government or a local authority, as per Sr No. 39 of
Notification No. 25/2012-ST dated 20-6-2012 effective from 1-7-2012. - para 7 of CBI&C
circular No. 192/02/2016-ST dated 13-4-2016.
No GST leviable on fee paid for grant of license for sale of liquor for human consumption -
GST council in its meeting on 10-3-2018 recommended that GST was not leviable on license
fee and application fee for alcoholic liquor for human consumption. This will apply to
demands raised by service tax/excise authorities for pre-GST era i.e. from 1-4-2016 to 30-6-
2017 - CBI&C circular No. 121/40/2019-GST dated 11-10-2019.
GST is not leviable on fee paid for grant of license for sale of liquor for human consumption
- Divya Singla v. Union of India [2018] 97 taxmann.com 632 (P&H HC DB). This was based on
statement of Government Counsel that in 26th meeting of GST Council held on 10.03.2018,
where it has been decided that no GST/Service Tax is leviable on the fee paid for grant of
license sale of liquor for human consumption - similar order in Rajwinder Singh v.
Commissioner, CGST [2018] 98 taxmann.com 118 (Punjab & Haryana) * Jagatjit Industries v.
UOI [2019] 106 taxmann.com 214 = 365 ELT 911 (Del HC DB).
Now, it is specifically provided that service supplied by State Government by way of grant of
alcoholic liquor licence, against consideration in the form of licence fee or application fee or
by whatever name it is called, is neither supply of goods nor supply of service - Notification
No. 24/2019-IT (Rate) and No. 22/2019-CT (Rate) both dated 30-9-2019.
This can be said to be only clarificatory provision and should apply with retrospective effect.
This is also implied in CBI&C circular No. 121/40/2019-GST dated 11-10-2019.
It can also be argued that duty of excise on alcoholic liquor for human consumption
manufactured or produced in State is State subject as per entry 51(a) List II of Seventh
Schedule to Constitution of India. License for this purpose is incidental to this power and
hence outside purview of GST.
34.6-5 Charges for registration
A business entity is required to pay various types of registration charges e.g. motor vehicle
registration, excise registration, service tax registration.
 666

These charges are paid as the person paying these charges is given right to perform some
acts. For example, RTO registration charges grant him right to run vehicle on roads. Hence,
it cannot be said that there is no quid pro quo.
The motor vehicle registration charges are partly regulatory and partly compensatory. It is
permission to run vehicle on road. It is activity for consideration. These can be subject to
service tax.
However, all services of registration under any law have been exempted from GST.
34.6-6 Services of Inspection, testing, certification
A business entity is required to pay various types of inspection charges and fees e.g. PF
administration charges, Motor Vehicles Inspection charges, Building inspection fee and what
not.
These charges are paid as the person paying these charges is given right to enjoy various
facilities.
When a person sets up a factory, purchases a vehicle, constructs a building or employs
person, by necessary implication, he agrees to pay necessary fees.
It can be argued that these charges are not at the 'desire of promisor' - rather against the
desire of promisor. However, the fact is that he is willing to pay those charges as he gets
privileges and advantages after paying those charges.
These would be subject to GST.
However, services of testing, calibration, safety check or certification required under any law
relating to (a) protection and safety of workmen (b) consumers (c) public at large, including
fire license have been exempted from GST.
34.6-7 Filing fees with Registrar of Companies for registration of documents
The fees payable are of course statutory. However, the fees paid are to get privileges to run
business as a 'company'. Hence, there is quid pro quo. Service tax should be payable.
However, if fees payable do not exceed Rs 5,000 are exempt and hence there is no reverse
charge.
34.6-8 MOT charges payable to excise and customs authorities
A business entity is required to pay MOT (Merchant Overtime Charges) to excise and
customs authorities for export and import clearances [These are in addition to the unofficial
charges payable to them].
These services are exempt from GST - Sr No. 65 of Notification No. 12/2017-CT (Rate) and
No. 9/2017-IT (Rate) both dated 28-6-2017.
34.6-9 Assignment of rights by Government
Assignment by the Government of the right to use natural resources should be subject to
GST.
Payment of royalty is for getting specified permission/privilege from Government. It cannot
be said that there is no 'consideration'.
Royalty, a payment reserved by grantor of a patent, lease of a mine or similar right, and
payable proportionately to the use made of the right by the grantee. It is usually a payment
 667

of money, but may be a payment in kind, that is, part of the produce of the exercise of right
- State of Orissa v. Titaghur Paper Mills AIR 1985 SC 1293.
Royalty is a payment reserved by the grantor of a patent, lease of a mine or similar right,
and payable proportionately to the use made of the right by grantee - State of Himachal
Pradesh v. Gujarat Ambuja Cement Ltd. (2005) 6 SCC 499 (SC 3 member bench).
Royalty is a tax on forest produce grown on a forest land - District Council of Joweri
Autonomous District v. D Wet Singh AIR 1986 SC 1930.
34.6-10 Royalty paid to Government for mining subject to reverse charge
In Aravali Polyart (P.) Ltd., In re [2019] 103 taxmann.com 382 (AAR- Rajasthan), applicant
was engaged in business of mining of soapstone and dolomite in the State of Rajasthan and
royalty on given minerals on behalf of the State Government was being collected by ERCC
Contractor from the applicant in relation to mining lease. It was held that the activity
undertaken by the applicant is classifiable under Heading 9973 (Leasing or rental services,
with or without operator), as mentioned in the annexure at Serial No. 257 (Licensing services
for the right to use minerals including its exploration and evaluation) sub-heading 997337 of
Notification No. 11/2017-CT (Rate), dated 28-6-2017. The applicant is liable to discharge tax
liability under reverse charge mechanism. It was also held that the activity undertaken by
the applicant attracts 18% GST (9% CGST + 9% SGST).
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Basic procedures in GST

35.1 Background
GST is a very procedure oriented legislation. Substantial benefits can be lost and penalties
can be imposed simply because proper procedures were not followed.
GST procedures are based on e-governance. Submission of papers and physical inter-face
with department is minimum.
Basic Procedures are as follows—
(a) Registration with GST which is common for IGST, SGST, UTGST and CGST
(b) Maintenance of stock records
(c) Tax Invoice, debit note and credit note
(d) Dispatch of goods by electronic way bill (presently not applicable)
(e) Tax under reverse charge where applicable
(f) Electronic payment of taxes
(g) Filing of returns which are common for IGST, SGST, UTGST and CGST

These are core procedures.

Other non-core procedures - Other non-routine procedures are as follows -
(i) Job work procedure
(ii) Refunds
(iii) Appeals
(iv) Procedure for export of goods and services

These procedures are discussed at appropriate places in this book.

No statutory records or registers - No statutory records or registers have been specified in
GST Act. Normal records of taxable person, giving required details are sufficient.
Self assessment - Assessment under GST is basically a self assessment. However, there are
provisions of audit, inspection, visits (raids) etc. Tax liability can arise during such inspection,
audit, visits etc.
Government can specify specific procedures for registration, payment, return etc. - The
Government may, on the recommendations of the Council, and subject to such conditions
and safeguards as may be prescribed, notify certain classes of registered persons, and the
special procedures to be followed by such persons including those with regard to
registration, furnishing of return, payment of tax and administration of such persons -
section 148 of CGST Act.
Every procedure deemed to be permitted unless specifically prohibited - Courts are not to
act upon the principle that every procedure is to be taken as prohibited unless it is expressly
provided for by the Code, but on the converse principle that every procedure is to be
understood as permissible till it is shown to be prohibited by law. As a matter of general
 669

principle, prohibition cannot be presumed - principle followed in Raj Narain Saxena v. Bhim
Sen AIR 1966 All HC FB 84 - quoted with approval and followed in Rajendra Prasad Gupta v.
Prakash Chandra Mishra AIR 2011 SC 1137 - quoted and followed in Pahuja Takii Seed Ltd.
v. Registrar of Companies (2018) 150 SCL 243 = 98 taxmann.com 424 (NCLAT).
35.1-1 GSTN is master - It acts in high handed manner not envisaged in law - and taxable
person is helpless
In GST, system is master. GSTN is often programmed in a way not envisaged in law. E.g. law
never states that GST return cannot be filed unless tax is paid or late fee is filed. However,
the system just does not accept return without payment of taxes and late fees. Law
envisages that refund claim can be filed for any period - month, quarter or even year, but
system accepts only monthly refund claim, which is impractical.
In A & M Design & Print Production v. Union of India [2018] 91 taxmann.com 193 = 66 GST
390 (Delhi HC), it was held that as per section 146 of CGST Act, mandate of Common Goods
and Services Tax Electronic Portal is to facilitate registration, payment of tax, furnishing of
its returns, etc., Thus, it could not be programmed so as to deny utilization of CGST and SGST
credit in a manner not envisaged either under section 49(5) or rules made under section
49(4) of CGST Act.
35.1-2 Taxable Person
Taxable person means a person who is registered or liable to be registered under section 22
or 24 of CGST Act - section 2(107) of CGST Act.
Separate GST Registration means distinct and separate taxable person, even if PAN is same
- A person who has obtained or is required to obtain more than one registration, whether in
one State or Union Territory or more than one State or Union Territory, shall, in respect of
each such registration, be treated as distinct persons for the purposes of this Act - section
25(4) of CGST Act.
Separate Registration practically means separate 'taxable person' for purpose of GST. Each
separate taxable person will require separate GST registration, separate payment of taxes,
separate services of invoices, separate returns, separate assessments, separate demands
etc.
Establishment in another State is distinct person even if not registered under GST - Where
a person who has obtained or is required to obtain registration in a State or Union territory
in respect of an establishment, has an establishment in another State or Union territory,
then such establishments shall be treated as establishments of distinct persons for the
purposes of this Act.
This will be so even if the establishment in another State is not registered under GST- section
25(5) of CGST Act.
Persons with small turnover are not taxable persons - A person will not be taxable person
until his aggregate turnover in a financial year exceeds specified limits.
35.1-3 Document Identification Number (DIN) on any communication issued by the
officers of the CBIC to tax payers and other concerned persons
 670

CBI&C, vide Circular No. l28/47/2019-GST dated 23-12-2019, has made Document
Identification Number compulsory for all communication sent by departmental officers to
tax payers and others, w.e.f. 1-1-2020. The instructions are as follows.
Document Identification Number (DIN) shall be issued in respect of all communications
(including e-mails) sent to tax payers and other concerned persons by any office of the
Central Board of Indirect Taxes and Customs (CBIC) across the country. Online digital
platform/facility is available on the DDM's online portal "cbicddm.gov.in" for electronic
generation of DIN.
Electronic generation of DIN's would create a digital directory for maintaining a proper audit
trail of communications sent to tax payers and other concerned persons. Further, it would
provide the recipient of such communication a digital facility to ascertain the genuineness
of the communication.
Formats of search authorisations, summons, arrest memos, inspection notices etc. issued by
the GST/Central Excise/Service Tax formations across the country. The standardized
documents have been uploaded by DDM and are ready to be used. When downloaded and
printed, these standardized documents would bear a pre-populated DIN thereon.
Any specified communication which does not bear the electronically generated DIN and is
not covered by the exceptions mentioned in paragraph 3 of Circular No. 122/41/2019-GST
dated 5-11-2019, shall be treated as invalid and shall be deemed to have never been issued.
As per paragraph 3 of Circular No. 122/41/2019-GST dated 5-11-2019, document can be
issued without DIN in emergency. If document is issued without DIN, reason should be
recorded and document should clearly indicate 'issued without DIN'.
35.2 Administration of GST
The apex body for deciding policies in respect of GST is 'Goods and Services Tax Council'
which is a constitutional body.
The CGST and IGST will be administered by department of CGST [present Central Excise and
service tax Department]
SGST is administered by Commissioner of GST of each State and officers subordinate to him.
The administrative set up at Centre is briefly as follows—
Ministry of Finance, Central Government - Ministry of Finance, Government of India is the
administrative ministry for CGST and IGST.
Tax Policy Research Unit (TPRU) - A Tax Policy Research Unit has been set up (TPRU). It is
common for direct and indirect taxes. Further, Tax Policy Council has been established with
Finance Minister as its Chairman - Press release dated 2-2-2016.
CBI&C - A Central Board of Indirect Taxes and Customs (CBI&C - called 'Board') has been
formed with headquarters at New Delhi. This Board, consisting of six/seven members,
headed by Chairman, has powers to administer the CGST law. CBI&C functions under
Ministry of Finance, Government of India [Till 29-3-2018, the Board was known as Central
Board of Excise and Customs - CBI&C, The name has been changed to CBI&C w.e.f. 29-3-
2018]
 671

Shri M Ajit Kumar is Chairman, CBI&C. [earlier, Mr. Pranab Kumar Das was Chairman, CBI&C
w.e.f. 1-1-2019. Earlier, Mr. S Ramesh was Chairman, CBI&C during 30-6-2018 to 31-12-2018.
Ms Vanjana N Sarna was CBI&C Chairperson during 31-3-2017 to 29-6-2018].
Allocation of work among various members of CBI&C has been specified in MF(DR) Office
Order No. 18/2021 dated 26-2-2021 [earlier MF(DR) Office Order No. 96/2020 dated 21-8-
2020 - still earlier Order No. 5/2020 dated 10-1-2020].
Central Board of Indirect Taxes and Customs (Chairman and Members) Recruitment Rules,
2006 make provision for the selection and scale of pay of Chairman and members of CBI&C.
Section 3 of CGST Act specifies various classes of officers.
CBI&C is empowered to appoint officers under CGST Act - section 4(1) of CGST Act.
Under these powers, notification No. 2/2017-CT dated 19-6-2017 has been issued specifying
various officers and their jurisdiction.
Commissioner can delegate their powers to any officer subordinate to him,, subject to
conditions as may be specified - section 5(3) of CGST Act.
Assignment of powers of issuing demands to any officer within jurisdiction of same
Principal Chief Commissioner/Chief Commissioner - Within jurisdiction of Principal Chief
Commissioner/Chief Commissioner, there are various Principal
Commissioners/Commissioners and officers subordinate to them. Assignment of powers to
officer within jurisdiction of same Principal Commissioner/Chief Commissioner for purpose
of demands under sections 73, 74, 75 and 76 of CGST Act can be made. Thus, powers of
raising demands can be exercised by any officer within the jurisdiction of Principal Chief
Commissioner or Commissioner - para 3 of notification No. 2/2017-CT dated 19-6-2017
amended on 31-12-2018.
Commissioner includes Principal Commissioner - "Commissioner" means the Commissioner
of central tax (CGST) 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 - section 2(24) of CGST Act.
35.2-1 Officers under CGST
Following are officers under GST.
Principal Chief Commissioner/Chief Commissioner of Central Tax - Country is divided in
several zones. Each 'zone' is under supervision of 'Principal Chief Commissioner of Central
Tax' or 'Chief Commissioner of Central Tax'. Principal Chief Commissioner/Chief
Commissioner has administrative control over Principal Commissioners, Commissioners and
First Appellate Authority) within his zone. Senior grade Chief Commissioner will be
designated as Principal Chief Commissioner, though both have same powers.
21 such zones have been notified vide notification No. 2/2017-CT dated 19-6-2017.
Director General - Offices of Director General have been created for monitoring some
specified functions e.g. Director General, GST Intelligence, Director General, GST and
Director General, Audit.
Powers have been delegated to them as follows, vide Notification No. 14/2017-CT dated 1-
7-2017.
 672

Principal Director General will exercise powers of Principal Chief Commissioner.

Director General Audit can exercise powers of Chief Commissioner.
Principal Additional Director General can exercise powers of Principal Commissioner.
Additional Director can exercise powers of Additional Commissioner.
Joint Director can exercise powers of Joint Commissioner.
Deputy/Assistant Director can exercise powers of Deputy/Assistant Commissioner.
Senior Intelligence Officer is equivalent in grade of Superintendent and Intelligence Officer
is equivalent in grade of Inspector.
Principal Commissioner/Commissioner of Central Tax - Each 'zone' covers various
Commissionerates and Principal Commissioner of Central Tax or Commissioner of Central
Tax is Administrative in-charge of the 'Commissionerate'.
107 such commissionerates have been notified vide notification No. 2/2017-CT dated 19-6-
2017.
First Appellate Authority of Central Tax - These are Commissioner of Central Tax (Appeals)
or Additional Commissioner of Central Tax (Appeals) or Joint Commissioner of Central Tax
(Appeals). 49 such Commissioners/Additional Commissioners have been appointed vide
notification No. 2/2017-CT dated 19-6-2017 [The words in italics inserted w.e.f. 1-2-2019].
Commissioner of Central Tax (Audit) - 48 Commissioners of Central Tax (Audit) have been
appointed vide notification No. 2/2017-CT dated 19-6-2017.
Additional and Joint Commissioners - There are Additional Commissioner/s and Joint
Commissioner/s of Central Tax in each Commissionerate. The parallel posts are Additional
Directors and Joint Directors.
Deputy Commissioner, Assistant Commissioner and Superintendent - Each
Commissionerate is divided into divisions and each division is under administrative control
of 'Deputy Commissioner of Central Tax' or 'Assistant Commissioner of Central Tax'. The
parallel posts are Deputy Directors and Assistant Directors.
The division under each Deputy/Assistant Commissioner is further divided into various
ranges.
35.2-2 Commissioner in Board or Joint Secretary in Board
Various sections authorise Commissioner for various purposes. There are numerous
Commissioners in India. They may follow divergent practices. Hence, it is provided by such
powers will be delegated by Commissioner or Joint Secretary posted in Board (i.e. CBE&C).
Such Commissioner in Board will exercise following powers on all India basis [section 168(2)
of CGST Act]—
(a) Appointment of 'proper officer' for various functions - section 2(91) of CGST Act.
(b) Officer can exercise powers of officer subordinate to him - section 5(2) of CGST Act.
(c) Notifying any person who may be granted UIN (Unique Identity Number) (instead of
registration number) - section 25(9)(b) of CGST Act.
 673

(d) Notifying class of persons to maintain additional accounts or permitting class of

persons to maintain accounts in different manner - section 35(3) and 35(4) of CGST
Act.
(e) Extending time limit for filing return for certain class of persons - section 37(1) of
CGST Act.
(f) Extending time limit for furnishing details for certain class of persons - section 38(2)
of CGST Act.
(g) Extending time limit for filing return for certain class of persons - section 39(6) of
CGST Act.
(h) Exemption to class of persons from filing annual return - section 44 of CGST Act
[amended by Finance Act, 2021 from date to be notified]
(i) Extending time limit for filing return and annual statement of TCS - section 52(4) and
52(5) of CGST Act.
(j) Where principal need not disclose place of job worker as additional place of business
- section 143(1) of CGST Act. However, powers to extend the time limit for extending
period of one/three years for return of goods from job worker will be exercised by
jurisdictional Commissioner [The amendment as shown in italics made vide Finance
Act, 2020 w.e.f. 30-6-2020].
(k) Omitted vide Finance Act, 2021 from date to be notified - earlier words were -
Direction to collect statistics - section 151(1) of CGST Act.
(l) Publish information relating to class of taxable persons or class of transactions in
public interest - section 158(3)(i) of CGST Act.
(m) Delegating power of Commissioner to another authority - section 167 of CGST Act.

35.2-3 Administrative set up in State for SGST

Administration of SGST in every State will be under Ministry of Finance of that State.
The Officers will be Principal/Chief Commissioner of SGST, Special Commissioner of SGST,
Additional Commissioner of SGST, Joint Commissioner of SGST, Deputy Commissioner of
SGST, and Assistant Commissioner of SGST.
35.2-4 Officer can exercise powers of officer subordinate to him
An officer of central tax (CGST) may exercise the powers and discharge the duties conferred
or imposed under this Act on any other officer of central tax who is subordinate to him -
section 5(2) of CGST Act.
35.2-5 Avoidance of dual control
A taxable person is required to pay both CGST and SGST. Thus, for same transaction, he will
have to face two authorities. This will make his life miserable as two authorities may take
different view on same transactions. He will face with dual assessments, dual audits, dual
demands etc. There will be two revisions, two rectifications and two appeals.
 674

Such dual control is unworkable. A taxable person should be under one authority - either
Centre or State. This principle has been accepted by GST Council.
State Level Committees of Chief Commissioner/Commissioner of commercial taxes of
respective State and jurisdictional Central Tax Chief Commissioner/Commissioner has been
constituted.
GST Council has issued circular No. 1/2017-GST dated 20-9-2017 giving guidelines for
division of taxpayers between Centre and State to ensure single interface under GST.
As per the circular, in case of taxable persons with turnover up to Rs. 1.50 crores per annum,
90% will be under jurisdiction of State Government authorities and 10% will be under
jurisdiction of State Government authorities. In case of taxable persons with more than Rs.
1.50 crores per annum, the distribution will be 50:50.
Bifurcation will be done by computer on stratified random sampling and could also take into
account the geographical location and type of taxpayers as may be mutually agreed.
For taxable persons registered under State Vat or Vat and Central Excise, the annual turnover
in State will be considered (as State excise turnover already included in State Vat). For those
registered only under Central Excise and not Vat (very rare situation), annual turnover of
Central Excise as per returns will be considered. In case of taxpayers registered only under
service tax, annual turnover of service tax will be considered. In case of taxpayers registered
under service tax and Vat, combined turnover (excluding common turnover) will be
considered.
In many States, such bifurcation has already been made on basis of aforesaid instructions of
GST Council and notifications have been issued.
Since the bifurcation has been done on random basis. This may lead to chaos. Ideally, taxable
persons having multi-state businesses (including telecom, banking, insurance) and those
predominantly in export and import field should be under control of Central Government.
Industries and businesses restricted to one State should be under control of State
Government. This will ensure avoidance of conflicting views by tax authorities on same issue.
Such bifurcation has created problems for consultants also. So far, they were dealing either
with State or Central Authorities. Now, some of their clients may be under State Government
Control while others may be under Central Government control. Thus, they will have to deal
with two authorities or they will be required to have separate partners dealing with different
authorities.
Delegation of powers to grant refund of CGST and IGST to State Authorities - State Tax
Officers have been granted powers to grant refunds under section 20 of CGST Act, read with
sections 54 and 55 of CGST Act and rules thereunder, except sub-rules (1) to (8) and sub-rule
(10) of Rule 96 of CGST Rules in respect of registered person in their territorial jurisdiction, if
they are 'proper officers' for that registered person in that State - Notification Nos. 39/2017-
CT and 11/2017-IT both dated 13-10-2017 [The words in italics inserted w.e.f. 23-1-2018].
Rule 96 of CGST Rules is in respect of refunds in case of exports. Rule 96(9) of CGST Rules is
in respect of refund in case of export of services.
Thus, in case of export of goods, refund will be handled by customs officer, while in case of
export of services, refund can be sanctioned by state tax officer, if he is 'proper officer'.
 675

Parallel notifications are expected to be issued by State Governments under SGST Act to
authorize Central Tax Officers to grant refunds under SGST Act in respect of registered
person in their territorial jurisdiction.
These provisions have been made effective from 24-9-2019.
Cross empowerment of Central and State Officers - Issue was whether Director General of
GST Intelligence (under Central Government) [DGG] can conduct investigation of taxable
persons assigned to State Government. CBI&C, vide letter No. CBIC-20/10/07/2019-GST
dated 22-6-2020 addressed to Principal Director General of GST Intelligence, New Delhi-
110016 has clarified that section 6(1) of CGST Act, officers appointed by State Government
and Union Territory are also 'proper officers' under CGST Act [parallel provision in section
6(1) of State GST Act specifying officers appointed by Central Government as 'proper officers'
under SGST Act], subject to prescribed conditions. Thus, if no conditions are prescribed,
proper officer of State or Union Territory will be 'proper officer' of Central Government also.
Thus, cross empowerment under section 6(1) of CGST Act [and section 6(1) of SGST Act] is
absolute i.e. unconditional, except in cases where restriction has been specified by a
notification e.g. in case of refunds] [Hence, DGGI can conduct investigation of taxable
persons assigned to State Government or Union Territory Authorities].
Enforcement action can be initiated either by State or by Central tax authorities - Though
taxable persons are bifurcated between Central and State authorities for administration
purposes (to avoid dual control), both Central and State tax authorities are authorised to
initiate intelligence based enforcement against tax payers, irrespective of the administrative
assignment of tax payer to any authority. The initiating authority can complete entire
process of investigation, issue of SCN, adjudication, recovery, filing of appeal etc. arising out
of such action - DOF No. CBEC/20/43/01/2017-GST dated 5-10-2018 - same view in CBI&C
letter No. CBIC-20/10/07/2019-GST dated 22-6-2020 addressed to Principal Director General
of GST Intelligence, New Delhi- 110016.
Defence against writ petitions/PIL filed in High Court/Supreme Court -Many writ petitions
and PILs have been filed in High Court/Supreme Court. Nodal cess has been created in CBI&C.
Comments should be sought directly from concerned wing of department as specified in
MF(DR) (State Taxes Division) Instruction No. S-29012/12/2017-ST-1-DOR dated 27-11-2017.
From the circular, it is apparent that entire work of litigation before High Court/Supreme
Court has been taken over by CBI&C. There is no role assigned to State Government
authorities.
Authorisations issued to Filed Commissioners should not be suo motu transferred by Field
Commissioner to another Commissioner - CBI&C instruction No. 280/05/2018-CX 8A dated
23-5-2018.
35.2-6 Powers under CGST can be delegated to officers of State Government and vice versa
To avoid dual control, section 6(1) of CGST Act provides that officer of SGST can be appointed
as 'proper officer' for purpose of CGST (and vice versa in SGST or UTGST Act).
Any proceedings for rectification, appeal and revision, wherever applicable, of any order
passed by an officer appointed under CGST Act shall not lie before an officer appointed
 676

under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax
Act - section 6(3) of CGST Act.
Section 167 of CGST Act read with section 168(2) of CGST Act empowers Commissioner or
Joint Secretary in Board to issue notification for delegation of powers.
There are parallel provisions in SGST and UTGST Act also.
Delegation of powers to grant refund to State/Central Officer - State Tax Officers have
been granted powers to grant refunds under sections 54 and 55 of CGST Act in respect of
registered person in their territorial jurisdiction - Notification No. 39/2017-CT and No.
11/2017-IT both dated 13-10-2017.
Parallel notifications are expected to be issued by State Governments empowering Central
Tax Officer to grant refunds under sections 54 and 55 of SGST Act.
These provisions have been made effective from 24-9-2019.
35.3 Proper Officer
Various sections in CGST Act mention about action by 'proper officer'.
"Proper officer" in relation to any function to be performed under this Act, means the
Commissioner or the officer of the central tax who is assigned that function by the
Commissioner in the Board - section 2(91) of CGST Act.
Thus, different 'proper officers' can be appointed for different purposes.
To ensure uniformity all over India, such assignment will be done by Commissioner or Joint
Secretary in Board - section 168(2) of CGST Act.
The 'proper officer' has been specified vide CBI&C circular No. 1/1/2017-GST dated 26-6-
2017 and No. 3/3/2017-GST dated 5-7-2017 as amended by CBI&C circular No. 31/05/2018-
GST dated 9-2-2018.
Broadly, the powers are as follows -
Inspector - Inspection of stock and road checks.
Superintendent - (a) Compulsory Registration [section 25(8)] (b) Amendment of Registration
[section 28] (c) Cancellation of Registration [section 29] (d) Demand tax when goods or
services not accounted for [section 35(6)] (e) Scrutiny of returns [section 61] (f) Issue
summons [section 70] (g) Issue of Show Cause and confirmation of demand (whether or not
there is charge of suppression of facts) [sections 73, 74]. where amount involved is upto Rs
10 lakhs in case of only CGST plus Compensation Cess and upto Rs 20 lakhs in case of CGST,
IGST plus compensation Cess
Deputy/Assistant Commissioner - (a) Composition scheme declarations etc. (section 10) (b)
Registration of casual taxable person (section 27) (c) Cancellation or revocation of
registration (section 30) (d) Refunds - section 54 (e) Assessment - sections 60, 63) (f) Audit
(section 65) (g) Issue of Show Cause and confirmation of demand (whether or not there is
charge of suppression of facts) [sections 73, 74]. Where amount involved is above Rs 10 lakhs
but not exceeding Rs one crore in case of only CGST plus Compensation Cess and above Rs
20 lakhs but not exceeding Rs two crores in case of CGST, IGST plus compensation Cess (h)
Demand of tax collected but not paid (section 76) (i) Recovery (section 79) (j) Detention of
 677

conveyances in transit (section 129) (k) Confiscation of goods and conveyances (section 130)
(l) Refund if duty paid goods returned after 1-7-2017 [section 142(1)].
Joint/Additional Commissioner - (a) Ordering search and seizure (section 67) (b) Authorising
access to premises and inspection of books of account (section 71) (c) Issue of Show Cause
and confirmation of demand (whether or not there is charge of suppression of facts)
[sections 73, 74]. Where amount involved is above Rs one crore (no upper limit) in case of
only CGST plus Compensation Cess and above Rs two crores in case of CGST, IGST plus
compensation Cess (d) Declaring transfer of property void (section 81) (e) Immediate sale of
seized perishable goods [section 129(6)]
Principal Commissioner/Commissioner - (a) Return of seized goods [section 67(7) (b)
Recovery proceedings before completion of period of three months [proviso to section 78].
35.3-1 Competent Authority
"Competent authority" means such authority as may be notified by the Government -
section 2(29) of CGST Act.
What are his functions is not clear from CGST Act.
35.4 Common Portal
Central Government can notify the Common Goods and Services Tax Electronic Portal for
facilitating registration, payment of tax, furnishing of returns, computation and settlement
of integrated tax, electronic way bill and for carrying out such other functions and for such
purposes as may be prescribed - section 146 of CGST and SGST Act.
"Common portal" means the common goods and services tax electronic portal referred to
in section 146 of GST Act - section 2(26) of CGST Act.
Central Government has notified following common portals - (a) www.gst.gov.in for
managed by Goods and Services Tax Network (GSTN) for facilitating registration, payment
of tax, furnishing of returns and computation and settlement of IGST (b)
www.ewaybillgst.gov.in managed by National Informatics Centre, for furnishing e-way bill -
Notification No. 9/2018-CT dated 23-1-2018 [earlier Notification No. 4/2017-CT dated 19-7-
2017].
35.5 Accounts and other records
Every registered person shall keep and maintain, at his principal place of business, as
mentioned in the certificate of registration, a true and correct account of - (a) production or
manufacture of goods (b) inward or outward supply of goods or services or both (c) stock of
goods (d) input tax credit availed (e) output tax payable and paid, and (f) such other
particulars as may be prescribed - section 35(1) of CGST Act.
Where more than one place of business is specified in the certificate of registration, the
accounts relating to each place of business shall be kept at such places of business - first
proviso to section 35(1) of CGST Act.
Records in electronic form in prescribed manner - The registered person may keep and
maintain such accounts and other particulars in the electronic form in the prescribed manner
- second proviso to section 35(1) of CGST Act.
 678

Commissioner can ask class of taxable persons to maintain additional records or in

prescribed manner - The Commissioner may notify a class of taxable persons to maintain
additional accounts or documents for such purpose as may be specified therein- section
35(3) of CGST Act.
To ensure uniformity all over India, such notification will be issued by Commissioner or Joint
Secretary in Board - section 168(2) of CGST Act.
Relaxation in maintaining records - Where the Commissioner considers that any class of
taxable persons is not in a position to keep and maintain accounts in accordance with the
provisions of this section, he may, for reasons to be recorded in writing, permit such class of
taxable persons to maintain accounts in such manner as may be prescribed - section 35(4)
of CGST Act.
To ensure uniformity all over India, such permission will be granted by Commissioner or Joint
Secretary in Board - section 168(2) of CGST Act.
Demand of tax if goods or services not accounted for - If the registered person fails to
account for goods or services or both under section 35(1) of CGST Act, the proper officer
shall determine the tax payable on such goods or services as if such goods or services or both
have been supplied. Provisions of sections 73 and 74 will apply mutatis mutandis for
recovery of such tax - section 35(6) of CGST Act.
Superintendent of Central Tax has been designated as 'proper officer' for the purpose of
raising demand- CBI&C circular No. 3/3/2017-GST dated 5-7-2017 [State Government will
prescribe 'proper officer' for purpose of SGST in the respective State].
35.5-1 Maintenance of accounts by registered persons
Every registered person shall keep and maintain, in addition to the particulars mentioned in
section 35(1), a true and correct account of the goods or services imported or exported or
of supplies attracting payment of tax on reverse charge along with relevant documents,
including invoices, bills of supply, delivery challans, credit notes, debit notes, receipt
vouchers, payment vouchers and refund vouchers - Rule 56(1) of CGST and SGST Rules, 2017.
35.5-2 Stock records
Every registered person (other than those under composition scheme) shall maintain
accounts of stock in respect of each commodity received and supplied by him, and such
account shall contain particulars of the opening balance, receipt, supply, goods lost, stolen,
destroyed, written off or disposed of by way of gift or free samples and balance of stock
including raw materials, finished goods, scrap and wastage thereof - Rule 56(2) of CGST and
SGST Rules, 2017.
This is not required for a person paying tax under section 10 [composition scheme].
35.5-3 Record of Advances received and adjusted
Every registered person shall keep and maintain a separate account of advances received,
paid and adjustments made thereto - Rule 56(3) of CGST and SGST Rules, 2017.
35.5-4 Record of tax payable, tax collected, input tax credit etc.
Every registered person (except a person paying tax under section 10 i.e. composition
scheme), shall keep and maintain an account, containing the details of tax payable (including
 679

tax payable under reverse charge and purchases from unregistered persons), tax collected
and paid, input tax, input tax credit claimed, together with a register of tax invoice, credit
note, debit note, delivery challan issued or received during any tax period - Rule 56(4) of
CGST and SGST Rules, 2017.
35.5-5 Details of supplies received and supplies made
Every registered person shall keep the particulars of -(a) names and complete addresses of
suppliers from whom he has received the goods or services (b) names and complete
addresses of the persons to whom he has supplied the goods or services (c) the complete
addresses of the premises where the goods are stored by him, including goods stored during
transit along with the particulars of the stock stored therein - Rule 56(5) of CGST and SGST
Rules, 2017.
Demand of tax if goods stored without valid documents - If any taxable goods are found to
be stored at any place(s) other than those declared, without the cover of any valid
documents, the proper officer shall determine the amount of tax payable on such goods as
if such goods have been supplied by the registered person - Rule 56(6) of CGST and SGST
Rules, 2017.
Superintendent of Central Tax has been designated as 'proper officer' for the purpose of
issuing demand in respect of goods kept at improper place - CBI&C circular No. 3/3/2017-
GST dated 5-7-2017 [State Government will prescribe 'proper officer' for purpose of SGST in
the respective State].
35.5-6 Maintenance of books of account at principal place of business
Every registered person shall keep the books of account at the principal place of business
and at every related place(s) of business mentioned in his certificate of registration. Such
books of account shall include any electronic form of data stored on any electronic device -
Rule 56(7) of CGST and SGST Rules, 2017.
No alteration or overwriting of records - Any entry in registers, accounts and documents
shall not be erased, effaced or overwritten, and all incorrect entries shall be scored out
under attestation and thereafter correct entry shall be recorded. Where the registers and
other documents are maintained electronically, a log of every entry edited or deleted shall
be maintained - Rule 56(8) of CGST and SGST Rules, 2017.
Serial number of books of account - Each volume of books of account maintained by the
registered person shall be serially numbered - Rule 56(9) of CGST and SGST Rules, 2017.
Presumption of documents found elsewhere - Unless proved otherwise, if any documents,
registers, or any books of account belonging to a registered person are found at any
premises other than those mentioned in the certificate of registration, they shall be
presumed to be maintained by the said registered person. Of course, this is rebuttable
presumption - Rule 56(10) of CGST and SGST Rules, 2017.
35.5-7 Records to be maintained by Agent
Every agent referred to in section 2(5) of the Act shall maintain accounts depicting the
following—
 680

(a) particulars of authorization received by him from each principal to receive or supply
goods or services on behalf of such principal separately;
(b) particulars including description, value and quantity (wherever applicable) of goods
or services received on behalf of every principal;
(c) particulars including description, value and quantity (wherever applicable) of goods
or services supplied on behalf of every principal;
(d) details of accounts furnished to every principal; and
(e) tax paid on receipts or on supply of goods or services effected on behalf of every
principal - Rule 56(11) of CGST and SGST Rules, 2017.

35.5-8 Records of manufacture and production

Every registered person manufacturing goods shall maintain monthly production accounts,
showing the quantitative details of raw materials or services used in the manufacture and
quantitative details of the goods so manufactured including the waste and by products
thereof - Rule 56(12) of CGST and SGST Rules, 2017.
35.5-9 Record of goods used for provision of services
Every registered person supplying services shall maintain the accounts showing the
quantitative details of goods used in the provision of each service, details of input services
utilised and the services supplied - Rule 56(13) of CGST and SGST Rules, 2017.
35.5-10 Records of works contracts
Every registered person executing works contract shall keep separate accounts for each
works contract showing [Rule 56(14) of CGST and SGST Rules, 2017]
(a) the names and addresses of the persons on whose behalf the works contract is
executed;
(b) description, value and quantity (wherever applicable) of goods or services received
for the execution of works contract;
(c) description, value and quantity (wherever applicable) of goods or services utilized in
the execution of each works contract;
(d) the details of payment received in respect of each works contract; and
(e) the names and addresses of suppliers from whom he has received goods or services.

35.5-11 General provisions relating to maintenance of records

Preservation of records - Accounts maintained by the registered person together with all
invoices, bills of supply, credit and debit notes, and delivery challans relating to stocks,
deliveries, inward supply and outward supply shall be preserved for the period as provided
in section 36 of the Act and shall be kept at every related place of business mentioned in the
certificate of registration - Rule 56(16) of CGST and SGST Rules, 2017.
Records by carrier of goods and C&F Agents and its production - Any person having custody
over the goods in the capacity of a carrier or a clearing and forwarding agent for delivery or
 681

dispatch thereof to a recipient on behalf of any registered person shall maintain true and
correct records in respect of such goods handled by him on behalf of the such registered
person and shall produce the details thereof as and when required by the proper officer -
Rule 56(17) of CGST and SGST Rules, 2017.
Inspector of Central Tax has been designated as 'proper officer' for the purpose of checking
of the records- CBE&C circular No. 3/3/2017-GST dated 5-7-2017 [State Government will
prescribe 'proper officer' for purpose of SGST in the respective State].
Production of records on demand - Every registered person shall, on demand, produce the
books of account which he is required to maintain under any law in force - Rule 56(18) of
CGST and SGST Rules, 2017.
35.5-12 Generation and maintenance of electronic records
Proper electronic back-up of records shall be maintained and preserved in such manner that,
in the event of destruction of such records due to accidents or natural causes, the
information can be restored within a reasonable period of time - Rule 57(1) of CGST and
SGST Rules, 2017.
The registered person maintaining electronic records shall produce, on demand, the
relevant records or documents, duly authenticated by him, in hard copy or in any
electronically readable format - Rule 57(2) of CGST and SGST Rules, 2017.
Information about files, codes and passwords - The registered person shall also provide, on
demand, details of files, passwords of files and explanation of codes used for access and any
other information which is required to access along with sample copy in printed form of the
information stored in file - Rule 57(3) of CGST and SGST Rules, 2017.
Authentication of records by digital signature - The records under these rules may be
maintained in electronic form and the record so maintained shall be authenticated by means
of a digital signature - Rule 56(15) of CGST and SGST Rules, 2017.
35.5-13 Records and books of account by Principal and Auctioneer of tea, coffee, rubber
etc.
In case of commodities like tea, coffee, rubber etc. goods are kept in warehouses from which
goods are auctioned. In this regard, CBE&C vide circular No. 23/23/2017-GST dated 21-12-
2017 has clarified as follows -
Both Principal and Auctioneer should declare these warehouses as additional place of
business. If the buyer intents to keep the goods in warehouse after purchase, he should also
declare the place as additional place of business.
Both Principal and Auctioneer (and also buyer if he has registered the place as additional
place of business) are required to keep books of account at the additional place of business.
However, if they have difficulty in maintaining books or account at that additional place of
business, they may keep books of account at Principal place of business.
Both Principal and Auctioneer should submit declaration to jurisdictional officer of GST
about maintaining books of account at their principal place of business.
Principal and Auctioneer will be eligible to avail Input Tax Credit on fulfilment of provisions
of GST Act and Rules.
 682

The aforesaid provisions apply only where goods are supplied through auction.
These instructions are reiterated in CBI&C circular No. 47/21/2018-GST dated 8-6-2018.
35.5-14 Records to be maintained by owner or operator of godown or warehouse and
transporters
Every person required to maintain records and accounts in accordance with the provisions
of section 35(2), if not already registered under the Act, shall submit the details regarding
his business electronically on the Common Portal in form GST ENR-01. Upon validation of
the details furnished, a unique enrolment number shall be generated and communicated to
the said person - Rule 58(1) of CGST and SGST Rules, 2017.
The person enrolled as aforesaid in any other State or Union territory shall be deemed to be
enrolled in the State or Union Territory.
Every person who is enrolled shall, where required, amend the details furnished in form GST
ENR-01 electronically on the Common Portal.
Records to be maintained by transporter - Any person engaged in the business of
transporting goods shall maintain records of goods transported, delivered and goods stored
in transit by him and for each of his branches - Rule 58(4)(a) of CGST and SGST Rules, 2017.
Records by owner or operator of warehouse or godown - Every owner or operator of a
warehouse or godown shall maintain books of account, with respect to the period for which
particular goods remain in the warehouse, including the particulars relating to dispatch,
movement, receipt, and disposal of such goods - Rule 58(4)(b) of CGST and SGST Rules, 2017.
The owner or the operator of the godown shall store the goods in such manner that they
can be identified item wise and owner wise and shall facilitate any physical verification or
inspection by the proper officer on demand - Rule 58(5) of CGST and SGST Rules, 2017.
Inspector of Central Tax has been designated as 'proper officer' for the purpose of physical
verification or inspection- CBE&C circular No. 3/3/2017-GST dated 5-7-2017 [State
Government will prescribe 'proper officer' for purpose of SGST in the respective State].
35.6 Records of inventory even by unregistered person
Every owner or operator of warehouse or godown or any other place used for storage of
goods irrespective of whether he is a registered person or not shall maintain records of
consigner, consignee and other relevant details of the goods as may be prescribed - section
35(2) of CGST Act.
35.7 Demand if goods are not properly accounted for
Subject to the provisions of section 17(5)(h) of CGST Act (goods, stolen, lost, destroyed,
written off, disposed of by way of gift or samples), where the registered person fails to
account for the goods or services or both in accordance with section 35(1) of CGST Act, the
proper officer shall determine the amount of tax payable on the goods or services or both
that are not accounted for, as if such goods or services or both had been supplied by such
person and the provisions of section 73 or section 74, as the case may be, shall, mutatis
mutandis, apply for determination of such tax - section 35(5) of CGST Act.
35.8 Audit by Chartered/Cost Accountant in GSTR-9C not required from 2021-22 (or may
be from 2020-21)
 683

Every registered person whose turnover during a financial year exceeds the prescribed limit
shall get his accounts audited by a chartered accountant or a cost accountant and shall
submit a copy of the audited annual accounts, the reconciliation statement under section
44(2) of CGST Act and such other documents in such form and manner as may be prescribed-
section 35(5) of CGST Act [The section 35(5) of CGST Act has been omitted vide Section 109
of Finance Act, 2021 w.e.f. date to be notified].
The form prescribed in GSTR-9C.
Provisions applicable upto FY 2020-21 are as follows.
Every registered person whose aggregate turnover during a financial year exceeds two crore
rupees shall get his accounts audited as specified under sub-section 35(5) of CGST Act. He
shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified,
in form GSTR-9C, electronically - Rule 80(3) of CGST and SGST Rules, 2017.
Audit report not required by department of Government or local authority - Such audit by
Chartered/Cost Accountant is not required if the taxable person is any department of the
Central Government or a State Government or a local authority, whose books of account are
subject to audit by the Comptroller and Auditor-General of India or an auditor appointed for
auditing the accounts of local authorities under any law for the time being in force - proviso
to section 35(5) of CGST Act inserted vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019.
Every registered person, other than those referred to in the proviso to section 35(5) of CGST
Act, whose aggregate turnover during a financial year exceeds two crore rupees shall get his
accounts audited as specified under section 35(5) of CGST Act and he shall furnish a copy of
audited annual accounts and a reconciliation statement, duly certified, in form GSTR-9C,
electronically - Rule 80(3) of CGST and SGST Rules, 2017. [The words in italics inserted w.e.f.
1-2-2019. The effect of the amendment is that the audited reconciliation statement is not
required to be submitted in case of Government departments whose accounts are audited
by C&AG].
This relaxation does not apply to Government Companies as they are not departments of
Government, even if their accounts are subject to audit by C&AG. The relaxation also does
not apply to Governmental Authority or Government Entity, since they are not departments
of Government or local authority.
Now, these provisions are not relevant from FY 2021-22 (or may be from FY 2020-21 itself).
35.9 Period of retention of accounts
Every registered taxable person required to keep and maintain books of account or other
records under section 35(1) of CGST Act shall retain them until the expiry of seventy two
months from the due date of filing of Annual Return for the year pertaining to such accounts
and records - section 36 of CGST Act.
However, registered person, who is a party to an appeal or revision or any other proceedings
before any Appellate Authority or Revisional Authority or Appellate Tribunal or court,
whether filed by him or by the Commissioner, or is under investigation for an offence under
Chapter XIX, shall retain the books of account and other records pertaining to the subject
matter of such appeal or revision or proceedings or investigation for a period of one year
 684

after final disposal of such appeal or revision or proceedings or investigation, or for the
period specified above, whichever is later - proviso to section 36 of CGST Act.
35.10 Authentication of return, notices, reply, appeal electronically
All applications, including reply, if any, to the notices, returns, appeals or any other
document required to be submitted under CGST Rules, 2017 shall be submitted
electronically at the Common Portal. It will be digital signature certificate or through e-
signature as specified under the Information Technology Act, 2000 or verified by any other
mode of signature or verification as specified by CBIC- Rule 26(1) of CGST Rules.
Digital signature is compulsory in case of companies.
The verification shall be by (i) Aadhaar based Electronic Verification Code (EVC) or (ii)
Electronic verification code generated through net banking login on the common portal or
(iii) Electronic verification code generated on the common portal. Such verification shall be
done within two days of furnishing of document - Notification No. 6/2017-CT dated 19-6-
2017.
Verification GSTR-3B and GSTR-1 by EVC by companies - In view of difficulties faced due to
Covid-19 (Corona virus), companies can authenticate GSTR-3B and GSTR-1 return by EVC
during April 2020 to September 2020 - Notification No. 48/2020-CT dated 19-6-2020.
Change in e-mail and mobile number of authorised signatory - Change in e-mail and mobile
number of authorised signatory can be made, by approaching concerned jurisdictional tax
officer and getting password. The procedure has been specified in CBI&C press release No.
166/2018 dated 14-6-2018.
Verification GSTR-3B and GSTR-1 by EVC by companies - In view of difficulties faced due to
Covid-19 (Corona virus), companies can authenticate GSTR-3B and GSTR-1 return by EVC
during April 2020 to September 2020 - Notification No. 48/2020-CT dated 19-6-2020.
35.10-1 Who can verify the document filed
Each document including the return furnished online shall be signed or verified through
electronic verification code by the following [rule 26(2) of CGST Rules].
(a) in the case of an individual, by the individual himself or where he is absent from India,
by some other person duly authorised by him in this behalf, and where the individual
is mentally incapacitated from attending to his affairs, by his guardian or by any other
person competent to act on his behalf;
(b) in the case of a Hindu Undivided Family, by a Karta and where the Karta is absent
from India or is mentally incapacitated from attending to his affairs, by any other
adult member of such family or by the authorised signatory of such Karta;
(c) in the case of a company, by the chief executive officer or authorised signatory
thereof;
(d) in the case of a Government or any Governmental agency or local authority, by an
officer authorised in this behalf;
 685

(e) in the case of a firm, by any partner thereof, not being a minor or authorised
signatory thereof;
(f) in the case of any other association, by any member of the association or persons or
authorised signatory thereof;
(g) in the case of a trust, by the trustee or any trustee or authorised signatory thereof;
or
(h) in the case of any other person, by some person competent to act on his behalf, or
by a person authorised in accordance with the provisions of section 48 of CGST and
SGST Act [GST Practitioner]. [Thus, GST Practitioner cannot verify when document is
filed by individual, HUF, company, firm, association or trust. Then what is left?]

35.11 Notices, certificates by proper officer in respect of registration

All notices, certificates and orders under this Chapter (i.e. chapter relating to registration)
shall be issued electronically by the proper officer or any other officer authorised to issue
any notice or order, through digital signature certificate specified under the Information
Technology Act, 2000 or verified by any other mode of signature or verification as notified
by CBE&C- Rule 26(3) of CGST Rules.
This provision applies only to notices etc. issued under Chapter relating to registration and
not in respect of other CGST Rules.
 686

Registration under GST

36.1 Requirement of registration
Registration under GST is the first and most important step.
36.1-1 Relief to very small taxable persons
It is normal to provide threshold limit for imposition of any tax, so that very small taxable
persons are out of tax net.
Very small taxable persons whose total turnover is less than Rs 20 lakhs are not required to
register under GST (The limit is Rs 10 lakhs in some States).
For small and medium sized taxable persons, a simple composition scheme is available.
The provisions are discussed in another chapter.
36.1-2 GST payable once registered even if turnover less than prescribed limit
Note that once a taxable person is registered under GST Act, he is bound to pay GST, even if
his turnover is below prescribed limit (of Rs. 20/10 lakhs).
He is required to pay GST even if he voluntarily registered under GST.
He is also liable to pay GST under reverse charge, wherever reverse charge is applicable.
Once he is registered, he is required to file returns in time. Eve filing of Nil return is
mandatory.
Of course, he can avail GST composition scheme, if he is otherwise eligible.
36.2 Person liable to be registered
As per section 22(1) of CGST Act, every supplier shall be liable to be registered in the State
or Union Territory (other than special category states) from where he makes supply of goods
or services or both, if his aggregate turnover in a financial year exceeds Rs. 20 lakhs.
In case of 'special category states', registration is required if his aggregate turnover in a
financial year exceeds Rs. 10 lakhs - first proviso to section 22(1) of CGST Act [renumbered
vide CGST (Amendment) Act, 2018, w.e.f. 1-2-2019]
The Government may, at the request of a special category State and on the
recommendations of the Council, enhance the aggregate turnover referred to in the first
proviso from ten lakh rupees to such amount, not exceeding twenty lakh rupees and subject
to such conditions and limitations, as may be so notified - second proviso to section 22(1) of
CGST Act inserted vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019.
[This proviso has been added as some special category States have requested GST Council
to increase the exemption limit to Rs 20 lakhs].
Special Category States means States as specified in Article 279A(4)(g) of Constitution of
India other than J&K, Arunachal Pradesh, Assam, Himachal Pradesh, Meghalaya, Sikkim and
Uttarakhand - Explanation (iii) to section 22 of CGST Act as amended on 1-2-2019.
The States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya,
Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand actually fall under
Special Category States i.e. States as specified in Article 279A(4)(g) of Constitution of India.
However, States of Arunachal Pradesh, Assam, Himachal Pradesh, Meghalaya, Sikkim and
Uttarakhand have been excluded as they want the exemption limit of Rs. 20 lakhs.
 687

For Jammu and Kashmir, the limit was Rs 20 lakhs and continues to be Rs 20 lakhs even after
1-2-2019.
Anomaly in provision, now corrected - In many States, exemption limit for GST has been
increased from Rs. 20 lakhs to Rs. 40 lakhs w.e.f. 1-4-2019. However, provision relating to
registration as contained in section 22(1) of CGST Act has not been changed. Thus,
technically, registration is required if turnover exceeds Rs. 20 lakhs and once registered,
payment of GST is mandatory. Thus, exemption limit of Rs. 40 lakhs becomes meaningless.
The anomaly has been corrected (though belatedly) by adding third proviso to section 22(1)
of CGST Act vide Finance (No. 2) Act, 2019 with effect from 1-1-2020.
The limit of aggregate turnover can be increased to Rs. 40 lakhs for suppliers exclusively
engaged in supply of goods - The Government may, at the request of a State and on the
recommendations of the Council, enhance the aggregate turnover from twenty lakh rupees
to such amount not exceeding forty lakh rupees in case of supplier who is engaged
exclusively in the supply of goods, subject to such conditions and limitations, as may be
notified - third proviso to section 22(1) of CGST Act, inserted vide Finance (No. 2) Act, 2019
with effect from 1-1-2020.
For the purposes of the section 22(1), a person shall be considered to be engaged exclusively
in the supply of goods even if he is engaged in exempt supply of services provided by way of
extending deposits, loans or advances in so far as the consideration is represented by way
of interest or discount - explanation to section 22(1) of CGST Act, inserted vide Finance (No.
2) Act, 2019 with effect from 1-1-2020.
Calculation of exemption of 40 lakhs will be excluding interest on deposits, loans and
advances - The small taxable persons with aggregate turnover upto 40 lakhs are not
required to register under CGST Act. Now, it is provided that calculation of exemption of 40
lakhs will be excluding interest on deposits, loans and advances - explanation to section 22(1)
of CGST Act.
However, this exclusion is not available while calculating exemption limit of Rs. 10/20 lakhs
[anomaly in drafting which needs rectification]
Aggregate turnover - For purpose of section 22 of CGST Act, the expression "aggregate
turnover" shall include all supplies made by the taxable person, whether on his own account
or made on behalf of all his principals - Explanation (i) to section 22 of CGST Act.
The term 'principal' [defined in section 2(88) of CGST Act] applies to clearances made by C&F
Agent on behalf of Principal. It does not apply to clearances made by job worker.
In case of job work, value of material will be included in aggregate turnover of principal
and not of job worker - The supply of goods, after completion of job-work, by a registered
job-worker shall be treated as the supply of goods by the principal referred to in section 143,
and the value of such goods shall not be included in the aggregate turnover of the registered
job worker - Explanation (ii) to section 22 of CGST Act.
36.2-1 Registration is State/UT Specific, outside the State/UT the person is 'unregistered'
Registration under SGST Act or UTGST Act is obviously State/Union Territory specific. Since
registration is common both for SGST/UTGST and CGST, as a natural corollary, registration
under CGST Act can also be said to be State/Union Territory specific.
 688

Though the CGST Act specifically does not say so, section 22 of CGST Act requires a person
to get registered 'in the State or Union Territory' from where he makes a supply. Section 25
of CGST Act also states that a person shall apply for registration in the State or Union
Territory.
If supply is made from different States or Union Territories, separate registration is required.
As per departmental clarification, SGST and CGST credit for a State can be utilized for
payment of their respective CGST/SGST liabilities within the State for same GSTIN only - S
Nos. 40 and 41 of Tweet FAQ released by CBE&C on 26-6-2017 and FAQ No. 50 issued by
CBE&C on 20-7-2017.
Thus, it can be stated that a person registered in one State is 'unregistered person' outside
the State.
36.2-2 Registration only 'from where taxable supply is made' i.e. where he has 'fixed
establishment' and not 'where taxable supply is made'
Registration is required at a place 'from where supply' is made and not 'where supply is
made'.
There is conception that if service is provided in different States, GST registration is required
in each State [either regular or casual registration]. This is not the intention at all.
Section 2(15) of IGST Act defines 'location of supplier of service' as follows -"Location of
supplier of service" means -(a) where a supply is made from a place of business for which
registration has been obtained, the location of such place of business (b) where a supply is
made from a place other than the place of business for which registration has been obtained
(i.e. fixed establishment elsewhere), the location of such fixed establishment (c) where a
supply is made from more than one establishment, whether the place of business or fixed
establishment, the location of the establishment most directly concerned with the provision
of the supply and (d) in absence of such places, the location of the usual place of residence
of the supplier.
This definition talks only of 'fixed establishment'. A temporary place cannot be 'location of
supplier of service'.
"Fixed establishment" means a place (other than the registered place of business), which is
characterised by a sufficient degree of permanence and suitable structure in terms of human
and technical resources to supply services, or to receive and use services for its own needs -
section 2(7) of IGST Act and section 2(50) of CGST Act.
Thus, registration in other State is required only at place where supplier of service (or even
goods) has 'fixed establishment'.
In fact, section 7(3) of IGST Act does make provision where location of supplier and place of
supply are in different States. Thus, if place of supply is in different State, the only effect is
that IGST should be charged.
This is true in case of erection and commissioning and construction contracts also. However,
if the contract is huge and if inputs and input services are expected to be received in other
State, it may be advisable to register under GST in that State.
 689

The provision of 'casual registration' are optional and not mandatory. Provision of casual
registration may be useful in case where a taxable person is participating in exhibition in
other State and would like to make sales from that place.
View confirmed by department - This view has been confirmed by department - see S Nos.
11, 23 and 42 of Tweet FAQ released by CBE&C on 26-6-2017.
This view has also been confirmed in Jaimin Engineering (P.) Ltd., In re [2018] 97
taxmann.com 195 (AAR- Rajasthan) and K M Trans Logistics P Ltd. In re [2019] 102
taxmann.com 212 (AAR-Rajasthan).
In T & D Electricals, In re [2020] 116 taxmann.com 390 (AAR - Karn), the applicant was
registered under GST as works contractor and wholesale supplier in Jaipur, Rajasthan. He
was awarded a contract by Shree Cement Ltd., at Karnataka to be executed at Karnataka.
The applicant intended to supply goods or services or both from their principal place of
business i.e. Rajasthan. He did not have any other fixed establishment other than principle
place of business. It was held that there is no requirement for a separate registration in
Karnataka for execution of contract.
In State of Kerala v. Metso Minerals India (P.) Ltd.[2020] 118 taxmann.com 53 (Kerala HC
DB), assessee entered into a contract with a company named KMC for delivery and erection
of a Plant at Kerala and entire materials for plant were sourced from out of Kerala. It was
held that the works contract executed by assessee was an inter-State works contract. State
Government cannot levy tax on transfer of goods [relying on Siemens Ltd. v. State of Kerala
(2001) 122 STC 1 (Ker HC DB).
Illustration given by department - A from MP supplies service to B in Maharashtra. A
outsources the work to C in Maharashtra. In that case, A will charge IGST to B in
Maharashtra. C will charge IGST to A in MP - S No. 61 of Tweet FAQ released by CBE&C on
26-6-2017.
Imported goods landed at port in other State does not require registration in that State -
In Sonkamal Enterprises (P.) Ltd., In re [2018] 100 taxmann.com 213 (AAR - Maharashtra) it
was held that procedure to raise invoice from Mumbai Head Office for imports received at
Haldia Port, Kolkata where applicant-importers do not have any separate GST Registration
in State of West Bengal and Charge IGST from Mumbai to their Customers, is correct. For
this transaction, no separate registration in State of West Bengal is required. Since as an
importer place of supply for applicant will be Mumbai, and goods also will be cleared on
name of Mumbai registered address while paying IGST at time of Customs Clearance, it
would follow that they can do further transaction mentioning GSTIN of their Mumbai office.
Hence, they can do transaction on Mumbai Head Office GSTIN and can mention GSTIN of
Mumbai Head Office in E-way Bill and dispatch place as Customs Warehouse, Kolkata.
In Kardex India Storage Solution P Ltd. In re (2020) 81 GST 339 = 116 taxmann.com 865 (AAR-
Karn), goods imported were supplied directly from port to customer. The applicant was
registered in Karnataka but not registered under GST in the State where port was situated.
It was held that applicant need not obtain GST registration at the port where goods were
imported, if he does not have establishment in that State. He can supply goods directly from
port of import to customers located in other States and Union territories by charging IGST.
 690

In Aarel Import Export P Ltd. (2019) 74 GST 662 = 106 taxmann.com 292 (AAR-Maharashtra),
appellant had GST registration in Mumbai and wanted to clear goods from Paradeep Port in
Odisha and customers in Odisha by raising tax invoice from Mumbai HO. It was held that
separate GST registration in Odisha is not required. In e-way bill, GSTIN of Mumbai can be
mentioned.
GST registration not mandatory in each State where taxable person has godown - In
Gandhar Oil Refinery (India) Ltd., In re[2019] 106 taxmann.com 291 (AAR - MAHARASHTRA),
applicant company was engaged in trading activity of non-coking coal and manufacturing
activity of petroleum products and had godowns in various states, from where applicant was
making taxable supply of goods. It was held that location of applicant is Mumbai where it is
registered. Even if applicant has godowns in different states, applicant can clear goods on
basis of invoices issued by Mumbai Head Office/Registered Office on payment of IGST in
State of Maharashtra and they need not take separate registration in other States.
GST registration required in India if branch of foreign entity is providing service in India -
In IZ-Kartex named after P G Korobkov Ltd. In re (2020) 80 GST 466 = 117 taxmann.com 418
(AAR-WB), it was held that GST registration will be required in India if branch of foreign entity
is providing service in India and GST will be payable by branch under forward charge. It is
not import of service by Indian customer.
36.2-3 Registration on transfer of business
Where a business carried on by a taxable person registered under this Act is transferred,
whether on account of succession or otherwise, to another person as a going concern, the
transferee, or the successor, as the case may be, shall be liable to be registered with effect
from the date of such transfer or succession - section 22(3) of CGST Act.
36.2-4 Registration after merger or amalgamation or scheme
In a case of transfer pursuant to sanction of a scheme or an arrangement for amalgamation
or, as the case may be, de-merger of two or more companies by an order of a High Court,
Tribunal or otherwise, the transferee shall be liable to be registered, where required, with
effect from the date on which the Registrar of Companies issues a certificate of
incorporation giving effect to such order of the High Court or Tribunal - section 22(4) of CGST
Act.
Parallel provision has been made in section 87 of CGST Act. Provision for transfer of input
tax credit has been made in section 18(3) of CGST Act.
36.2-5 More than one GST registrations with same address permissible
In Spacelance Office Solutions P Ltd. In re (2019) 108 taxmann.com 234 (AAR-Kerala), the
applicant was engaged in sub-leasing of office spaces as 'co-working spaces'. There were
multiple companies functioning from same address with distinct desk numbers (with co-
working spaces i.e. shared office space). It was held that each company can obtain separate
GST registration with respective desk number (As per this principle, it can be cabin number
also).
36.2-6 Insolvency Professional and Liquidator require GST Registration
Insolvency Professional would require GST Registration, if it is making sale of assets.
 691

Special provisions under GST relating to companies under Insolvency Process - Notification
No.11/2020- CT dated 21-03-2020 (issued under section 148 of CGST Act and amended on
5-5-2020) makes special provisions relating to companies undergoing CIRP under Insolvency
and Bankruptcy Code, 2016.
Liquidator selling assets requires GST Registration - In Mansi Oils and Grains (P.) Ltd., In re
[2020] 117 taxmann.com 446 (AAR-WB), it was held that sale of assets of a corporate debtor
by NCLT appointed liquidator is a supply of goods by said liquidator, who is required to take
registration under section 24 of CGST Act.
36.3 Persons who are not required to register under GST
Following persons are not required to register under GST. Government can grant exemption
to other category of persons on recommendation of GST Council by issuing notification -
section 23(2) of CGST Act.
Since these persons are not required to be registered at all, they are not required to be
registered even where they are liable in respect of certain supplies of goods or services
received by them, where GST is payable under reverse charge by recipient of goods or
services.
36.3-1 Person not liable to pay GST need not register
Any person engaged exclusively in the business of supplying goods or services or both that
are not liable to tax or are wholly exempt from tax under this Act or under IGST Act does not
require registration- section 23(1)(a) of CGST Act.
36.3-2 Agriculturist need not register
An agriculturist, to the extent of supply of produce out of cultivation of land does not require
registration- section 23(1)(b) of CGST Act.
"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 - section 2(7) of CGST Act.
Thus, definition of 'agriculturist' is restrictive. Only those who are directly engaged in
cultivation of land are eligible for the exemption.
36.3-3 Persons providing services where service recipient is liable to pay GST under reverse
charge need not register under GST
Persons who are making supplies of taxable goods or services or both, where total tax is
payable on recipient of goods or services are exempt from registration under GST Act -
Notification No. 5/2017-CT dated 19-6-2017 - FAQ on GST Chapter 3 Q No. 7 issued by CBI&C
on 15-12-2018.
36.3-4 Person supplying handicrafts having turnover less that 20/10 lakhs but making
inter-state supplies
Persons engaged in supply of handicraft goods making inter-state supply are exempt from
registration, if the aggregate value of all their supplies on all India basis is less than Rs 20
lakhs/10 lakhs per annum.
 692

They are required to have income tax PAN and are required to generate e-way bill -
Notification No. 3/2018-IT dated 22-10-2018 [earlier No. 8/2017-IT dated 14-9-2017].
They are also not required to obtain casual registration if they supply goods outside the State
where they are having their fixed establishment - Notification No. 32/2017-CT dated 15-9-
2017.
E-way bill even if value of consignment is much below Rs 50,000 - e-way bill should be
generated irrespective of value of consignment i.e. even if value of consignment is below Rs
50,000 in case handicraft goods transported inter-state under exemption if turnover of
person below 20/10 lakhs and enjoying exemption under Notification No. 32/2017-CT dated
15-9-2017 - second proviso to rule 138(1) of CGST Rules inserted w.e.f. 15-9-2017.
It is really too much for such small persons selling handicrafts inter-state, to know,
understand and follow these procedures.
36.3-5 Job worker with turnover less than 20/10 lakhs exempt from registration, even if
they make inter-state supplies to registered person
A job worker with turnover less than 20/10 lakhs is exempt from registration, even if he
makes inter-State supplies to registered person. This exemption is not available to Jewellery,
goldsmiths' and silversmiths' wares and other articles (Chapter 71) manufactured on job
work basis - Notification No. 7/2017-IT dated 14-9-2017 as amended on 29-1-2019 [the
amendment is only a correction. No change in provision].
36.3-6 Person making inter-state supply of taxable services not required to register if
aggregate turnover less than Rs 20/10 lakhs
The exemption of 20/10 lakhs is not available if a person makes inter-state supplies of goods.
However, in case of services, the exemption is available even if a person makes inter-state
supply of services. Thus, if aggregate turnover of supplier of service, including inter-state
supplies is less than Rs 20/10 lakhs, he is not required to register under GST under section
23(2) of CGST Act and hence there is no tax liability - Notification No. 10/2017-IT dated 13-
10-2017.
36.3-7 Persons supplying services through e-commerce operator not required to register
if aggregate turnover less than Rs 20/10 lakhs
Persons who are suppliers of service and supplying services through e-commerce operator
are not required to register under GST if their aggregate turnover is less than Rs 20 lakhs per
annum (Rs 10 lakhs in case of specified States) - Notification No. 65/2017-CT dated 15-11-
2017.
This relaxation is not applicable to supplier of goods.
36.4 Persons requiring registration without threshold limit of 20/10 lakhs
The following categories of persons shall be required to be registered under this Act (except
those exempted under section 23 of CGST Act), even if their aggregate turnover is below
specified exemption limit and are exempt from registration under section 22(1) - section
24(1) of CGST and SGST Act.
 693

(i) persons making any inter-State taxable supply of goods [In case of supply of services,
person making inter-state supply of services is not required to register if his aggregate
turnover is less than Rs 20/10 lakhs] - Notification No. 10/2017-IT dated 13-10-2017.
(ii) casual taxable persons making taxable supply.
(iii) persons who are required to pay tax under reverse charge.
(iv) persons who are required to pay tax under section 9(5) [electronic commerce
operators]
(v) non-resident taxable persons making taxable supply.
(vi) persons who are required to deduct tax under section 51 (TDS), whether or not
separately registered under the CGST/SGST Act [Thus, separate registration is
required for TDS purposes]
(vii) persons who supply goods or services or both on behalf of other taxable persons
whether as an agent or otherwise.
(viii) input service distributor whether or not separately registered under the CGST/SGST
Act [Thus, separate registration is required for ISD purposes]
(ix) persons who supply goods or services or both, other than supplies specified under
section 9(5), through such electronic commerce operator who is required to collect
tax under section 52 [Under section 9(5) of CGST Act, Government can notify e-
commerce operators who will be liable to pay entire GST]
However, persons who are suppliers of service and supplying services through e-
commerce operator are not required to register under GST if their aggregate turnover
is less than Rs 20 lakhs per annum (Rs 10 lakhs in case of specified States) -
Notification No. 65/2017-CT dated 15-11-2017. This relaxation is not applicable to
supplier of goods.
(x) every electronic commerce operator who is required to collect tax at source under
section 52 [The words in italics inserted vide CGST (Amendment) Act, 2018 w.e.f. 1-
2-2019]. Thus, an e-commerce operator would require registration only when he is
required to collect tax at source under section 52 of CGST Act.
(xi) every person supplying online information and database access or retrieval services
(OIDAR) from a place outside India to a person in India, other than a registered
taxable person [Thus, if a person is already registered under GST, separate
registration is not required] and
(xii) such other person or class of persons as may be notified by the Central Government
or a State Government on the recommendations of the GST Council.

36.4-1 Provision of compulsory registration does not apply to persons not required to be
registered as per section 23
 694

Section 24(1) of CGST and SGST Act is not applicable to persons who are not liable for
registration under section 23 of CGST and SGST Act. Thus, following need not register even
if they fall under any of category specified in section 24(1) - (a) persons who are supplying
goods or services which are not liable to tax or (b) wholly exempt from tax or (c) agriculturist
or (d) person supplying goods or services where service recipient is liable to pay tax.
However, if he is liable under reverse charge, registration under GST will be required.
Section 24 of CGST Act is not subject to section 23 of CGST Act. Hence, person dealing only
in exempted products is not required to be registered under GST, if he is not liable under
reverse charge - Sonka Publications (India) (P.) Ltd. Advance Ruling No. 05/DAAR/2018 dated
6-4-2018 (AAR-Delhi) * Joint Plant Committee, In re [2018] 92 taxmann.com 208 (AAR - Kol.).
Person engaged exclusively in manufacture of exempted product (animal feeds), receiving
GTA service which is under reverse charge would require registration under CGST Act in
order to discharge his duty liability under reverse charge - Jalaram Feeds, In re [2019] 106
taxmann.com 241 (AAR - MAHARASHTRA).
36.4-2 Commission Agent is not required to register if his receipts of commission are less
than Rs 20/10 lakhs per annum
Persons who supply goods or services or both on behalf of other taxable persons whether
as an agent or otherwise require registration under GST even if his turnover is below Rs
20/10 lakhs per annum- section 24(1)(vii) of CGST Act.
There was misunderstanding that all commission agents require mandatory registration
under GST irrespective of his commission income (i.e. even if income from commission is
below 20/10 lakhs per annum).
Now it has been clarified that such registration is required only by C&F agents who stock and
sale goods on behalf of Principal. Registration is not required by ordinarily commission
agents who do not deal in goods or services themselves, if their annual turnover is less than
Rs 20/10 lakhs - CBI&C Circular No. 57/31/2018-GST dated 4-9-2018.
36.5 Requirements and procedure for registration
Every person who is liable to be registered under section 22 or 24 shall apply for registration
in every such State in which he is so liable within thirty days from the date on which he
becomes liable to registration, in such manner and subject to such conditions as may be
prescribed - section 25(1) of CGST Act.
A casual taxable person or a non-resident taxable person shall apply for registration at least
five days prior to the commencement of business - proviso to section 25(1) of CGST Act.
He must have income tax PAN - section 25(6) of CGST Act.
Person supplying goods or services from territorial waters - Every person who makes a
supply from the territorial waters of India shall obtain registration in the coastal State or
Union territory where the nearest point of the appropriate base line is located - explanation
to section 25(1) of CGST Act.
Area upto 12 nautical miles belong to State/Union Territory at least as far as GST is
concerned - section 9 of IGST Act.
36.5-1 Application for registration
 695

Every person applying for registration shall, before applying for registration, declare his
Permanent Account Number, mobile number, e-mail address, State or Union territory in Part
A of FORM GST REG-01 on the common portal - rule 8(1) of CGST Rules.
This provision applies to persons liable to be registered under section 22 or 24 or who
intends to obtain voluntary registration under section 25(3) of CGST and SGST Act.
Such application is not required for - (a) a person required to deduct tax at source under
section 51 (b) a person required to collect tax at source under section 52 and (c) a person
supplying OIDAR services from a place outside India to a non-taxable online recipient
referred to in section 14 of the IGST Act. - - For them, different provisions have been made.
SEZ Unit or SEZ Developer are required to register separately under GST - A person having
a unit, as defined in the Special Economic Zones Act, 2005, in a Special Economic Zone or
being a Special Economic Zone developer shall have to apply for a separate registration, as
distinct from his place of business located outside the Special Economic Zone in the same
State or Union territory - second proviso to section 25(1) of CGST Act, inserted vide CGST
(Amendment) Act, 2018 w.e.f. 1-2-2019.
Even earlier, this was provided in Rule and FAQ as follows - SEZ is a separate business vertical
and requires separate GST registration under section 25 of CGST Act - first proviso to rule
8(1) of CGST Rules, 2017 and FAQ No. 6 of FAQ on Drugs and Pharmaceuticals issued by
Directorate General of Taxpayer Services on 31-7-2017.
Registration as Input Service Distributor - Input Service Distributor shall make a separate
application for registration as such Input Service Distributor - proviso to rule 8(1) of CGST
Rules, 2017 [This was second proviso upto 1-2-2019]
Multiple ISD Registrations - A person can have multiple ISD registrations at different offices
- FAQ on GST Chapter 3 Q No. 32 issued by CBI&C on 15-12-2018.
36.5-2 Validation of details and temporary number
The PAN shall be validated online by the Common Portal from the database maintained by
CBDT. The mobile number declared shall be verified through a one-time password sent to
the said mobile number. The e-mail address declared shall be verified through a separate
one time password sent to the said e-mail address - Rule 8(2) of CGST Rules.
On successful verification of the PAN, mobile number and e-mail address, a temporary
reference number shall be generated and communicated to the applicant on his mobile
number and e-mail address.
Provision in respect of casual taxable person - A person applying for registration as a casual
taxable person shall be given a temporary reference number by the Common Portal for
making advance deposit of tax in accordance with the provisions of section 27 of CGST and
SGST Act. The acknowledgement under rule 8(5) shall be issued electronically only after the
deposit of amount in the electronic cash ledger.- Rule 8(6) of CGST Rules.
Submission of application after verification of mobile and e-mail address - Using the
reference number generated as above, the applicant shall electronically submit an
application in Part B of form GST REG-01, duly signed or verified through Electronic
Verification Code (EVC - Aadhaar based), along with documents specified in that Form at the
Common Portal - rule 8(4) of CGST Rules.
 696

On receipt of an application, an acknowledgement shall be issued electronically to the

applicant in form GST REG-02- Rule 8(5) of CGST Rules.
36.5-3 Authentication of Registration in GST will be Aadhaar number based
Fresh Registration under GST will be Aadhaar number based. The authentication will be on
basis of Aadhaar number, as prescribed - section 25(6B) of CGST Act inserted vide Finance
(No. 2) Act, 2019 w.e.f 1-1-2020.
Where an applicant, other than a person notified under section 25(6D) of CGST Act, opts for
authentication of Aadhaar number, he shall, while submitting the application under rule
8(4), with effect from 21-8-2020, undergo authentication of Aadhaar number and the date
of submission of the application in such cases shall be the date of authentication of the
Aadhaar number, or fifteen days from the submission of the application in Part B of FORM
GST REG-01 rule 8(4), whichever is earlier - Rule 8(4A) of CGST Rules, 2020, substituted w.e.f.
21-8-2020.
Existing registered persons will also have to get verified through Aadhaar number or other
method, within specified time - section 25(6A) of CGST Act inserted vide Finance (No. 2) Act,
2019 w.e.f 1-1-2020.
If not done, registration will be cancelled.
In case of partnership firm, company, trust, HUF, AOP or BOI, the authentication will be by
verification of Aadhaar number of partner, director, trustee, authorised representative,
managing committee member or Karta of HUF - section 25(6C) of CGST Act inserted vide
Finance (No. 2) Act, 2019 w.e.f 1-1-2020.
If an individual, partner, director, Karta of HUF, authorised representative or member of
managing committee does not have Aadhaar, verification will be by other method in manner
as may be specified.
Government can exempt a person or class of persons or any State or Union Territory or part
thereof, on recommendation of GST Council - section 25(6D) of CGST Act inserted vide
Finance (No. 2) Act, 2019 w.e.f 1-1-2020.
Persons who will undergo authentication through verification of Aadhaar - Following
persons will undergo authentication of verification of Aadhaar.
(a) authorised signatory of all types
(b) Managing and Authorised partners of a partnership firm; and
(c) Karta of an Hindu undivided family.
(d) Individuals

If Aadhaar number is not assigned to the said persons, they shall be offered alternate and
viable means of identification in the manner specified in rule 9 of the said rules - Notification
Nos. 18/2020-CT and 19/2020-CT dated 23-3-2020, effective from 1-4-2020.
A person who is not citizen of India is exempted from these provisions. Similarly, the
provisions regarding authentication through Aadhaar will not apply to persons other than
 697

individuals, Managing Partners, Karta of HUF and authorised persons - - Notification Nos.
17/2020-CT and 19/2020-CT both dated 23-3-2020, effective from 1-4-2020.
Thus, if registered person is body corporate, that registration person need not get
authenticated through Aadhaar. However, all its authorised signatories will have to get
authenticated through Aadhaar.
Non-applicability of provisions relating to Aadhaar Authentication - Provisions of section
25(6B) of CGST Act (Aadhaar Authentication by every registered person) or section 25(6C) of
CGST Act (Aadhaar authentication by individual) shall not apply to a person who is - (a) not
a citizen of India; or (b) a Department or establishment of the Central Government or State
Government; or (c) a local authority; or (d) a statutory body; or (e) a Public Sector
Undertaking; or (f) a person applying for registration under the provisions of section 25(9)
of the said Act [UN Agency etc. applying for UIN] - Notification No. 03/2021-CT dated 23-2-
2021.
Procedure for Aadhaar verification - Once registration application is submitted, an
authentication link will be shared on GST registered mobile numbers and email ids
mentioned in the GST application. On clicking the verification link, a window for Aadhaar
Authentication will open where they have enter Aadhaar Number and the OTP received by
them on the mobile number linked with Aadhaar. Taxpayer need to complete Aadhaar
authentication of all Promoters/Partners/Authorized Signatories/Karta etc. as mentioned in
the application to avail this option. Applicant can access the link again for authentication by
navigating to My Saved Applications >Aadhaar Authentication Status > RESEND
VERIFICATION LINK. Persons already registered on GST portal are not required to undergo
Aadhaar authentication at this stage. Persons who are not resident/citizen of India are
exempted from the Aadhaar authentication process Source:
https://www.gst.gov.in/newsandupdates/read/394 dated 21-8-2020.
Proposal to get biometric based authentication with photograph at facilitation centre -
Every application made under rule 8(4) of CGST Rules, shall be followed by verification of the
applicant where the applicant is an individual or of such individuals in relation to the
applicant as notified under section 25(6C) of CGST Act where the applicant is not an
individual, along with the verification of the original copy of the documents uploaded with
the application in form GST REG-01 at one of the Facilitation Centres notified by the
Commissioner for the purpose of rule 8(4A) and the application shall be deemed to be
complete only after completion of the process laid down under rule 8(4A) - (a) biometric-
based Aadhaar authentication and taking photograph, unless exempted under section
25(6D), if he has opted for authentication of Aadhaar number; or (b) taking biometric
information, photograph and verification of such other KYC documents, as notified, unless
the applicant is exempted under section 25(6D) of CGST Act, if he has opted not to get
Aadhaar authentication done, - - - Rule 8(4A) of CGST Rules as amended on 22-12-2020, to
be effective from date to be notified.
The biometric based Aadhaar authentication and Photograph is required to be at facilitation
centre only.
36.5-4 Documents to be attached to application
 698

Following documents are to be scanned and attached -

Photographs of proprietor, partner, Trustees, CEO, MD/WTD, Karta

Constitution of business - partnership deed or registration certificate

Proof of address of Principal Place of Business - ownership details, rent/lease
agreement, electricity bill, property tax receipt
Bank account related proof, scanned copy of cancelled cheque
Authorisation in prescribed form [as given in form GST REG-01].

Department can ask for other relevant documents - In State of Kerala v. West Bengal Lottery
Stockists Syndicate P Ltd. (2019) 75 GST 452 (Ker HC DB), it was held that department can
ask for additional relevant documents but not irrelevant documents [In this case,
department asked for details relating to statutory provisions relating to lottery business. It
was held that these details are not relevant]. Earlier, in State of Kerala v. West Bengal Lottery
Stockists Syndicate P Ltd. (2019) 108 taxmann.com 386 (Ker HC), it was held that any other
document, other than prescribed, cannot be asked by the tax officer, though he can seek
additional information w.r.t. registration [In this case, the tax officer asked for documents
to prove that the assessee was authorised to deal in lottery services, Acts applicable to
lottery business and rejected application for registration even before receiving reply].
36.5-5 Verification of the application and premises
The application shall be forwarded to the proper officer who shall examine the application
and the accompanying documents. If the same are found to be in order, approve the grant
of registration to the applicant within seven working days from the date of submission of
application - Rule 9(1) of CGST Rules, 2017 [The period was three days upto 22-12-2020].
Superintendent of Central Tax has been specified as 'proper officer' for all purposes of rule
9 - CBI&C circular No. 1/1/2017 dated 26-6-2017.
Physical verification of principal place of business, if Aadhaar verification not done or if
proper office orders physical verification - If (a) a person, other than a person notified under
section 25(6D) of CGST Act, fails to undergo authentication of Aadhaar number as specified
in rule 8(4A) or does not opt for authentication of Aadhaar number (b) the proper officer,
with approval of an officer authorised by the Commissioner not below rank of Assistant
Commissioner, deems it fit to carry out physical verification in the presence of said person,
the registration shall be granted within 30 days of submission of application after physical
verification of the place of business in the presence of the said person, in the manner
provided under rule 25 of CGST Rules and verification of such documents as the proper
officer may deem fit- proviso to Rule 9(1) of CGST Rules, as substituted w.e.f. 22-12-2020
Seeking clarification if application deficient - If the application is found to be deficient, or
where the proper officer requires any clarification with regard to any information provided
in the application or documents, he may issue a notice to the applicant electronically in form
GST REG-03 within seven working days from the date of submission of application. The
applicant shall furnish such clarification, information or documents sought electronically, in
form GST REG-04, within seven working days from the date of receipt of such notice. The
 699

clarification includes modification or correction of particulars declared in the application for

registration [but not PAN, State, mobile number and e-mail address declared in Part A of
form GST REG-01] - Rule 9(2) of CGST Rules, 2017 as amended on 22-12-2020 [earlier, the
period was three days].
Notice in GST REG-03 for physical verification within 30 days if Aadhaar Authentication not
done or if physical verification deemed fit - A notice in form GST REG-03 may be issued not
later than thirty days from the date of submission of the application for , if (a) a person,
other than a person notified under section 25(6D), fails to undergo authentication of
Aadhaar number as specified in rule 8(4A) or does not opt for authentication of Aadhaar
number or (b) the proper officer, with the approval of an officer authorised by the
Commissioner not below the rank of Assistant Commissioner, deems it fit to carry out
physical verification of places of business - - proviso to explanation to rule 9(2) of CGST Rules,
substituted w.e.f. 22-12-2020.
Grant of registration within seven days if all documents in order - If the proper officer is
satisfied with the clarification, information or documents furnished by the applicant, he may
approve the grant of registration to the applicant within seven working days from the date
of receipt of such clarification or information or documents - Rule 9(3) of CGST Rules, 2017.
Rejection of application for registration if details not satisfied - If no reply is furnished by
the applicant or where the proper officer is not satisfied with the clarification, information
or documents furnished, he may, for reasons to be recorded in writing, reject application for
registration under GST and inform the applicant electronically in form GST REG-05 - Rule 9(4)
of CGST Rules, 2017 [The word 'shall' replaced by 'may' w.e.f. 21-8-2020]
Application for revocation of cancellation if registration was cancelled and not to apply for
fresh registration - If registration is cancelled under section 29 of CGST Act read with rule
21 of CGST Rules, but if person is continuing to carry on business, he should apply for
revocation of cancellation of registration under section 30 of CGST Act read with rule 23 of
CGST Rules. He should not apply for fresh registration under GST Act, as he may be having
tax liability under earlier cancelled registration. If he applies for fresh registration under GST
Act, the proper officer shall verify reasons for cancellation of earlier registration. If proper
justification is not given for fresh registration, the application for fresh registration shall be
considered for rejection - CBI&C circular No. 95/14/2019-GST dated 28-3-2019.
Deemed registration if no action within prescribed period - As per Rule 9(5) of CGST Rules,
as substituted w.e.f. 22-12-2020, in following cases, the application for grant of registration
shall be deemed to have been approved, if the proper officer fails to take any action -
(a) within a period of seven working days from the date of submission of the application
in cases where the person is not covered under proviso to-rule 8(1); or
(b) within a period of thirty days from the date of submission of the application in cases
where a person is covered under proviso to rule 8(1); or
(c) within a period of seven working days from the date of the receipt of the clarification,
information or documents furnished by the applicant under rule 8(2).

36.5-6 Issue of registration certificate and GSTIN

 700

If the application for grant of registration has been approved under rule 9, a certificate of
registration in form GST REG-06 showing the principal place of business and additional
place(s) of business shall be made available to the applicant on the Common Portal.
Certificate shall be signed by Superintendent of Central Tax as he is 'proper officer' for
purpose of rule 9 - CBE&C circular No. 1/1/2017, dated 26-6-2017.
GSTIN number - Goods and Services Tax Identification Number ("GSTIN") shall be assigned
in the following format - (a) two characters for the State code (b) ten characters for the PAN
or the Tax Deduction and Collection Account Number (c) two characters for the entity code;
and(d) one checksum character - Rule 10(1) of CGST Rules, 2017.
Effective date of registration - The registration shall be effective from the date on which
the person becomes liable to registration where the application for registration has been
submitted within thirty days from such date - Rule 10(2) of CGST Rules, 2017. Thus,
retrospective effect is given.
However, if application for registration was submitted by the applicant after the expiry of
thirty days from the date of his becoming liable to registration, the effective date of
registration shall be the date of the grant of registration - Rule 10(3) of CGST Rules, 2017.
Thus, only prospective effect is given.
Revised Invoice for the period between date of commencement of business and date of
registration - If application for GST registration is made within 30 days from the date the
person was liable to pay GST, he can issue revised invoices for GST for period prior to
registration. The provisions are contained in Rule 53(2) of CGST and SGST Rules, 2017.
Signature on registration certificate by proper officer - Every certificate of registration shall
be duly signed or verified through electronic verification code (EVC), by the proper officer
under the Act - Rule 10(4) of CGST Rules, 2017.
Superintendent of Central Tax has been specified as 'proper officer' for this purpose - CBE&C
circular No. 1/1/2017, dated 26-6-2017.
Issue of registration certificate in case of deemed registration - Where the registration has
been granted under rule 9(5) [deemed registration], the applicant shall be communicated
the registration number. The certificate of registration under rule 10(1), duly signed or
verified, shall be made available to him on the common portal within three days after expiry
of the period specified in rule 9(5) - Rule 10(5) of CGST Rules, 2017.
36.5-7 State code and TIN number of each State
State Name TIN number - First State
two digits Code

Andaman and Nicobar Islands 35 AN

Andhra Pradesh (old 28) - AP

Andhra Pradesh (New) 37 AD

Arunachal Pradesh 12 AR

Assam 18 AS
 701

Bihar 10 BH

Chandigarh 04 CH

Chhattisgarh 22 CT

Dadra and Nagar Haveli 26 DN

Daman and Diu [Code was 25 upto 1-8-2020. Now, it is merged - DD

with Dadra and Nagar Haveli]
Delhi 07 DL

Goa 30 GA

Gujarat 24 GJ

Haryana 06 HR

Himachal Pradesh 02 HP

Jammu and Kashmir 01 JK

Jharkhand 20 JH

Karnataka 29 KA

Kerala 32 KL

Lakshadweep Islands 31 LD

Madhya Pradesh 23 MP

Maharashtra 27 MH

Manipur 14 MN

Meghalaya 17 ME

Mizoram 15 MI

Nagaland 13 NL

Odisha 21 OD

Pondicherry 34 PY

Punjab 03 PB

Rajasthan 08 RJ

Sikkim 11 SK

Tamil Nadu 33 TN

Telangana 36 TE
 702

Tripura 16 TR

Uttar Pradesh 09 UP

Uttarakhand 05 UT

West Bengal 19 WB

36.5-8 Physical verification of business premises in certain cases

If the proper officer is satisfied that the physical verification of the place of business of a
registered person is required due to failure of Aadhaar Registration or due to not opting for
Aadhaar authentication before the grant of GST Registration, or due to any other reason
after grant of registration, he may get such verification done. The verification report along
with other documents, including photographs, shall be uploaded in form GST REG-30 on the
Common Portal within fifteen working days following the date of verification - Rule 25 of
CGST Rules, 2017 [words in italics inserted w.e.f. 1-4-2020. Words in bold and italics inserted
w.e.f. 21-8-2020].
Assistant/Deputy Commissioner/Director of Central Tax has been specified as 'proper
officer' for this purpose - CBE&C circular No. 1/1/2017, dated 26-6-2017.
36.5-9 Display of registration certificate and GSTIN on the name board
Every registered person shall display his certificate of registration in a prominent location at
his principal place of business and at every additional place or places of business.
Every registered person shall display his GSTIN on the name board exhibited at the entry of
his principal place of business and at every additional place or places of business - Rule 18
of CGST Rules, 2017.
36.5-10 Furnishing of Bank Account Details within 45 days from registration under GST
Within 45 days of obtaining GST REG-06 on common portal and GSTIN, the registered person
shall furnish details of bank account and other details as may be required. Those registered
under rule 12 [person required to deduct or collect tax at source - TDS or TCS] or rule 14
[OIDAR services] are not required to submit these details - rule 10A of CGST Rules, as
inserted w.e.f. 28-6-2019.
It seems some form may be made available on GST portal.
Registration can be cancelled if the details of bank account are not furnished - Rule 21(d) of
CGST Rules inserted w.e.f. 28-6-2019.
36.5-11 Aadhaar or E-KYC verification for existing taxpayers
Department has issued FAQ on 11-1-2021, clarifying provisions relating to Aadhaar or E-KYC
authentication for existing persons registered under GST. The highlights are as follows.
Who is required to get Aadhaar/E-KYC authenticated? - All existing registered taxpayers
(including casual, ISD, SEZ, and composition taxpayers) require Aadhaar/E-KYC
authentication. Depending on constitution of registered person (a) one proprietor/partner
(in case of firm or LLP)/director (in case of company)/Karta (in case of HUF)/Authorised
person in charge of India (in case of foreign company/Member of Managing Committee (in
 703

case of society, trust, club, AOP and (b) PAS (Primary Authorised Signatory) would require
authentication.
Single authorises signatory possible - If proprietor/partner/director/Karta/Member of
Managing Committee and PAS is the same person, only one person needs authentication.
You can select one Promoter/Partner/director from the list displayed on selecting the option
of SEND AADHAAR AUTHENTICATION LINK tab on the Aadhaar Authentication Status page.
Primary Authorized Signatory for Aadhaar Authentication will be auto-selected every time.
If both are same, the single person will be in the table and will be auto selected and non-
editable. The Taxpayer is not expected to make any changes in the selection. And only that
person Aadhaar Authentication will be required.
When Aadhaar/E-KYC authentication is not required? - Following do not required Aadhaar
authentication - (a) Government Department (b) Public Sector Undertaking (c) Local
Authority (d) Statutory Body.
How existing taxpayer can authenticate Aadhaar? - For existing taxpayers, a pop-up
message window is displayed when they log in to GST portal with the question - 'Aadhaar
Authentication facility is available. Would you like to authenticate Aadhaar of
Partner/Promoter and Primary Authorized Signatory?'
Two options are displayed - (a) YES, NAVIGATE TO MY PROFILE and (b) REMIND ME LATER.
- - The taxpayer can click the first option for getting Aadhaar Authentication done.
If pop-up message is closed by you - If pop-up message is closed, you can go to My Profile
page from Dashboard and click the Aadhaar Authentication Status tab under Quick Links
section.
Once you click the SEND VERIFICATION LINK tab, the status gets changed to Pending for
Aadhaar Authentication.
Procedure after you click the SEND AADHAAR AUTHENTICATION LINK - Once you click the
'SEND AADHAAR AUTHENTICATION LINK', an authentication link is shared on GST registered
mobile number and e-mail IDs of the Promoters/Partners and Authorized Signatories. This
link will be valid for 15 days only after which the link gets expired. If the link gets expired,
then the taxpayer can send the Aadhaar Authentication link again.
You must request for an Aadhaar OTP again only after 45 seconds have passed from the
previous request.
Validity of Aadhaar Authentication link - The Aadhaar authentication link received on E-
mail IDs of the Promoters/Partners or Authorized Signatories be valid only for 15 days.
Reminders will be send after 5, 10 and 15 days.
OTP received on registered E-mail ID and Mobile Number is same - The OTP received on
registered mobile number and E-mail ID will be a common/same.
If only one out of two could authenticate - If only one out of two could authenticate, pop
up will be shown again whenever taxpayer will login into the GST Portal if the authentication
is completed successfully for one and failed for another. If taxpayer chooses to send
verification link again, then the link will be sent to E-mail ID and mobile number of the only
person whose authentication has failed.
 704

If 'No' is selected for Aadhaar Authentication - If the Taxpayer selects No for Aadhaar
Authentication, then the E-KYC documents could be uploaded only for PAS and one
promoter/partner which the Taxpayer can select from the list available.
You will receive authentication link on mobile number and e-mails IDs of the selected
Promoters/Partners or Primary Authorized Signatories, as mentioned in the registration
application.
Uploading E-KYC Documents of Partner/Promoter and Primary Authorized Signatory - The
Taxpayer can select any of the following documents for E-KYC - (a) Aadhaar Enrolment
Number (b) Passport (c) EPIC (Voter ID Card) (d) KYC Form (e) Certificate Issued by
Competent authority (f) Others.
The document type should be PDF or JPEG. The maximum size for upload should be 2 MB.
What happens next after a taxpayer has uploaded the EKYC documents - Once taxpayer
has uploaded the documents then an ARN will be generated and it will go to the Tax Official
queue who can either approve or reject the documents.
If Tax Official approves the EKYC document, then taxpayer will be considered as E-KYC
Authenticated and not Aadhaar Authenticated.
If Tax Official rejects the EKYC documents uploaded by the taxpayer, then taxpayer will again
get the same pop up whenever taxpayer will login into the GST Portal from the same day
when the tax official rejected the documents and same procedure will follow.
36.6 Multiple registrations for multiple places of business in a State or Union Territory
Person intending to register under GST must have income tax PAN - section 25(6) of CGST
Act.
Normally, a person should obtain single registration in State, even if he has multiple
factories, godowns or sales offices or branches within a State or Union Territory.
However, a person having multiple places of business in a State or Union territory may be
granted a separate registration for each such place of business, subject to such conditions
as may be prescribed - proviso to section 20(2) of CGST Act as substituted vide CGST
(Amendment) Act, 2018 w.e.f. 1-2-2019.
Further, a person having a unit, as defined in the Special Economic Zones Act, 2005, in a
Special Economic Zone or being a Special Economic Zone developer shall have to apply for a
separate registration, as distinct from his place of business located outside the Special
Economic Zone in the same State or Union territory - second proviso to section 25(1) of CGST
Act, inserted vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019.
If a person obtains separate registration with same PAN number within State or Union
Territory, these will be treated as establishments of distinct persons for the purposes of
CGST Act - section 25(5) of CGST Act.
Thus, they will be treated as separate taxable persons for all purposes of GST, including free
supply, tax invoice, job work, returns, payment of taxes etc.
Provisions regarding multiple business verticals omitted - Earlier provision in respect of
separate registration for different 'business vertical' has been omitted vide CGST
(Amendment) Act, 2018 w.e.f. 1-2-2019.
 705

36.6-1 Multiple registrations for multiple places of business within a State or a Union
territory
Procedure for obtaining multiple registrations for different places within a State or Union
Territory have been specified in rule 11 of CGST Rules, inserted w.e.f. 1-2-2019.
Conditions for obtaining multiple registrations within a State - Any person having multiple
places of business within a State or a Union territory, requiring a separate registration for
any such place of business under section 25(2) of CGST Act shall be granted separate
registration in respect of each such place of business subject to the following conditions,
namely:-
(a) such person has more than one place of business as defined in section 2(85) of CGST
Act.
(b) such person shall not pay tax under section 10 for any of his places of business if he
is paying tax under section 9 for any other place of business.
(c) all separately registered places of business of such person shall pay tax under the Act
on supply of goods or services or both made to another registered place of business
of such person and issue a tax invoice or a bill of supply, as the case may be, for such
supply [Rule 11(1) of CGST Rules, inserted w.e.f. 1-2-2019].

Composition scheme can apply only if all units eligible for composition scheme - For the
purposes of clause (b), it is hereby clarified that where any place of business of a registered
person that has been granted a separate registration becomes ineligible to pay tax under
section 10 (composition scheme), all other registered places of business of the said person
shall become ineligible to pay tax under the said section [Explanation to Rule 11(1) of CGST
Rules, inserted w.e.f. 1-2-2019].
Separate application for each place of registration - A registered person opting to obtain
separate registration for a place of business shall submit a separate application in FORM GST
REG-01 in respect of such place of business [Rule 11(2) of CGST Rules, inserted w.e.f. 1-2-
2019].
Verification of place and grant of registration - The provisions of rule 9 and rule 10 of CGST
Rules relating to the verification and the grant of registration shall, mutatis mutandis, apply
to an application submitted under rule 11 [Rule 11(3) of CGST Rules, inserted w.e.f. 1-2-
2019].
36.6-2 Transfer of ITC on obtaining separate registration for multiple places of business
within a State or Union Territory
A person who is having single registration within State or Union Territory make like to have
multiple registrations within the State. Procedure for the same has been specified in rule
41A of CGST Rules, inserted w.e.f. 1-2-2019, as explained below.
A registered person who has obtained separate registration for multiple places of business
in accordance with the provisions of rule 11 of CGST Rules and who intends to transfer, either
wholly or partly, the unutilised input tax credit lying in his electronic credit ledger to any or
all of the newly registered place of business, shall furnish within a period of thirty days from
 706

obtaining such separate registrations, the details in form GST ITC-02A electronically on the
common portal - Rule 41A(1) of CGST Rules inserted w.e.f. 1-2-2019.
The input tax credit shall be transferred to the newly registered entities in the ratio of the
value of assets held by them at the time of registration - proviso to Rule 41A(1) of CGST Rules
inserted w.e.f. 1-2-2019.
The 'value of assets' means the value of the entire assets of the business whether or not
input tax credit has been availed thereon - Explanation to Rule 41A(1) of CGST Rules inserted
w.e.f. 1-2-2019.
The newly registered person (transferee) shall, on the common portal, accept the details so
furnished by the registered person (transferor) and, upon such acceptance, the unutilised
input tax credit specified in form GST ITC-02A shall be credited to his electronic credit ledger
- Rule 41A(2) of CGST Rules inserted w.e.f. 1-2-2019.
36.7 Voluntary registration
A person, though not liable to be registered under section 22 or 24, may get himself
registered voluntarily, and all provisions of CGST Act, as are applicable to a registered
person, shall apply to such person - section 25(3) of CGST Act.
Once registered, he must pay GST.
He must have income tax PAN - section 25(6) of CGST Act.
Voluntary registration can be cancelled any time - Voluntary registration can be cancelled
any time. [Till 23-1-2018, application for cancellation of voluntary registration could not be
considered before the expiry of one year from the effective date of registration] - proviso to
Rule 20 of CGST Rules, 2017 as existing up to 23-1-2018. This proviso has been omitted w.e.f.
23-1-2018.
Section 29(1)(c) of CGST Act has been amended for this purpose vide Finance Act, 2020,
w.e.f. 1-1-2021.
Tax must be paid once registered even if annual turnover less than Rs. 20 lakhs - Tax must
be paid once voluntary registration is obtained, even if annual turnover is less than Rs 20
lakhs - S No. 18 of Tweet FAQ released by CBE&C on 26-6-2017.
36.8 Registration by person liable to deduct tax at source (TDS) or tax collection at source
Person liable for TDS or TCS requires registration under GST. See later para for procedure for
registration.
36.9 Registration by non-resident taxable person
A non-resident taxable person may be granted registration on the basis of any other
document(other than Income Tax PAN) as may be prescribed- section 25(7) of CGST Act.
36.10 Registration by proper officer suo motu without application
Where a person who is liable to be registered under this Act fails to obtain registration, the
proper officer may, without prejudice to any action that is, or may be taken under this Act,
or under any other law for the time being in force, proceed to register such person in the
manner as may be prescribed - section 25(8) of CGST Act.
36.10-1 Procedure for granting suo motu registration
 707

Where, pursuant to any survey, enquiry, inspection, search or any other proceedings under
the Act, the proper officer finds that a person liable to registration under the Act has failed
to apply for such registration, such officer may register the said person on a temporary basis
and issue an order in form GST REG-12 - Rule 16(1) of CGST Rules, 2017.
The registration granted under rule 16(1) shall be effective from the date of order granting
registration.
Every person to whom a temporary registration has been granted under rule 16(1) shall,
within 90 days from the date of the grant of such registration, submit an application for
registration, unless the said person has filed an appeal against the grant of temporary
registration. If he has filed appeal, the application for registration shall be submitted within
thirty days from the date of issuance of order upholding the liability to registration by the
Appellate Authority - proviso to rule 16(1) of CGST Rules, 2017.
The provisions of rules 9 and 10 relating to verification and issue of certificate of registration
shall, mutatis mutandis, apply to an application submitted under rule 16(3) of CGST Rules.
The GSTIN assigned pursuant to verification shall be effective from the date of order granting
registration under rule 16(1) - Rule 16(5) of CGST Rules, 2017.
Superintendent of Central Tax has been specified as 'proper officer' for purpose of rule 16 -
CBE&C circular No. 1/1/2017, dated 26-6-2017.
36.11 Unique Identity Number (UIN) to UN Agencies, Embassy, Consulates and other
persons without registration
UN Agencies, Embassies, Consulates etc. are entitled to get refund of GST paid by them on
goods and services received by them. However, they do not have to pay GST.
Any specialized agency of the United Nations Organization or any Multilateral Financial
Institution and Organization notified under the United Nations (Privileges and Immunities)
Act, 1947, Consulate or Embassy of foreign countries and any other person or class of
persons as may be notified by the Commissioner shall be granted a Unique Identity Number
in such manner and for such purposes, including refund of taxes on the notified supplies of
goods or services or both received by them, as may be prescribed - section 25(9) of CGST
Act.
36.11-1 Issue or rejection of Registration or UIN within prescribed period
The registration or the Unique Identity Number, shall be granted or rejected after due
verification in the manner and within such period as may be prescribed - section 25(10) of
CGST Act.
Certificate of registration - A certificate of registration shall be issued in the prescribed
form, with effective date as may be prescribed - section 25(11) of CGST Act.
Registration or UIN deemed to have been granted, if not refused within specified period -
A registration or a Unique Identity Number shall be deemed to have been granted after the
period prescribed under section 25(10), if no deficiency has been communicated to the
applicant by the proper officer within that period - section 25(12) of CGST Act.
 708

Registration or UIN under SGST shall be deemed to be registration under CGST also, unless
the application for registration has been rejected under section 25(10) - section 26(1) of
CGST Act.
Rejection of registration under CGST means rejection under SGST also - Any rejection of
application for registration or the Unique Identity Number under the CGST Act/SGST Act
shall be deemed to be a rejection of application for registration under the SGST Act/CGST
Act - section 26(2) of CGST Act.
36.11-2 Procedure for assignment of unique identity number to certain special entities
Every person required to be granted a unique identity number under section 25(9) of CGST
and SGST Act may submit an application, electronically in form GST REG-13 - rule 17(1) of
CGST Rules, 2017.
The proper officer will assign a Unique Identity Number to the said person and issue a
certificate in form GST REG-06 within three working days from the date of submission of
application, or after receiving a recommendation from the Ministry of External Affairs,
Government of India- Rule 17(2) of CGST Rules, 2017.
Thus, the embassies, UN Agencies and Consulates will be granted UIN without applying, on
recommendation of the Ministry of External Affairs, Government of India.
The Unique Identity Number granted under rule 17(1) shall be applicable to territory of India.
Thus, different registration in each State is not required - Rule 17(1A) of CGST Rules, 2017
inserted w.e.f. 29-12-2017.
Superintendent of Central Tax has been specified as 'proper officer' for this purpose - CBE&C
circular No. 1/1/2017, dated 26-6-2017.
36.12 Registration of casual taxable person and non-resident taxable person
"Non-resident taxable person" means any person who occasionally undertakes transactions
involving supply of goods or services or both, whether as principal or agent or in any other
capacity but who has no fixed place of business or residence in India - section 2(77) of CGST
Act.
"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 Union Territory where he has no fixed
place of business - section 2(20) of CGST Act.
A casual taxable person or a non-resident taxable person shall apply for registration at least
five days prior to the commencement of business - proviso to section 25(1) of CGST Act.
The provision of 'casual registration' are optional and not mandatory. Provision of casual
registration may be useful in case where a taxable person is participating in exhibition in
other State and would like to make sales from that place.
Registration for 90 days but can be extended by further 90 days - The certificate of
registration issued to a casual taxable person or a non-resident taxable person shall be valid
for a period specified in the application for registration or ninety days from the effective
date of registration, whichever is earlier. Such person can make taxable supplies only after
issuance of certificate of registration - section 27(1) of CGST Act.
 709

The proper officer may, at the request of the said taxable person, extend the aforesaid
period of ninety days by a further period not exceeding ninety days - proviso to section 27(1)
of CGST Act.
Assistant/Deputy Commissioner/Director of Central Tax has been specified as 'proper
officer' for this purpose - CBE&C circular No. 1/1/2017, dated 26-6-2017.
Normal registration if exhibition likely to go beyond 180 days - If the period of exhibition
is likely to exceed 180 days, normal GST registration should be obtained. Copy of allotment
letter granting him permission to use exhibition premises shall be uploaded. That will be
treated as proper document - CBI&C circular No. 71/45/2018-GST dated 26-10-2018.
Advance deposit of tax at the time of submitting application for registration - A casual
taxable person or a non-resident taxable person shall, at the time of submission of
application for registration under section 25(1) of CGST Act, make an advance deposit of tax
in an amount equivalent to the estimated tax liability of such person for the period for which
the registration is sought - section 27(2) of CGST Act.
The advance deposit should be net tax liability i.e. after allowing ITC available -CBI&C circular
No. 71/45/2018-GST dated 26-10-2018.
Where any extension of time is sought for registration as casual taxable person, such taxable
person shall deposit an additional amount of tax equivalent to the estimated tax liability of
such person for the period for which the extension is sought - proviso to section 27(2) of
CGST Act.
The amount deposited under section 27(2) shall be credited to the electronic cash ledger of
such person and shall be utilized in the manner provided under section 49 - section 27(3) of
CGST Act.
Section 49 of CGST Act makes provision for payment of tax by cash and utilization of input
tax credit and pay tax on self assessment basis.
Submission of returns - Non-resident taxable person has to file electronically monthly return
by 20th of following month or within seven days after last day of registration under section
27(2) of CGST Act, whichever is earlier - section 39(5) of CGST Act.
If there is no transaction in a particular month, he is not required to file return for that month
- section 39(8) of CGST Act.
Time limit for filing return can be extended by Commissioner by issuing notification - section
39(6) of CGST Act.
Refund to casual taxable person or non-resident taxable person only after he files all
returns - The amount of advance tax deposited by a casual taxable person or a non-resident
taxable person under section 27(2) of CGST Act, shall not be refunded unless such person
has, in respect of the entire period for which the certificate of registration granted to him
had remained in force, furnished all the returns required under section 39 of CGST Act -
section 54(13) of CGST Act.
These are overriding provisions.
36.12-1 Grant of registration to non-resident taxable person
 710

A non-resident taxable person shall electronically submit an application, along with a valid
passport, for registration, duly signed, in form GST REG-09, at least five days prior to the
commencement of business - Rule 13(1) of CGST Rules, 2017.
If the business entity is incorporated or established outside India, application shall be
submitted with tax identification number of unique number to establish the identity of the
applicant or his PAN - proviso to rule 13(1) of CGST Rules.
A person applying for registration as a non-resident taxable person shall be given a
temporary reference number by the Common Portal for making an advance deposit of tax
under section 27 of CGST and SGST Act in electronic cash ledger. Acknowledgement of
application under rule 8(5) shall be issued thereafter - rule 13(2) of CGST Rules, 2017.
The provisions of rules 9 and 10 relating to verification and grant of registration shall mutatis
mutandis, apply to an application submitted under this rule - rule 13(3) of CGST Rules, 2017.
Signature of authorized signatory - The application for registration made by a non-resident
taxable person shall be duly signed or verified through electronic verification code (EVC), by
his authorized signatory who shall be a person resident in India having a valid PAN -Rule
13(4) of CGST Rules, 2017.
36.12-2 Extension in period of operation by casual taxable person and non-resident
taxable person
If a registered casual taxable person or a non-resident taxable person intends to extend the
period of registration indicated in his application of registration, he shall submit an
application in form GST REG-11, before the end of the validity of registration granted to him
- Rule 15(1) of CGST Rules, 2017.
The application under rule 15(1) shall be acknowledged only on payment of the amount
specified in section 27(2) of CGST and SGST - Rule 15(2) of CGST Rules, 2017.
36.13 Grant of registration to a person supplying online information and data base access
or retrieval services (OIDAR) from a place outside India to a non-taxable online recipient
Any person supplying online information and data base access or retrieval services from a
place outside India to a non-taxable online recipient shall electronically submit an
application for registration, duly signed, in form GST REG-11 - rule 15(1)of CGST Rules, 2017.
The applicant shall be granted registration, in form GST REG-06, subject to such conditions
and restrictions and by such officer as may be notified - Rule 15(2) of CGST Rules, 2017.
Principal Commissioner of Central Tax, Bengaluru West and all officers subordinate to him
as officers empowered to grant registration in case of OIDAR services provided by person
located in non-taxable territory and received by non-taxable online recipient - Notification
No. 2/2017-IT, dated 19-6-2017.
He will also be authority for the purpose of administration of service suppliers in non-taxable
territory providing cross border OIDAR services provided to 'non-taxable online recipient' in
India.
36.14 Grant of registration to persons required to deduct tax at source or to collect tax at
source
 711

Any person required to deduct tax in accordance with the provisions of section 51 or a
person required to collect tax at source in accordance with the provisions of section 52 shall
electronically submit an application, duly signed or verified through electronic verification
code, in form GST REG-07 for grant of registration - rule 12(1) of CGST Rules.
If electronic commerce operator has suppliers in different States, he is required to obtain
GST Registration in each State. However, he can indicate his head office as place of business,
if he does not have place of business in that State. Thus, all returns can be filed through HO
- Sr Nos 5 to 7 of FAQ released by Law Committee of GST Council on 28-9-2018.
If a person is required to deduct or collect tax at source in accordance with provisions of
section 51 or section 52, in a State or Union Territory where he does not have physical
person, he shall mention name of that State in Part A of application form GST REG-07 and
mention name of State on Union territory where he has principal place of business in part B
in form GST REG 07. This may be different from State/Union Territory specified in part A -
rule 12(1A) of CGST Rules inserted w.e.f. 31-12-2018 and amended on 18-7-2019.
Person required to deduct tax at source can be granted registration even if he does not have
income tax PAN, as per proviso to section 25(6) of CGST Act.
The proper officer may grant registration after due verification and issue a certificate of
registration in form GST REG-06 within a period of three working days from the date of
submission of the application - rule 12(2) of CGST Rules.
The registration can be cancelled after notice, enquiry and hearing. The cancellation shall be
communicated to the said person electronically in form GST REG-08 - rule 12(3) of CGST
Rules.
Superintendent of Central Tax has been specified as 'proper officer' for this purpose - CBE&C
circular No. 1/1/2017, dated 26-6-2017.
TCS provisions are applicable w.e.f. 1-10-2018. Even earlier, they were expected to register
under GST.
36.15 Amendment of registration
Every registered person and a person to whom UIN has been granted shall inform the proper
officer of any changes in the information furnished at the time of registration, or that
furnished subsequently, in the manner and within such period as may be prescribed - section
28(1) of CGST Act.
The proper officer may, on the basis of information furnished under section 28(1) or as
ascertained by him, approve or reject amendments in the registration particulars in the
manner and within such period as may be prescribed. Approval of the proper officer shall
not be required in respect of amendment of such particulars as may be prescribed - section
28(2) of CGST Act.
The proper officer shall not reject the application for amendment in the registration
particulars without giving the person an opportunity of being heard - second proviso to
section 28(2) of CGST Act.
 712

Any rejection or approval of amendments under the CGST Act/SGST Act shall be deemed to
be a rejection or approval of amendments under the SGST Act/CGST Act - section 28(3) of
CGST Act.
Superintendent of Central Tax has been specified as 'proper officer' for this purpose - CBE&C
circular No. 1/1/2017, dated 26-6-2017.
36.15-1 Procedure for Amendment of registration
If there is any change in any of the particulars furnished in the application for registration in
form GST REG-01 or form GST REG-07 or form GST REG-09 or form GST REG-10 or for UID in
form GST REG-13, the registered person shall, within fifteen days of such change, submit an
application, duly signed or verified electronically in form GST REG-14, along with documents
relating to such change - Rule 19(1)(a) of CGST Rules, 2017.
If the change relates to- (i) legal name of business (ii) address of the principal place of
business or any additional place of business; or(iii) addition, deletion or retirement of
partners or directors, Karta, Managing Committee, Board of Trustees, Chief Executive Officer
or equivalent, responsible for day to day affairs of the business-it does not warrant
cancellation of registration under section 29 of CGST Act. It only required amendment to
registration certificate.
In that case, the proper officer shall approve the amendment within fifteen working days
from the date of receipt of application in form GST REG-14 after due verification. He will
issue an order in form GST REG-15 electronically. The amendment shall take effect from the
date of occurrence of the event warranting amendment - proviso to Rule 19(1)(a) of CGST
Rules, 2017. [This should be so even if application is submitted beyond 15 days]
Superintendent of Central Tax has been specified as 'proper officer' for purpose of section
29 and rule 19 - CBE&C circular No. 1/1/2017, dated 26-6-2017.
Opportunity of hearing before cancellation of registration - The proper officer shall not
cancel the registration without the person an opportunity of being heard - first proviso to
section 29(2) of CGST Act [renumbered vide CGST (Amendment) Act, 2018].
During pendency of the proceedings relating to cancellation of registration, the proper
officer may suspend the registration for such period and in such manner as may be
prescribed - second proviso after first proviso to section 29(2) of CGST Act inserted vide CGST
(Amendment) Act, 2018 [This amendment may be notified and may be made effective on or
before 1-1-2019].
Some changes applicable to registrations all over India - The change relating to clauses (i)
and (iii) above, in any State or Union territory shall be applicable for all registrations of the
registered person obtained under these rules on the same PAN - Rule 19(1)(b) of CGST Rules,
2017.
As regards change in address of the principal place of business or any additional place of
business, the change will apply only to place where that registration will be obtained.
Changes other than those specified above - Where the change relates to any particulars
other than those specified in rule 19(1)(b), the certificate of registration shall stand amended
upon submission of the application in form GST REG-14 on the Common Portal - rule 19(1)(c)
of CGST Rules, 2017.
 713

The purpose of this provision is not clear, as any other change does not require amendment
to certificate of registration at all.
Which other changes are required to be submitted? - The GST REG-01 application form
requires various details. Out of these legal name, constitution of business, address of
principal place of business, details of additional place of business, GSTIN number, details of
proprietor, partners, Karta of HUF, MD/WTD, Members of Managing Committee, AOP, Board
of Trustees (with photo) appear in the registration certificate issued in registration
certificate in form GST REG-06.
If there is change in these details, amended registration certificate will have to be issued.
These are core details and will be verified by proper officer.
If the constitution changes, then Income Tax PAN changes. In that case, fresh registration is
required.
The other important details are - (a) Nature of business (b) Top five goods and services
supplied (c) Top ten banks (d) Authorised Signatory (e) Authorised representatives. If there
is any change in these details, information in form GST REG 14. These are non core fields, for
which approval of proper officer is not required.
Verification of mobile and e-mail address before change - Any change in the mobile
number or e-mail address of the authorised signatory submitted as above, as amended from
time to time, shall be carried out only after online verification as per rule 8(2) i.e. One Time
Password (OTP) on mobile and e-mail- proviso to Rule 19(1)(d) of CGST Rules, 2017.
Fresh registration if PAN number changes - Where a change in the constitution of any
business results in change of the Permanent Account Number (PAN) of a registered person,
the person shall apply for fresh registration in form GST REG-01 - Rule 19(1)(d) of CGST Rules,
2017.
The amendment is prospective unless specific order passed - The amendments made will
be from the date of submission of GST REG-14 on common portal. However, Commissioner,
for reasons to be recorded and subject to prescribed conditions, can amend with
retrospective effect - rule 19(1A) of CGST Rules, 2017 amended on 29-12-2017.
36.15-2 Show Cause Notice if amendment application is proposed to be rejected
If the proper officer is of the opinion that the amendment sought is either not warranted or
the documents furnished therewith are incomplete or incorrect, he may, within fifteen
working days from the date of receipt of the application in form GST REG-14,serve a notice
in form GST REG-03, requiring the registered person to show cause, within seven working
days of the service of the said notice, as to why the application submitted under rule 19(1)
shall not be rejected - Rule 19(2) of CGST Rules, 2017.
The registered person shall furnish a reply to the notice to show cause, issued under rule
19(2), in form GST REG-04 within seven working days from the date of the service of the said
notice.
If the reply furnished is found to be not satisfactory or if no reply is furnished within specified
time, the proper officer shall reject the application for amendment and pass an order in form
GST REG -05- Rule 19(4) of CGST Rules, 2017.
 714

Superintendent of Central Tax has been specified as 'proper officer' for purpose of rule 19 -
CBE&C circular No. 1/1/2017, dated 26-6-2017.
Deemed acceptance of amendment if no action taken by proper officer - If the proper
officer fails to take any action-(a) within fifteen working days from the date of submission of
application, or (b) within seven working days from the date of receipt of reply to the notice
to show cause under rule 19(3),the certificate of registration shall stand amended to the
extent applied for. The amended certificate will be made available to the registered person
on the Common Portal - Rule 19(5) of CGST Rules, 2017.
36.16 Cancellation of GST registration
The proper officer may, either on his own motion or on an application filed by registered
person or his legal heir (in case of death of such person) cancel the registration, in prescribed
manner and within prescribed period - section 29(1) of CGST and SGST Act.
The proper officer will have regard to the following, while cancelling registration -
(a) whether the business has been discontinued, transferred fully for any reason
including death of the proprietor, amalgamated with other legal entity, demerged or
otherwise disposed of; or
(b) whether there is any change in the constitution of the business; or
(c) where the taxable person is no longer liable to be registered under section 22 or
section 24 or intends to opt out of the registration voluntarily made under section
25(3) [voluntary registration] [clause (c) substituted vide Finance Act, 2020 w.e.f. 1-
1-2021.
Clause (c) was earlier reading as follows - 'where the taxable person, other than the
person registered under section 25(3) [voluntary registration], is no longer liable to
be registered under section 22 or 24 of CGST or SGST Act'.

The effect of the amendment is that even Voluntary Registration can be cancelled
any time by proper officer.

Superintendent of Central Tax has been specified as 'proper officer' for this purpose - CBE&C
circular No. 1/1/2017, dated 26-6-2017.
No cancellation of registration if all dues paid - If a taxable person files earlier returns with
late fee, pay taxes and other dues, the proper officer shall drop the proceedings of
cancellation of registration and pass an order in form GST-REG 20 (new form inserted) -
Proviso to rule 22(4) of CGST Rules inserted w.e.f. 4-9-2018.
Suspension of registration pending cancellation - During pendency of the proceedings
relating to cancellation of registration filed by the registered person, the registration may be
suspended for such period and in such manner as may be prescribed - proviso to section
29(1) of CGST Act inserted vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019.
Once application for cancellation of registration is filed, any return is not to be filed, except
final return in form GSTR-10 - CBI&C circular No. 69/43/2018-GST dated 26-10-2018.
36.16-1 Application for cancellation of registration
 715

Application for cancellation of registration shall be filed electronically in form GST REG-16.
He will give following - (a) the details of inputs held in stock or inputs contained in semi-
finished or finished goods held in stock and (b) of capital goods held in stock on the date
from which cancellation of registration is sought and liability thereon.
He will also furnish details of the payment against such liability. Application should be
submitted thirty days of occurrence of the event warranting cancellation, either directly or
through a Facilitation Centre - rule 20 of CGST Rules, 2017.
Following persons cannot apply for cancellation under this provision - (a) person registered
for TDS or TCS under rule 12 (b) person who has obtained a unique identification number
(UIN) [For them, separate provisions have been made for cancellation of registration]
Voluntary registration can be cancelled anytime - Voluntary registration can be cancelled
any time. Till 23-1-2018, application for cancellation of voluntary registration could not be
considered before the expiry of one year from the effective date of registration - proviso to
Rule 20 of CGST Rules, 2017 as existing upto 23-1-2018. This proviso has been omitted w.e.f.
23-1-2018.
Procedure in case of death of sole proprietor - In case of death of sole proprietor, application
for cancellation of registration shall be made by legal heir/successor in form GST REG-16.
The new entity in which the applicant proposes to amalgamate itself shall be registered
under GST before submission of application for cancellation of registration which is in name
of deceased sole proprietor. Before filing application for cancellation, tax return upto the
date of surrender of registration should be filed or an undertaking should be furnished to the
effect that no taxable supplies have been made during the intervening period (i.e. from the
date of registration to the date of application for cancellation of registration). - Instruction
No. 7(b) under form GST REG-16 inserted on 30-10-2018.
Clarification by CBIC - CBI&C circular No. 96/15/2019-GST dated 28-3-2019 clarifies as
follows -
Transfer or change of ownership of business will include transfer or change in ownership of
business due to death of sole proprietor. The transferee/successor shall apply for
registration under GST Act. In form GST REG-01, he should state reason to obtain registration
as 'death of proprietor'.
The legal heir should apply for cancellation of registration of deceased person in form GST
REG-16.
If legal heirs continue the business, it will be considered as transfer of business. Credit shall
be allowed to be transferred as per section 18(3) of CGST Act, read with rule 41 of CGST
Rules. The registered person shall file form GST ITC-02 in respect of registration which is
required to be cancelled. Form GST ITC-02 should be filed before filing application for
cancellation of registration. On acceptance by transferee/successor, unutilized ITC as
specified in form GST ITC-02 shall be credited to electronic credit ledger of transferee.
The transferee is liable to pay tax, interest and penalties of the deceased person, as per
sections 85(1) and 93(1) of CGST Act.
36.16-2 Suspension of registration pending cancellation
 716

During pendency of the proceedings relating to cancellation of registration filed by the

registered person, the registration may be suspended for such period and in such manner
as may be prescribed - proviso to section 29(1) of CGST Act inserted vide CGST (Amendment)
Act, 2018 w.e.f. 1-2-2019.
Once application for cancellation of registration is filed, any return is not to be filed, except
final return in form GSTR-10 - CBI&C circular No. 69/43/2018-GST dated 26-10-2018 -
reiterated in para 7 of CBI&C circular No. 88/07/2019-GST dated 1-2-2019.
Procedure in respect of suspension of registration - Where a registered person has applied
for cancellation of registration under rule 20 of CGST Rules, the registration shall be deemed
to be suspended from the date of submission of the application or the date from which the
cancellation is sought, whichever is later, pending the completion of proceedings for
cancellation of registration under rule 22 of CGST Rules - rule 21A(1) of CGST Rules, inserted
w.e.f. 1-2-2019.
Suspension of registration if registration liable to be cancelled - Where the proper officer
has reasons to believe that the registration of a person is liable to be cancelled under section
29 of CGST Act or under rule 21 of CGST Rules, he may * suspend the registration of such
person with effect from a date to be determined by him, pending the completion of the
proceedings for cancellation of registration under rule 22 of CGST Rules - rule 21A(2) of CGST
Rules, inserted w.e.f. 1-2-2019 [* The words 'after affording the said person a reasonable
opportunity of being heard' have been omitted w.e.f. 22-12-2020. Thus, suspension can be
without notice and without hearing].
Suspension of registration if anomalies or significant differences - Where, the proper
officer there are significant differences or anomalies indicating contravention of the
provisions of the Act or the rules made thereunder, leading to cancellation of registration of
the said person, his registration shall be suspended and the said person shall be intimated
in form GST REG-31, electronically, on the common portal, or by sending a communication
to his e-mail address provided at the time of registration or as amended from time to time,
highlighting the said differences and anomalies and asking him to explain, within a period of
thirty days, as to why his registration shall not be cancelled.
He may do so following situations - (A) a comparison of the returns furnished by a registered
person under section 39 with (a) the details of outward supplies furnished in form GSTR-1;
or (b) the details of inward supplies derived based on the details of outward supplies
furnished by his suppliers in their form GSTR-1,or (B) Such other analysis, as may be carried
out on the recommendations of the Council - Rule 21(2A) of CGST Rules, inserted w.e.f. 22-
12-2020.
No supply by charging GST if registration suspended i.e. issue Bill of Supply - A registered
person, whose registration has been suspended under rule 21A(1) or rule 21A(2) or rule
21A(2A) of CGST Rules, shall not make any taxable supply during the period of suspension
and shall not be required to furnish any return under section 39 of CGST Act - rule 21A(3) of
CGST Rules amended w.e.f. 22-12-2020.
'Shall not make any taxable supply' means the registered person shall not issue a tax invoice
and, accordingly, not charge tax on supplies made by him during the period of suspension -
 717

Explanation to rule 21A(3) of CGST Rules inserted w.e.f. 9-10-2019. Thus, he can issue 'Bill of
Supply' and supply goods or services without charging GST.
After suspension is withdrawn, revised invoice for GST can be issued as per rule 21(4) of
CGST Rules.
No refund during period of suspension - A registered person, whose registration has been
suspended under rule 21A(2) or rule 21(2A), shall not be granted any refund under section
54 of CGST Act, during the period of suspension of his registration - rule 21A(3A) of CGST
Rules inserted w.e.f. 22-12-2020.
Revocation of suspension - The suspension of registration under rule 21A(1) or rule 21A(2)
or rule 21(2A) of CGST Rules shall be deemed to be revoked upon completion of the
proceedings by the proper officer under rule 22 of CGST Rules and such revocation shall be
effective from the date on which the suspension had come into effect. - rule 21A(4) of CGST
Rules amended w.e.f. 22-12-2020.
Revised invoice for supplies made during the period - Where order revoking suspension of
registration has been passed, provisions of section 31(3)(a) and section 40 of CGST Act shall
apply in respect of supplies made during period of suspension - rule 21A(4) of CGST Rules
[section 31(3)(a) of CGST Act make provision for issue of revised invoice against the invoice
already issued. Section 40 of CGST Act makes provision for filing of first return after obtaining
registration, for outward supplies made before registration. These provisions shall apply
mutatis mutandis after suspension of registration has been revoked].
Suspension of registration can be revoked by proper officer any time - The suspension of
registration under this rule may be revoked by the proper officer, anytime during the
pendency of the proceedings for cancellation, if he deems fit - proviso to rule 21A inserted
w.e.f. 22-12-2020.
36.16-2a Standard Operating Procedure (SOP) for suspension of registrations under rule
21A(2A)
CBI&C vide Circular No. 145/01/2021-GST dated 11-2-2021 has advised as follows.
Till the time an independent functionality for form REG-31 is developed on the portal,
following guidelines are provided -
The registration of specified taxpayers shall be suspended and system generated intimation
for suspension and notice for cancellation of registration in form GST REG-31, containing the
reasons of suspension, shall be sent to such taxpayers on their registered e-mail address. Till
the time functionality for form REG-31 is made available on portal, such notice/intimation
shall be made available to the taxpayer on their dashboard on common portal in form GST
REG-17.The taxpayers will be able to view the notice in the "View/Notice and Order" tab
post login.
The taxpayers, whose registrations are suspended would be required to furnish reply to the
jurisdictional tax officer within 30 days from the receipt of such notice/intimation, explaining
the discrepancies/anomalies, if any, and shall furnish the details of compliances made
or/and the reasons as to why their registration shouldn't be cancelled.
 718

He would be required to reply to the jurisdictional officer against the notice for cancellation
of registration sent to them, in form GST REG-18 online through Common Portal within 30
days from the receipt of notice/intimation.
In case the intimation for suspension and notice for cancellation of registration is issued on
ground of non-filing of returns, the said person may file all the due returns and submit the
response. Similarly, in other scenarios as specified under form GST REG-31, they may meet
the requirements and submit the reply. Post issuance of form GST REG-31 via email, the list
of such taxpayers would be sent to the concerned Nodal officers of the CBIC/States. Also,
the system generated notice can be viewed by the jurisdictional proper officers on their
Dashboard for suitable actions. Upon receipt of reply from the said person or on expiry of
30 days, a task would be created in the dashboard of the concerned proper officer under
"Suo motu cancellation proceeding".
Proper officer, post examination of the response received from the said person, may pass
an order either for dropping the proceedings for suspension/cancellation of registration in
form GST REG-20 or for cancellation of registration in form GST REG-19. Based on the action
taken by the proper officer, the GSTIN status would be changed to "Active" or "Cancelled
Suo motu" as the case maybe.
Till the time independent functionality for form GST REG-31 is fully ready, it is advised that
if the proper officer considers it appropriate to drop a proceeding any time after the issuance
of form GST REG-31, he may advise the said person to furnish his reply on the common portal
in form GST REG-18.
In case the proper officer is prima facie satisfied with the reply of the said person, he may
revoke the suspension by passing an order in form GST REG-20. Post such revocation, if need
be, the proper officer can continue with the detailed verification of the documents and
recovery of short payment of tax, if any. Further, in such cases, after detailed verification or
otherwise, if the proper officer finds that the registration of the said person is liable for
cancellation, he can again initiate the proceeding of cancellation of registration by issuing
notice in form GST REG-17.
36.16-3 Cancellation of Registration for violation of rules or not doing business at declared
place
As per Rule 21 of CGST Rules, 2017 as amended w.e.f. 22-12-2020, the registration granted
to a person is liable to be cancelled, if the said person -
(a) does not conduct any business from the declared place of business; or
(b) issues invoice or bill without supply of goods or services or both in violation of the
provisions of CGST/SGST Act, or the rules made CGST/SGST Act
(c) violates provisions of section 171 of CGST/SGST Act (relating to Anti Profiteering)
(d) violates provisions of rule 10A (in respect of furnishing details of bank account)
(e) avails input tax credit in violation of the provisions of section 16 of the CGST Act or
the rules made thereunder; or
 719

(f) furnishes the details of outward supplies in form GSTR-1 under section 37 of CGST Act
for one or more tax periods which is in excess of the outward supplies declared by him
in his valid return under section 39 for the said tax periods; or
(g) violates the provision of rule 86B of CGST Rules [Regarding Restrictions on use of
amount available in electronic credit ledger in excess of 99% of tax payable]

[Words in italics inserted w.e.f. 22-12-2020].

36.16-4 Suo motu cancellation of registration under GST by proper officer
The proper officer may cancel the registration of taxable person from such date, including
any retrospective date, as he may deem fit, where, -
(a) the registered taxable person has contravened such provisions of the Act or the rules
made thereunder as may be prescribed; or
(b) a person paying tax under section 10 [composition scheme] has not furnished returns
for three consecutive tax periods; or
(c) any taxable person, other than a person specified in clause (b), has not furnished
returns for a continuous period of six months; or
(d) any person who has taken voluntary registration under section 25(3) has not
commenced business within six months from the date of registration; or
(e) registration has been obtained by means of fraud, wilful misstatement or
suppression of facts [section 29(2) of CGST and SGST Act].

Superintendent of Central Tax has been specified as 'proper officer' for this purpose - CBE&C
circular No. 1/1/2017, dated 26-6-2017.
Opportunity of hearing before cancellation of registration - The proper officer shall not
cancel the registration without the person an opportunity of being heard - first proviso to
section 29(2) of CGST Act [renumbered vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019].
During pendency of the proceedings relating to cancellation of registration, the proper
officer may suspend the registration for such period and in such manner as may be
prescribed - second proviso, first proviso to section 29(2) of CGST Act inserted vide CGST
(Amendment) Act, 2018, w.e.f. 1-2-2019.
Procedure for suo motu cancellation of registration - If the proper officer has reasons to
believe that the registration of a person is liable to be cancelled under section 29, he shall
issue a notice to such person in form GST REG-17, requiring him to show cause within seven
working days from the date of service of such notice as to why his registration should not be
cancelled - Rule 22(1) of CGST Rules, 2017.
The reply to the show cause notice issued shall be furnished in form GST REG-18 within seven
days - Rule 22(2) of CGST Rules, 2017.
Where a person who has submitted an application for cancellation of his registration is no
longer liable to be registered or his registration is liable to be cancelled, the proper officer
shall issue an order in form GST REG-19, within a period of thirty days from the date of
 720

application submitted under rule 20 or, as the case may be, the date of the reply to the show
cause issued under rule 22(1),or under rule 21A(2A) cancel the registration, with effect from
a date to be determined by him and notify the taxable person, directing him to pay arrears
of any tax, interest or penalty including the amount liable to be paid under section 29(5) of
CGST Act - - Rule 22(3) of CGST Rules, 2017 amended w.e.f. 22-12-2020.
If the reply furnished by taxable person under rule 22(2) or in response to the notice issued
under rule 21A(2A) is found to be satisfactory, the proper officer shall drop the proceedings
and pass an order in form GST REG-20 - Rule 22(4) of CGST Rules, 2017. [words in italics
inserted w.e.f. 22-12-2020].
Superintendent of Central Tax has been specified as 'proper officer' for purpose of section
29 and rule 22 - CBE&C circular No. 1/1/2017, dated 26-6-2017.
Application for revocation of cancellation if registration was cancelled and not to apply for
fresh registration - If registration is cancelled under section 29 of CGST Act read with rule
21 of CGST Rules, but if person is continuing to carry on business, he should apply for
revocation of cancellation of registration under section 30 of CGST Act read with rule 23 of
CGST Rules. He should not apply for fresh registration under GST Act, as he may be having
tax liability under earlier cancelled registration. If he applies for fresh registration under GST
Act, the proper officer shall verify reasons for cancellation of earlier registration. If proper
justification is not given for fresh registration, the application for fresh registration shall be
considered for rejection - CBI&C circular No. 95/14/2019-GST dated 28-3-2019.
36.16-5 Final order of cancellation of registration
If a person who has submitted an application for cancellation of his registration is no longer
liable to be registered or his registration is liable to be cancelled, the proper officer shall
issue an order in form GST REG-19, within a period of thirty days from the date of application
submitted under rule 20 or, as the case may be, the date of the reply to the show cause
issued under rule 22(1), or under rule 21A(2A) cancel the registration, with effect from a date
to be determined by him and notify the taxable person, directing him to pay arrears of any
tax, interest or penalty including the amount liable to be paid under section 29(5) of CGST
Act and SGST Act- - Rule 22(3) of CGST Rules, 2017 amended w.e.f. 22-12-2020.
The provisions of rule 22(3) shall, mutatis mutandis, apply to the legal heirs of a deceased
proprietor, as if the application had been submitted by the proprietor himself - Rule 22(5) of
CGST Rules, 2017.
Standard Operating Procedure for cancellation of registration - Standard Operating
Procedure for cancellation of registration has been specified in CBI&C circular No.
69/43/2018-GST dated 26-10-2018. The registration should be cancelled within 30 days from
date of application. The cancellation should be effective from date of application and not
earlier. The registration can be cancelled even if tax amount is pending as cancellation of
registration under section 29 does not affect the liability of the person to pay tax and other
dues under GST Act.
Once application for cancellation is filed, it is not necessary to file any return, except final
return in form GSTR-10 - reiterated in para 7 of CBI&C circular No. 88/07/2019-GST dated 1-
2-2019.
 721

36.16-6 Other provisions relating to cancellation of registration under GST

Other provisions relating to cancellation of registration are as follows.
Liability continues despite cancellation of registration - The cancellation of registration
under this section shall not affect the liability of the person to pay tax and other dues under
this Act or to discharge any obligation under this Act or the rules made thereunder for any
period prior to the date of cancellation whether or not such tax and other dues are
determined before or after the date of cancellation - section 29(3) of CGST Act.
Cancellation under SGST means cancellation under CGST and vice versa - The cancellation
of registration under the CGST Act/SGST Act shall be deemed to be a cancellation of
registration under the SGST Act/CGST Act - section 29(4) of CGST Act.
Payment of amount of GST on stock and capital goods at the time of cancellation - Every
registered person whose registration is cancelled shall pay an amount, by way of debit in the
electronic credit register or electronic cash ledger, equivalent to the credit of input tax in
respect of inputs held in stock and inputs contained in semi-finished or finished goods held
in stock or capital goods or plant and machinery on the day immediately preceding the date
of such cancellation or the output tax payable on such goods, whichever is higher, calculated
in such manner as may be prescribed - section 29(5) of CGST Act.
In case of capital goods or plant and machinery, the taxable person shall pay an amount
equal to the input tax credit taken on the said capital goods or plant and machinery reduced
by the percentage points as may be prescribed in this behalf or the tax on the transaction
value of such capital goods or plant and machinery under section 15, whichever is higher -
proviso to section 29(5) of CGST Act.
The amount payable under section 29(5) shall be calculated in such manner as may be
prescribed - section 29(6) of CGST Act.
36.17 Revocation of cancellation of registration if cancellation was suo motu
Any registered taxable person, whose registration is cancelled by the proper officer on his
own motion, may apply to such officer for revocation of cancellation of the registration in
the prescribed manner within thirty days from the date of service of the cancellation order
- section 30(1) of CGST Act.
This period of 30 days can be extended by 30 days by Additional/Joint Commissioner and
further 30 days by Commissioner - proviso to section 30(1) of CGST Act as substituted vide
Finance Act, 2020, w.e.f. 1-1-2021.
The proper officer may, in the manner and within such period as may be prescribed in this
behalf, by order, either revoke cancellation of the registration or reject the application
The proper officer shall not reject the application for revocation of cancellation of
registration without giving an opportunity of being heard.
Revocation of cancellation of registration under the CGST Act/SGST Act shall be deemed to
be a revocation of cancellation of registration under the SGST Act/CGST Act - section 30(3)
of CGST Act.
Assistant/Deputy Commissioner/Director of Central Tax has been specified as 'proper
officer' for this purpose - CBE&C circular No. 1/1/2017, dated 26-6-2017.
 722

36.17-1 Procedure for revocation of cancellation of registration

A registered person, whose registration is cancelled by the proper officer on his own motion,
may submit an application for revocation of cancellation of registration, in form GST REG-
21, to such proper officer, within thirty days from the date of service of the order of
cancellation of registration - Rule 23(1) of CGST Rules, 2017.
Application for revocation cannot be filed if the registration has been cancelled for the
failure of the taxable person to furnish returns, unless such returns are filed and any amount
due as tax, in terms of such returns has been paid along with any amount payable towards
interest, penalties and late fee payable in respect of the said returns -first proviso to Rule
23(1) of CGST Rules, 2017 [renumbered w.e.f. 23-4-2019].
All returns due for period from date of cancellation till date of order of revocation of
cancellation of registration shall be furnished within 30 days from date of revocation of
cancellation of registration -second proviso to Rule 23(1) of CGST Rules, 2017 inserted w.e.f.
23-4-2019.
If registration was cancelled with retrospective effect, all returns due for period from
effective date of cancellation till date of order of revocation of cancellation of registration
shall be furnished within 30 days from date of revocation of cancellation of registration -
third proviso to Rule 23(1) of CGST Rules, 2017 inserted w.e.f. 23-4-2019.
The proper officer can revoke cancellation, for reasons to be recorded in writing, by an order
in form GST REG-22 within thirty days from the date of receipt of the application and
communicate the same to the applicant - Rule 23(2)(a) of CGST Rules, 2017.
The proper officer, by an order in form GST REG-05, reject the application for revocation of
cancellation of registration. He will communicate the same to the applicant - Rule 23(2)(b)
of CGST Rules, 2017.
Assistant/Deputy Commissioner/Director of Central Tax has been specified as 'proper
officer' for this purpose - CBE&C circular No. 1/1/2017 dated 26-6-2017.
Issue of show cause notice before rejection of application for revocation - The proper
officer shall, before passing the order under rule 23(2)(b) of CGST Rules, issue a notice in
form GST REG-23 requiring the applicant to show cause as to why the application submitted
for revocation under rule 23(1) should not be rejected. The applicant shall furnish the reply
within seven working days from the date of the service of notice in form GST REG-24 - Rule
23(3) of CGST Rules, 2017.
Upon receipt of the information or clarification in form GST REG-24, the proper officer may
proceed to dispose of the application within thirty days from the date of receipt of such
information or clarification from the applicant - Rule 23(4) of CGST Rules, 2017.
 723

Tax Invoice, Credit and Debit Notes

37.1 Invoice for supply of goods or services or both
Tax Invoice, Credit and Debit Notes are very important documents in administration of GST.
E-documents are permitted, even for transit checks and border posts.
Unregistered person should issue normal commercial invoice - An unregistered person
should issue normal commercial invoice - FAQ No. 17 - Invoices and returns issued by CBE&C
on 28-8-2017.
Revised Invoice is also a 'tax invoice' - For purpose of section 31 of CGST Act, the expression
"tax invoice" shall include any revised invoice issued by the supplier in respect of a supply
made earlier - Explanation to section 31 of CGST Act.
Supplementary invoice is Debit Note - For the purpose of CGST Act, 'Debit Note' shall include
a supplementary invoice - Explanation to section 32 of CGST Act.
Supplier - "Supplier" in relation to any goods or services or both shall mean the person
supplying the said goods or services or both and shall include an agent acting as such on
behalf of such supplier in relation to the goods or services or both supplied - section 2(102)
of CGST Act.
Recipient - As per section 2(93) of CGST Act, "Recipient" of supply of goods or services or
both means-
(a) where a consideration is payable for the supply of goods or services or both, the
person who is liable to pay that consideration,
(b) where no consideration is payable for the supply of goods, the person to whom the
goods are delivered or made available, or to whom possession or use of the goods is
given or made available, and
(c) where no consideration is payable for the supply of a service, the person to whom
the service is rendered.

Any reference to a person to whom a supply is made shall be construed as a reference to

the recipient of the supply and shall include an agent acting as such on behalf of the recipient
in relation to the goods or services or both supplied.
Tax invoice may not be issued if value less than Rs 200 - Tax invoice may not be issued if
value goods or services or both is less than Rs 200, subject to such conditions and in such
manner as may be prescribed - section 31(3) of CGST Act.
37.2 Tax Invoice in respect of goods
A registered person supplying taxable goods shall, before or at the time of, - (a) removal of
goods for supply to the recipient, where the supply involves movement of goods, or (b)
delivery of goods or making available thereof to the recipient, in any other case,- - issue a
tax invoice showing the description, quantity and value of goods, the tax charged thereon
and such other particulars as may be prescribed - section 31(1) of CGST Act.
Relaxation in some cases - Central/State Government may, on the recommendation of the
GST Council, by notification, specify the categories of goods and/or supplies in respect of
 724

which the tax invoice shall be issued, within such time as may be prescribed -proviso to
section 31(1) of CGST Act.
This relaxation may be given in case of clearances of small value samples or invoices by Banks
etc., or some other peculiar situations.
Removal - Meaning - "Removal", in relation to goods, means -
(a) despatch of the goods for delivery by the supplier thereof or by any other person
acting on behalf of such supplier, or
(b) collection of the goods by the recipient thereof or by any other person acting on
behalf of such recipient - section 2(96) of CGST Act.

Tax Invoice or bill of supply to accompany transport of goods when e-way bill not required
- The person-in-charge of the conveyance shall carry a copy of the tax invoice or the bill of
supply issued in accordance with the provisions of rule 46, 46A or 49 of CGST Rules in a case
where such person is not required to carry an e-way bill under CGST rules - rule 55A of CGST
Rules inserted w.e.f. 23-1-2018.
Thus, where tax invoice or Bill of Supply is not required, Delivery Challan should accompany
the goods.
B2C invoice once issued cannot be converted into B2B tax invoice by adding GSTN - B2C
invoice once issued cannot be converted into B2B tax invoice by adding GSTN - FAQ No. 7
issued by CBI&C on banking sector on 27-12-2018.
Thus, care has to be taken before uploading invoice in GSTR-1.
37.2-1 Tax Invoice in case of continuous supply of goods
"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 or not 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 - section 2(32) of CGST Act.
In case of continuous supply of goods, where successive statements of accounts or
successive payments are involved, the invoice shall be issued before or at the time each such
statement is issued or, as the case may be, each such payment is received - section 31(4) of
CGST Act.
37.2-2 Delivery Note and Tax Invoice when goods sent on approval basis
Goods (including jewellery) can be cleared on approval basis within the State or outside the
State. Delivery Challan should be issued at the time of removal of goods. E-way bill will also
be issued wherever applicable. The person carrying goods for such supply can carry the
invoice book so that he can issue the invoice once the supply is fructified. If sale is outside
the State, IGST will be payable - CBE&C circular No. 10/10/2017-GST dated 18-10-2017.
Notwithstanding anything contained in section 37(1), where the goods being sent or taken
on approval for sale or return are removed before the supply takes place, the invoice shall
be issued before or at the time of supply or six months from the date of removal, whichever
is earlier - section 31(7) of CGST Act.
 725

Thus, tax invoice must be issued within six months from removal.
If goods were exported for approval and if goods were to be returned between 20-3-2020
to 30-10-2020, the period is extended upto 31-10-2020 - Notification No. 66/2020-CT dated
21-9-2020.
Removal of art work to galleries for subsequent sale - Artists remove their art works to
various galleries where these are exhibited and sold from such galleries, if work is selected
by buyer. In such case, the art works should be removed under delivery challan and e-way
bill (where applicable). Such movement may be within the State or outside the State. Once
the art work is sold, tax invoice should be generated. If the sale is inter-state, IGST should be
charged. If sale is within State, obviously CGST and SGST should be charged - CBE&C circular
No. 22/22/2017-GST dated 21-12-2017.
Removal of goods outside India for exhibition or on consignment basis for export
promotion - CBI&C Circular No. 108/27/2019-GST dated 18.07.2019 has clarified that
removal of goods out of India for exhibition or on consignment basis for export promotion
is neither 'supply' nor 'export'. Since it is not 'export', LUT or bond is not required. Goods
should be sent under Delivery Challan. The exporter should maintain proper records in form
given in Annexure to the circular dated 18-7-2019. As and when goods are sold, tax invoice
should be issued. If goods are not brought back within six months, tax invoice should be
issued and GST paid.
If goods are sold within six months, refund claim under rule 89(4) of CGST for ITC can be filed
even if goods were cleared without bond or LUT.
37.2-3 Invoice for transportation of goods in knocked down condition or in batches or lots
in more than one consignments
Where the goods are being transported in a semi-knocked down or completely knocked
down condition or in batches or lots (a) the supplier shall issue the complete invoice before
dispatch of the first consignment (b) the supplier shall issue a delivery challan for each of the
subsequent consignments, giving reference of the invoice (c) each consignment shall be
accompanied by copies of the corresponding delivery challan along with a duly certified copy
of the invoice; and (d) the original copy of the invoice shall be sent along with the last
consignment - Rule 55(5) of CGST and SGST Rules, 2017 [The words in italics inserted w.e.f.
4-9-2018].
Really, this procedure is possible and practical when machinery or goods are dispatched in
span of few days. In case of large machinery or if in multiple batches or lots, if supply is likely
to be spread over months, separate invoice for each consignment is the only practical
solution.
Removal in separate consignments does not mean that 'parts' are removed - In Shirke
Construction Equipment P Ltd. v. CCE 1997(95) ELT 644 (CEGAT), the assessee removed bulky
machine (crane in this case) in disassembled condition in part consignments. It was held that
it cannot be said that assessee cleared parts of the machinery. The assessee cleared 'crane
in parts' and not 'part of crane'.
 726

In CCE v. BHEL (2018) 3 SCC 693 = 66 GST 206 = 90 taxmann.com 297 (SC), essential
components of boiler were removed in different consignments. It was held that these are
not 'parts' of boiler.
In National Steel Industries v. CCE 1999(111) ELT 80 (CEGAT) also, it was held that even if
different components of an article (pre-fabricated building in this case) supplied on different
dates, it would still be clearance of whole article. Supply of goods can be spread over a period
of time. It is not necessary that all elements should be supplied at the same time. - same
view in Vishwa Industrial Co. v. CCE 1999(107) ELT 774 (CEGAT) * Flat Products Equipments
v. CCE 2000(115) ELT 629 (CEGAT) * Vinar Systems v. CC 2001(131) ELT 578 (CEGAT) * Bharat
Heavy Electricals v. CCE (2009) 243 ELT 92 (CESTAT) - same view in CCE v. Conveyor
Equipments 2001(127) ELT 478 (CEGAT), where reliance was placed on HSN Notes, in respect
of classification of unassembled machines - contrary view in Idicol Piping v. CCE (2008) 226
ELT 147 (CESTAT).
37.2-4 Delivery challan instead of tax invoice for transportation of goods in some specific
circumstances
For the following purposes, a delivery challan may be issued by consigner instead of tax
invoice - (a) supply of liquid gas where the quantity at the time of removal from the place of
business of the supplier is not known (b) transportation of goods for job work (c)
transportation of goods for reasons other than by way of supply, or (d) such other supplies
as may be notified by the Board - Rule 55(1) of CGST and SGST Rules, 2017.
The delivery challan, serially numbered should be issued at the time of removal of goods for
transportation, containing following details (i) date and number of the delivery challan (ii)
name, address and GSTIN of the consigner, if registered (iii)name, address and GSTIN or UIN
of the consignee, if registered (iv) HSN code and description of goods (v) quantity
(provisional, where the exact quantity being supplied is not known) (vi) taxable value (vii)
tax rate and tax amount - IGST, CGST, SGST or UTGST, where the transportation is for supply
to the consignee (viii) place of supply, in case of inter-State movement, and (ix) signature.
Delivery challan for sending goods by Principal to job worker or one job worker to another
job worker or return to Principal - Delivery challan is required for sending goods by Principal
to job worker or one job worker to another job worker or return of goods after job work to
Principal. The provisions are contained in another chapter on 'job work' and hence not
repeated here.
Delivery challan to be in triplicate - The delivery challan shall be prepared in triplicate, in
case of supply of goods, with following marking - (a) the original copy being marked as
ORIGINAL FOR CONSIGNEE (b) the duplicate copy being marked as DUPLICATE FOR
TRANSPORTER; and (c) the triplicate copy being marked as TRIPLICATE FOR CONSIGNER -
Rule 55(2) of CGST and SGST Rules, 2017.
Where goods are being transported on a delivery challan in lieu of invoice, the same shall be
declared in as specified in rule 138 (e-way bill) - Rule 55(3) of CGST and SGST Rules, 2017.
37.2-5 If tax invoice could not be issued at the time of removal
Where the goods being transported are for the purpose of supply to the recipient but the
tax invoice could not be issued at the time of removal of goods for the purpose of supply,
 727

the supplier shall issue a tax invoice after delivery of goods - Rule 55(4) of CGST and SGST
Rules, 2017.
This can happen when weighment is to be done after clearance of goods.
If it is not possible to issue tax invoice, at least delivery challan should be issued.
37.3 Tax Invoice in respect of services
A registered taxable person supplying taxable services shall, before or after the provision of
service but within a prescribed period, issue a tax invoice, showing the description, value,
the tax charged thereon and such other particulars as may be prescribed - section 31(2) of
CGST Act.
Government can notify time and manner in respect of specified categories of services -
Government can notify time and manner of issue of tax invoice in respect of specified
categories of services or supplies - proviso (a) to section 31(2) of CGST Act, inserted vide
Finance Act, 2020 from 1-1-2021.
At present, invoice in respect of services is required to be issued within 30 days as per rule
47 of CGST Rules. This limit is too large in case of some services and too small in case of some
services. In some cases, there are practical difficulties in issuing tax invoice. It seems
Government wants to keep some flexibility on the time limit, depending on nature of service.
Further, e-invoice may be prescribed in certain cases.
Other document instead of tax invoice or tax invoice may not be issued - Central/State
Government may, on the recommendation of the Council, by notification and subject to such
conditions and limitations as may be prescribed, specify the categories of services in respect
of which (a) any other document issued in relation to the supply shall be deemed to be a tax
invoice, or (b) tax invoice may not be issued - proviso (b) to section 31(2) of CGST Act as
renumbered vide Finance Act, 2020, from 1-1-2021.
37.3-1 Tax Invoice in case of continuous supply of services
"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 - section
2(33) of CGST Act.
In case of continuous supply of services, provisions for issue of tax invoice are as below.
These provisions are subject to section 31(3)(d) of CGST Act, which provide for issue of
receipt voucher when advance is received - section 31(5) of CGST Act.
Before due date of payment - Where the due date of payment is ascertainable from the
contract, the invoice shall be issued on or before due date of payment. [However, if advance
is received, receipt voucher is required to be issued and not tax invoice]
In Chennai Port Trust In re [2020] 79 GST 35 = 114 taxmann.com 473 (AAR-TN) and Chennai
Port Trust In re [2020] 79 GST 1 = 110 taxmann.com 485 (AAR-TN), it was held that if rent
invoice is issued before due date as specified in agreement, time of supply shall be date of
issue of tax invoice or rent claim advise.
 728

When due date of payment is not ascertainable, date on which payment received - Where
the due date of payment is not ascertainable from the contract, the invoice shall be issued
before or at the time when supplier receives payment [However, if advance is received,
receipt voucher is required to be issued and not tax invoice]
When payment linked with completion of event i.e. milestones - Where the payment is
linked to the completion of an event (i.e. milestones as specified in contract), the invoice
shall be issued on or before date of completion of that event.
For example, in construction contracts, various milestones (like plinth, first floor, slab etc.)
may be prescribed for payments. In that case, tax invoice is required to be issued when each
such milestone is reached.
37.3-2 Tax Invoice when supply of services ceases before completion of supply
In a case where the supply of services ceases under a contract before the completion of the
supply, the invoice shall be issued at the time when the supply ceases and such invoice shall
be issued to the extent of the supply effected before such cessation - section 31(6) of CGST
Act.
37.3-3 Time limit for issuing tax invoice for services
The invoice in case of taxable supply of services, shall be issued within a period of thirty days
from the date of supply of service - Rule 47 of CGST and SGST Rules, 2017.
If the supplier of services is an insurer or a banking company or a financial institution, or
NBFC, invoice can be issued within forty five days from the date of supply of service - first
proviso to Rule 47 of CGST and SGST Rules, 2017.
37.3-4 Relaxations to insurance, Bank, FI, telecom operator and NBFC in issuing invoice for
own branch/division in other States
As per section 25(5) of CGST and SGST Act, if a person (with single PAN) has establishments
in different States, he requires GST registration in each State. Such establishments in
different States are treated as 'distinct persons' for purpose of CGST and SGST Act.
The establishment in one State may supply service to establishment in another State. This is
particularly in sectors like banking, insurance, NBFC, Financial Institutions and telecom. In
such cases, they may be given relaxation by Government on issue of invoice either when the
supplier records the same in his books or on quarterly basis - second proviso to Rule 47 of
CGST and SGST Rules, 2017.
So far, such notification has not been issued.
Such inter-State invoices and transfers are required as GST is a destination based tax and tax
is to be paid where the services or goods are finally consumed.
37.3-5 Tax Invoices issued by Bank, FI, NBFC and insurance company
Bank, FI, NBFC and insurer may issue consolidated tax invoice on monthly basis. It can be
made available physically or electronically. It may not have serial number and address of
recipient. However, it should have other details as specified in rule 46 of CGST and SGST
Rules - Rule 54(2) of CGST and SGST Rules, 2017 amended on 13-10-2017 [The word
'consolidated' was inserted w.e.f. 13-10-2017. The word 'shall' was changed to 'may' w.e.f.
15-11-2017].
 729

The consolidated invoice or any other document may be signed or digitally signed. If
document is issued electronically as per provisions of Information Technology Act, digital
signature or signature is not required - proviso to rule 54(2) of CGST Rules, inserted w.e.f.
31-12-2018.
This relaxation shall also apply to Bill of Supply, Receipt Voucher, Refund Voucher, Payment
Voucher, Debit Note, Credit Note and Revised Invoice.
37.3-6 Tax Invoice of Goods Transport Agencies
In case of goods transport agency (GTA) supplying taxable services in relation to
transportation of goods by road in a goods carriage, the GTA shall issue a tax invoice or any
other document in lieu thereof, by whatever name called, containing (a) the gross weight of
the consignment (b) name of the consignor and the consignee (c) registration number of
goods carriage in which the goods are transported (d) details of goods transported (e) details
of place of origin and destination (f) GSTIN of the person liable for paying tax whether as
consignor, consignee or goods transport agency, and (g) other information as prescribed
under rule 46 of CGST Rules, 2017 - Rule 54(3) of CGST and SGST Rules, 2017.
37.3-7 Ticket issued in case of passenger transportation service is tax invoice
Where the supplier of taxable service is supplying passenger transportation service, a tax
invoice shall include ticket in any form, by whatever name called, whether or not serially
numbered, and whether or not containing the address of the recipient of service but
containing other information as mentioned in rule 46 of CGST and SGST Rules, 2017 - Rule
54(4) of CGST and SGST Rules, 2017.
The ticket may be signed or digitally signed. If the ticket is issued electronically as per
provisions of Information Technology Act, digital signature or signature is not required -
proviso to rule 54(4) of CGST Rules, inserted w.e.f. 31-12-2018.
37.3-8 Mandatory e-ticket by supplier of admission services in multiplex screens
A registered person supplying services by way of admission to exhibition of cinematograph
films in multiplex screens is mandatorily required to issue electronic ticket. That ticket will
be considered as tax invoice, even if the ticket does not contain details of recipient of service
but contains other details as required in rule 46 of CGST and SGST Rules - Rule 54(4A) of
CGST and SGST Rules, 2017 inserted w.e.f. 1-9-2019.
Supplier of services in a screen other than multiplexes may either issue electronic ticket or
normal ticket as per his choice - proviso to Rule 54(4A) of CGST and SGST Rules, 2017 inserted
w.e.f. 1-9-2019.
37.3-9 ISD Invoice or ISD Credit Note by Input Service Distributor
An ISD invoice or an ISD credit note issued by an Input Service Distributor shall contain the
following details:- (a) name, address and GSTIN of the Input Service Distributor (b) a
consecutive serial number (not exceeding 16 characters), in one or multiple series,
containing alphabets or numerals or special characters hyphen or dash and slash symbolised
as, "-", "/", respectively, and any combination thereof, unique for a financial year (c) date of
its issue (d) name, address and GSTIN of the recipient to whom the credit is distributed (e)
amount of the credit distributed; and (f) signature or digital signature of the Input Service
Distributor or his authorized representative - Rule 54(1) of CGST and SGST Rules, 2017.
 730

Invoice of ISD of banking, FI or NBFC - Where the Input Service Distributor is an office of a
banking company or a financial institution or NBFC, a tax invoice shall include any document
in lieu thereof, by whatever name called, whether or not serially numbered but containing
the information as prescribed above - proviso to Rule 54(1) of CGST and SGST Rules, 2017.
37.3-10 Tax invoice by taxable person in name of input service distributor with same PAN
and same State Code
A taxable person may receive some common input services. In that case, he can transfer that
credit to Input Service Distributor (of same taxable person) having same PAN and same State
Code. The ISD can further distribute credit to their various units.
This provision applies only when taxable person and his Input Service Distributor are in same
State.
Contents of Invoice, as stated in rule 54(1A)(a) of CGST Rules, inserted w.e.f. 23-1-2018 are
as follows -
(i) name, address and Goods and Services Tax Identification Number of the registered
person having the same PAN and same State code as the Input Service Distributor.
(ii) a consecutive serial number not exceeding sixteen characters, in one or multiple
series, containing alphabets or numerals or special characters -hyphen or dash and
slash symbolised as "-" and "/" respectively, and any combination thereof, unique for
a financial year.
(iii) date of its issue.
(iv) Goods and Services Tax Identification Number of supplier of common service and
original invoice number whose credit is sought to be transferred to the Input Service
Distributor.
(v) name, address and Goods and Services Tax Identification Number of the Input Service
Distributor.
(vi) taxable value, rate and amount of the credit to be transferred and
(vii) signature or digital signature of the registered person or his authorized
representative.

Same value and same credit as contained in original invoice of suppliers should be
transferred to ISD - The taxable value in the invoice issued under rule 54(1A)(a) shall be the
same as the value of the common services - rule 54(1A)(b) of CGST Rules inserted w.e.f. 23-
1-2018.
37.3-11 Invoice cum Bill of Supply
A registered person supplying taxable as well as exempted goods or service or both can issue
single 'invoice cum bill of supply' - Rule 46A of CGST and SGST Rules, 2017 inserted w.e.f. 13-
10-2017.
37.3-12 Specified suppliers to provide facility of e-payment option to recipients of goods
or service
 731

The Government may prescribe a class of registered persons who shall provide prescribed
modes of electronic payment to the recipient of supply of goods or services or both made
by him. The suppliers will give option to such recipient to make payment accordingly, in such
manner and subject to such conditions and restrictions, as may be prescribed - section 31A
of CGST Act inserted vide Finance (No. 2) Act, 2019 with effect 1-1-2020.
Thus, prescribed class of suppliers of goods or services (mostly bigger companies) will have
to provide option to recipient of goods or services supplied by them, of making e-payment.
[In fact, many big companies are already doing so].
It is not mandatory that the recipient must make payment only to supplier through
electronic mode only.
Really, this provision has nothing to do with GST Law or tax invoice as such. Government can
surely think of better ways to promote electronic payments.
37.4 Issue of revised invoices for goods sold during period prior to registration
A registered taxable person may, within one month from the date of issuance of certificate
of registration and in such manner as may be prescribed, issue a revised invoice against the
invoice already issued during the period beginning with the effective date of registration till
the date of issuance of certificate of registration to him - section 31(3)(a) of CGST Act.
This is to enable customer to avail input tax credit during the transition period.
A taxable person is required to apply for registration within 30 days from date on which is
becomes liable under GST. The aforesaid provision covers the period between date of
application and date of issuance of registration certificate but not earlier period during
which he was liable to pay GST.
37.5 Contents of tax invoice
Rule 54 of CGST Rules, 2017 make specific provisions in respect of invoice of Input Service
Distributor, Banks, FI, NBFC, GTA and passenger transportation service.
Excluding these special cases, general requirement of invoices is as follows [Rule 46 of CGST
and SGST Rules, 2017]
Tax invoice referred to in section 31 of CGST Act shall be issued by the registered person
containing the following particulars:-
(a) name, address and GSTIN of the supplier
(b) a consecutive serial number, in one or multiple series (not exceeding 16 characters),
containing alphabets or numerals or special characters hyphen or dash and slash
symbolised as "-" and "/" respectively, and any combination thereof, unique for a
financial year
(c) date of its issue
(d) name, address and GSTIN or UIN, if registered, of the recipient
(e) name and address of the recipient and the address of delivery, along with the name
of State and its code, if such recipient is unregistered and where the value of taxable
 732

supply is Rs 50,000 or more [in respect of invoice for export, details to be specified
are explained later]
(f) name and address of the recipient and the address of delivery, along with the name
of State and its code, if such recipient is unregistered and where the value of taxable
supply is less than Rs 50,000 and the recipient requires that such details should be
recorded in tax invoice [Thus, if value of supply is less than Rs 50,000, indicating
address is required only if recipient requests].
(g) HSN code of goods or Accounting Code of services [There is relaxation in respect of
digits of HSN code to be specified in invoice. See discussions later].
(h) description of goods or services
(i) quantity in case of goods and unit or Unique Quantity Code thereof
(j) total value of supply of goods or services or both
(k) taxable value of supply of goods or services or both taking into account discount or
abatement, if any
(l) rate of tax (central tax, State tax, integrated tax, Union territory tax or cess)
(m) amount of tax charged in respect of taxable goods or services (central tax, State tax,
integrated tax, Union territory tax or cess)
(n) place of supply along with the name of State, in case of a supply in the course of inter-
State trade or commerce [It is seen that many registered persons are not mentioning
place of supply in invoice in case of inter-state supply. If not mentioned, penalty upto
Rs. 25,000 can be imposed - CBIC circular No. 90/09/2019-GST dated 18-2-2019].
(o) address of delivery where the same is different from the place of supply [In case of
bill to ship to transactions]
(p) whether the tax is payable on reverse charge basis; and
(q) signature or digital signature of the supplier or his authorized representative
(signature or digital signature on Tax Invoice is not required if electronic bill of supply
is issued - fifth proviso to rule 46 of CGST Rules, inserted w.e.f. 31-12-2018).
(r) Quick Response code, having embedded Invoice Reference Number (IRN) in it, in case
invoice has been issued in the manner prescribed under rule 48(4) - fifth proviso to
rule 46 of CGST Rules, clause (r) inserted w.e.f. 30-9-2020.

Invoice issued to UN Agencies or embassies should indicate UIN - Supplier supplying goods
or services to UN Agencies etc. should charge GST in his invoice. He should indicate UIN of
the recipient so that recipient (UN Agency, diplomatic mission etc.) can claim refund from
Government - CBIC press release dated 27-4-2018.
37.5-1 Relaxation is giving HSN code or accounting code of service
 733

HSN code is 8 digit code. Service Accounting Code is 6 digit code. However, in invoice,
relaxation can be given by CBI&C in indicating the number of digits of HSN code for goods or
the Accounting Code for services for class of registered persons - - first proviso to Rule 46 of
CGST and SGST Rules, 2017 as amended on 15-10-2020.
The relaxation w.e.f. 1-4-2021 is as follows -
HSN code at four digit level is required for taxpayers having aggregate turnover in preceding
year upto Rs 5 crore. However, if their sale is to unregistered person, HSN code is not
required. In case of taxable persons having annual turnover more than Rs 5 crores, HSN code
at six digits level is required [even if sale to unregistered person] - Notification No. 78/2020-
CT dated 15-10-2020.
Eight digit code for specified chemicals - For certain specified items (mainly specified
chemicals), 8 digit HSN Code is required - second proviso to Notification No. 12/2017-CT
dated 28-6-2017 inserted w.e.f. 1-12-2020.
Provision upto 31-3-2021 - HSN code at two digit level (i.e. only chapter number) is required
for taxpayers having annual turnover in preceding year above Rs 1.50 crore but below Rs 5
crore. In case of taxable persons having annual turnover above Rs 5 crores, HSN code at four
digits level is required - Instruction No. 13 to form GSTR-1 and Notification No. 12/2017-CT
and 5/2017-IT both dated 28-6-2017.
37.5-2 Marking on invoices for exports or supplies to SEZ
In case of exports of goods or services or supplies to SEZ unit or developer, the invoice shall
carry an endorsement "SUPPLY MEANT FOR EXPORT/SUPPLY TO SEZ UNIT OR SEZ
DEVELOPER FOR AUTHORISED OPERATIONS ON PAYMENT OF INTEGRATED TAX (IGST)" or
"SUPPLY MEANT FOR EXPORT/SUPPLY TO SEZ UNIT OR SEZ DEVELOPER FOR AUTHORISED
OPERATIONS UNDER BOND OR LETTER OF UNDERTAKING WITHOUT PAYMENT OF
INTEGRATED TAX (IGST)", as the case may be.
In lieu of details specified in clause (e), the invoice shall contain the following details : (i)
name and address of the recipient (ii) address of delivery and (iii) name of the country of
destination - third proviso to Rule 46 of CGST and SGST Rules, 2017 amended w.e.f. 27-7-
2017.
Value on invoice should be transaction value and should match with value declared in
shipping bill or bill of export - Exporters often prepare two invoices for exports one for GST
purposes and other for export purposes. This is not envisaged in law at all. Value on invoice
should be transaction value and should match with value declared in shipping bill or bill of
export. However, if there is discrepancy, refund of GST will be on basis of lower of the two
values - CBI&C circular No. 37/11/2018-GST dated 15-3-2018.
37.5-3 Consolidated daily tax invoice when sale to unregistered person
A registered person, other than supplier engaged in making supply of services by way of
admission to exhibition of cinematograph films in multiplex screens, may not issue a tax
invoice in accordance with the provisions of section 31(3)(b) of CGST Act, subject to the
following conditions:- (a) the recipient is not a registered person; and (b) the recipient does
not require such invoice. In such case, the registered person shall issue a consolidated tax
invoice for such supplies at the close of each day in respect of all such supplies - - fourth
 734

proviso to rule 46 of CGST and SGST Rules, 2017. The words in italics inserted w.e.f. 18-7-
2019.
37.5-4 Marking on invoice and number of copies of invoice
The invoice shall be prepared in triplicate, in case of supply of goods, with following marking
- (a) the original copy being marked as ORIGINAL FOR RECIPIENT (b) the duplicate copy being
marked as DUPLICATE FOR TRANSPORTER; and (c) the triplicate copy being marked as
TRIPLICATE FOR SUPPLIER - Rule 48(1) of CGST and SGST Rules, 2017.
In case of supply of services, invoice shall be in duplicate with following marking - (a) the
original copy being marked as ORIGINAL FOR RECIPIENT (b) the duplicate copy being marked
as DUPLICATE FOR SUPPLIER - Rule 48(2) of CGST and SGST Rules, 2017.
37.5-5 Amount of tax to be indicated in tax invoice and other documents
Notwithstanding anything contained in CGST Act or any other law for the time being in force,
where any supply is made for a consideration, every person who is liable to pay tax for such
supply shall prominently indicate in all documents relating to assessment, tax invoice and
other like documents, the amount of tax which will form part of the price at which such
supply is made - section 33 of CGST Act.
37.5-6 Information of serial numbers on monthly basis
The serial number of invoices issued during a tax period shall be furnished electronically
through the Common Portal in FORM GSTR-1 - Rule 48(3) of CGST and SGST Rules, 2017.
There is specific column in GSTR 1 return for this purpose.
37.5-7 Signature on the tax invoice not required on electronic invoice or digital signature
The invoice should have signature or digital signature of authorised representative. If
electronic invoice is issued in accordance with provisions of Information Technology Act,
2000, signature or digital signature is not required - fifth proviso to rule 46 of CGST Rules
inserted w.e.f. 31-12-2018.
Electronic signature and digital signature are often used interchangeably but these two
concepts are different. The main difference between the two is that digital signature is
mainly used to secure documents and is authorized by certification authorities while
electronic signature is often associated with a contract where the signer has got the
intention to do so.
An electronic signature is an electronic symbol attached to a contract or other record, used
by a person with an intent to sign. In contrast, digital signatures guarantee that an electronic
document is authentic.
Section 3 of Information Technology Act makes provision for digital signature and section 3A
of Information Technology Act makes provisions of electronic signature. Both are valid under
GST. There is difference between two.
Digital signature is done by use of asymmetric crypto system and has function which envelop
and transform the initial electronic record into another electronic record - section 3(2) of
Information Technology Act.
 735

Any electronic record can be authenticated by electronic signature or electronic

authentication technique, which is reliable as per criteria specified in section 3A(2) of
Information Technology Act.
Digital signature requires authentication from third party but not in case of electronic
invoice.
Often invoices printed on computer carry statement 'This invoice is generated on computer'.
This does not require 'signature'. This is not 'electronic signature' and that statement has no
legal validity.
37.5-8 Quick Response (QR) Code on tax invoice
Government may specify that tax invoice shall have Quick Response (QR) Code, subject to
conditions and restrictions as may be specified - sixth proviso to rule 46 of CGST Rules
inserted w.e.f. 1-4-2020.
An invoice issued by a registered person, whose aggregate turnover in any preceding
financial year from 2017-18 onwards exceeds Rs 500 crore, to an unregistered person (i.e.
B2C invoice), shall have Quick Response (QR) code w.e.f. 1-12-2020. Where such registered
person makes a Dynamic Quick Response (QR) code available to the recipient through a
digital display, such B2C invoice issued by such registered person containing cross-reference
of the payment using a Dynamic Quick Response (QR) code, shall be deemed to be having
Quick Response (QR) code - Notification No. 14/2020-CT dated 21-3-2020 as amended on
30-9-2020.
However, no penalty will be imposed for non-compliance during 1-12-2020 to 30-6-2021, if
he complies with the provisions w.e.f. 1-7-2021 - Notification No. 89/2020 - CT the 29-11-
2020 amended on 30-3-2021.
As per clarifications issued on gst.gov.in portal in September 2020, purpose of QR code is to
enable payment using UPI by a mobile application by scanning QR Code. The requirements
of Dynamic QR Code are independent of provisions relating to e-invoice and no connection
with e-invoicing mandated for B2B supplies and exports. QR Code is to be generated by
supplier either on point of sale (PoS) machine or invoice issued. QR code should be printed
on invoice. The purpose is to encourage e-payment.
In case of e-invoices, QR Code will be generated by IRP (Invoice Registration Portal) and
return against the e-invoice reported to IRP.
As per rule 138A(2) of CGST Rules, QR code having an embedded IRN may be produced
electronically for verification by the proper officer in lieu of physical copy of tax invoice.
In case, invoice is issued in the manner prescribed under rule 48(4) [e-invoice], the Quick
Response (QR) code having an embedded Invoice Reference Number (IRN) in it, may be
produced electronically, for verification by the proper officer in lieu of the physical copy of
such tax invoice - Rule 138A(2) of CGST rules as substituted w.e.f. 30-9-2020.
37.5-8a Clarifications in respect of Dynamic Quick Reference (QR) Code on B2C invoices
CBI&C, vide circular No. 146/02/2021-GST dated 23-2-2021 has clarified as follows.
Non-applicability of QR Code - Provisions of QR Code are applicable to a tax invoice issued
to an unregistered person by a registered person (B2C invoice) whose annual aggregate
 736

turnover exceeds 500 Cr. rupees in any of the financial years from 2017-18 onwards.
However, the said notification is not applicable to an invoice issued in following cases:
(i) (a) an insurer or a banking company or a financial institution, including a non-banking
financial company (b) a goods transport agency supplying services in relation to
transportation of goods by road in a goods carriage (c) supplying passenger
transportation service (d) supplying services by way of admission to exhibition of
cinematograph in films in multiplex screens
(ii) OIDAR supplies made by any registered person, who has obtained registration under
section 14 of the IGST Act, 2017, to an unregistered person.
(iii) Exports (even if supply is to unregistered persons)

Parameters/details required on QR Code - Following information should be contained in

QR Code -(i) Supplier GSTIN number (ii) Supplier UPI ID (iii) Payee's Bank A/C number and
IFSC (iv) Invoice number & invoice date (v) Total Invoice Value and (vi) GST amount along
with breakup i.e. CGST, SGST, IGST, CESS, etc.
Further, Dynamic QR Code should be such that it can be scanned to make a digital payment.
If customer pays without using Dynamic QR Code, though supplier has displayed QR Code
- This is permissible. If customer makes payment using any mode like UPI, credit/debit card
or online banking or cash or combination of various modes of payment, with or without
using Dynamic QR Code, or in cash, without using Dynamic QR Code and the supplier
provides a cross reference of the amount paid in cash, along with date of such payment on
the invoice; it is sufficient.
Payment made by customer before Invoice i.e. Advance Payment - Supplier can make
available to customers an electronic mode of payment like UPI Collect, UPI Intent or similar
other modes of payment, through mobile applications or computer based applications. In
such case, though Dynamic QR Code is not displayed, but the details of merchant as well as
transaction are displayed/captured otherwise, the cross reference of the payment made
using such electronic modes of payment on the invoice is sufficient.
However, if payment is made after generation/issuance of invoice, the supplier shall provide
Dynamic QR Code on the invoice.
Suppliers using e-commerce portal when E-commerce operator (ECO) or the online
application has complied with the Dynamic QR Code requirements - The provisions of the
notification shall apply to each supplier/registered person separately, if such person is liable
to issue invoices with Dynamic QR Code for B2C supplies (i.e. turnover above specified limit).
In case, the supplier is making supply through the E-commerce portal or application, and the
supplier gives cross references of the payment received in respect of the said supply on the
invoice, it is sufficient. In cases where payment is made after generation/issuance of invoice,
the supplier shall provide Dynamic QR Code on the invoice (if his turnover is above specified
limit).
37.5-9 Penalty if tax invoice does not contain all required details
 737

If tax invoice does not contain all prescribed details, penalty upto Rs. 25,000 can be imposed
- CBIC circular No. 90/09/2019-GST dated 18-2-2019.
37.5-10 Compulsory Preparation of e-invoice
E-invoice has been made mandatory w.e.f. 1-1-2021 for registered persons whose aggregate
turnover in a financial year exceeds Rs 50 crores - Notification 13/2020-CT dated 21-3-2020
as amended w.e.f. 1-4-2021. [During 1-10-2020 to 31-12-2020, e-invoice was mandatory for
registered persons whose aggregate turnover in a financial year exceeds Rs 500 crores.
During 1-1-2021 to 31-3-2021, it was mandatory for registered persons whose aggregate
turnover in a financial year exceeds Rs 100 crores].
The invoice shall be prepared by such class of registered persons as may be notified by the
Government, on the recommendations of the Council, by including such particulars
contained in FORM GST INV-01 after obtaining an Invoice Reference Number by uploading
information contained therein on the Common Goods and Services Tax Electronic Portal in
such manner and subject to such conditions and restrictions as may be specified in the
notification - rule 48(4) of CGST Rules inserted w.e.f. 13-12-2019 as amended on 30-7-2020.
Form GST INV-01 has been substituted w.e.f. 30-7-2020 specifying Schema for e-Invoice.
The Commissioner may, on the recommendations of the Council, by notification, exempt a
person or a class of registered persons from issuance of invoice under rule 48(4) for a
specified period, subject to such conditions and restrictions as may be specified in the said
notification - proviso to rule 48(4) inserted w.e.f. 30-9-2020.
Relaxation has been given to taxpayers from the requirement to generate IRN In respect of
invoices issued during the period month October, 2020. In these cases, Invoice Reference
Number ('IRN') for such invoices from Invoice Reference Portal ('IRP') can be generated
within 30 days from the date of invoice - CBI&C Notification No. 73/2020-CT dated 1-10-
2020.
SEZ are not required to issue e-invoice [amendment dated 30-7-2020].
If invoice is not prepared in aforesaid manner, it will be invalid.
Every invoice issued by a person to whom rule 48(4) applies in any manner other than the
manner specified in rule 48(4) shall not be treated as an invoice - rule 48(5) of CGST Rules
inserted w.e.f. 13-12-2019.
The provisions of rule 48(1) and 48(2) shall not apply to an invoice prepared in the manner
specified in rule 48(4) - rule 48(6) of CGST Rules inserted w.e.f. 13-12-2019. - - Thus,
two/three copies with markings as required in rule 48(1) and 48(2) shall not apply to e-
invoices.
The taxable person can, in addition, have a printed invoice.
Persons mandatorily required to issue e-invoice - Registered person, other than a Special
Economic Zone unit and those referred to in sub-rules (2), (3), (4) and (4A) of rule 54 of the
said rules, whose aggregate turnover in any preceding financial year from 2017-18 onwards
exceeds one hundred crore rupees, as a class of registered person who shall prepare invoice
and other prescribed documents, in terms of rule 48(4) in respect of supply of goods or
 738

services or both to a registered person - Notification No. 13/2020 - CT dated 21-3-2020

amended w.e.f. 1-1-2021 [earlier, the limit was Rs 500 crores].
[Note - Rule 54(2) - Insurer, Banking company, FI, NBFC, Rule 54(3) - GTA, Rule 54(4) -
Passenger Transport Service, Rule 54(4A) - Admission to films in multiplex screens].
The invoice is not required for B2C transaction. However, QR Code is required.
IRP - Electronic portals for e-invoice - IRP (Invoice Registration Portal) is the website for
uploading/reporting of invoices. Ten portals starting from www.einvoice1.gst.gov.in to
www.einvoice10.gst.gov.in have been notified for preparation of e-invoice. These websites
are managed by GSTN - Notification No. 69/2019 - CT dated 13-12-2019.
Where e-invoice required - E-invoice is required for (a) tax invoice [B2B, B2B on RCM (b)
Revised tax invoice, Credit Note and Debit note (c) Consolidated tax invoice by insurer,
banking company or Financial Institution (d) Export Invoice.
No e-invoice for B2C transaction - E-invoice is not required for supplies by registered person
to unregistered person.
Where e-invoice is not required - E -invoice is not required for self-invoice on RCM,
consolidated tax invoice in B2C supplies. It is also not required for following - Rule 54(2) -
Insurer, Banking company, FI, NBFC, Rule 54(3) - GTA, Rule 54(4) - Passenger Transport
Service, Rule 54(4A) - Admission to films in multiplex screens.
e-Invoice will be auto-populated in GSTR-1 of supplier - e-Invoice will be auto-populated in
GSTR-1 of supplier upon successful generation of IRN (Invoice Reference Number). Details
can be downloaded as excel file. [Thus, the supplier is not required to upload those invoices
again in his GSTR-1] [instruction dated 13-11-2020]
Electronic portals for e-invoice - Ten portals starting from www.einvoice1.gst.gov.in to
www.einvoice10.gst.gov.in have been notified for preparation of e-invoice. These websites
are managed by GSTN - Notification No. 69/2019-CT dated 13-12-2019.
Edition of invoices uploaded - The details of e-invoices uploaded in GSTR-1 can be
edited/deleted by taxpayer. However, in such cases, 'Source' 'IRN' and 'IRN date' fields will
be rest to blank. These invoices will not get reflected in GSTR-2A/2B/4A/6A also. Such edited
documents will be treated as uploaded separately by taxpayer - Instructions on gst.gov.in
website dated 11-1-2021.
Downloading of invoices uploaded - Consolidated download facility of all documents
populated from e-invoices is available in GSTR-1 dashboard. The download will be in excel
form.
37.5-11 Procedure for generation of E-Invoice
National Informatics Centre (NIC) has built the e-invoice system as per the latest e-invoice
(IRN) schema published on the GSTN portal. The details are available on
https://einvoice1.gst.gov.in since August 2020.
The tax payers have to generate the IRN for the supplies/sales. The IRN has to be generated
for tax Invoices, Debit Notes and Credit Notes for the local, inter-state and export
transactions. The tax payer has to upload the complete invoice details, prepared manually
or through internal ERP/accounting system, as per the format, and after due validations of
 739

the data, the system returns the IRN with the signed invoice and QR code back to the tax
payer. The IRN, ACK No, Date and QR code has to be printed by the tax payer on the invoice
being issued to the buyer. The IRN can be generated by the supplier only and not by buyer
or transporter.
There is a facility to the user to cancel the IRN, if active e-way bill is not there. That is, the e-
way bill is not generated or the e-way bill generated and later cancelled, then the user is
allowed to cancel the IRN. The tax payer can also see the features like rules, notifications,
help, manuals, Audio-Video materials, FAQs, etc. on the e-invoice portal.
The tax payer can come to know his eligibility for generation IRN by going to the e-invoice
portal and selecting 'e-invoice status of Tax Payer' under Search option. On entry of the
GSTIN, the system will indicate whether this GSTIN is enabled/notified for the IRN
generation.
One can upload the IRN generated and signed invoice file and get it verified on the portal for
the authenticity of the IRN. For this option, select 'Verify Signed Invoice' under Search
option.
There is a facility to login to the e-invoice system. Single Sign On system has been used to
login to the e-way bill and e-invoice systems. If the tax payer has the username and password
created on the e-way bill system, then same can be used to login to this system. If the tax
payer has not registered in the e-way bill system, he can use the registration facility and
register for the e-invoice system. Then system enables him automatically for both the e-way
bill and e-invoice systems.
The e-Invoice System provides the two modes of IRN generation - Offline and API. The tax
payers can also generate the e-way bill along with the IRN in one go or generate IRN and the
e-way bill later based on the IRN. On generation of IRN, the system returns the signed invoice
in the JSON format with the QR code, which can be used to preserve and share with the
buyers, if required.
There is an option in the website to download a Mobile App (for Android and iOS) which may
be used to verify the authenticity of the QR code and the contents printed on the Invoice.
This app may be used by any taxpayers or any external agencies like banks and other
financial institutions for verifying the invoice.
The tax payer can also know his/her sister concerns, generating the IRNs and e-way bills
using API, after logging into the portal. This helps him to tie up with his/her sister concerns
for integration of API mode.
Before integration with the API on production system, the tax payer needs to do the testing
of API integration on the sand-box system (https://einv-apisandbox.nic.in). In the sandbox
system, the tax payer can register and understand the process of IRN integration and test
the integration with his/her own system.
The Tax payers having PAN based turnover more than Rs 500 Crores can use any of the
following methods for IRN generation -
Offline tool - Upload the invoices in standard format and generate the IRN in one go
 740

API - Through GSPs integration - System-to-system integration using APIs through

registered GSPs
API - Direct integration - System-to-System integration using API directly from Tax
Payers system
API - Through enabled sister concerned GSTIN - System-to-System integration using
API through the sister company of the Tax payers having same PAN. If it has been
enabled for API.
E-Way Bill API enabled Tax Payers - System-to-System integration using API for
already E-Way Bill enabled Tax Payers

Detailed Procedures has been given on https://einvoice1.gst.gov.in portal.

NIC-GePP Invoice Preparing and Printing Tool - NIC-GST e-invoice Preparing and Printing
(NIC-GEPP Ver 1.0) has been made available to print e-invoice with QR code, after
downloading IRN from e-invoice portal. The tool is available under Help>Tools>Bulk
Generation of Tools - information of e-invoice portal dated 1-1-2021.
37.5-12 Auto population of e-invoices in GSTR-1
GSTN, in its advisory dated 18-11-2020 has clarified as follows -
Upon successful generation of IRN, details of such e-invoices will be auto-populated in
respective tables of GSTR-1. The same can be downloaded as excel file also.
In case the GSTR-1 for corresponding period was already filed by the taxpayer, then, the
details from e-invoices can be downloaded as excel file. The details would be auto-populated
based on document date. Auto-population into GSTR-1 will be in respective table of GSTR-
1.
The item-level details in the document will be aggregated at rate-level for the purpose of
auto-population into GSTR-1. For the auto-populated invoices, below additional details will
also be displayed - (a) Source (e-invoice) (b) Invoice Reference Number (IRN) (c) Invoice
Reference Number Date (IRN Date).
After auto-population of details from e-invoices, in case of cancellation of IRN, such
documents will be deleted in the respective table.
Details of e-invoices auto-populated in GSTR-1 can be edited/deleted by the taxpayer.
However, in such cases, the 'Source', 'IRN' and 'IRN date' fields will be reset to blank in
respective tables of GSTR-1. Such edited documents will be treated as if they were not auto-
populated but uploaded separately by taxpayer.
Before filing GSTR-1, taxpayers should review the details of e-invoices auto-populated in
specified tables.
37.5-13 Generation of E-way will or part A of E-way bill along with or after generation of
IRN
E-invoice system allows taxpayer to generate E-way bill along with IRN (Invoice Reference
Number) or after generation of IRN. There are two APIs for this purpose. There is also facility
to generate E-way bill or Part A slip. Part A slip can be assigned to transporter and then
 741

transporter can generate regular e-way bill. If supplier is aware about part B details, he can
pass on invoice details and part B details to transporter. If is knows only details of
transporter, he can pass on details with transporter ID. If he supplier is not aware of details
of transporter and part B, he can pass on details of IRN to transporter who can update it
later - instructions on e-way bill website dated 16-12-2020.
37.6 Bill of Supply when no tax invoice is required
A registered taxable person supplying exempted goods or services or both or paying tax
under the provisions of section 10 (composition scheme) shall issue, instead of a tax invoice,
a bill of supply containing such particulars and in such manner as may be prescribed - section
31(3)(c) of CGST Act.
This provision also applies to person who is paying GST on services under simplified scheme
as per Notification No. 2/2019-CT (Rate) dated 7-3-2019 - Removal of Difficulty Order No.
3/2019-CT dated 8-3-2019 [Thus, small taxable persons paying GST @ 6% on services shall
issue 'Bill of Supply' and not 'tax invoice'].
No Bill of Supply for small value goods and services - The registered person may not issue
a bill of supply if the value of the goods or services or both supplied is less than two hundred
rupees, subject to conditions as may be prescribed - proviso to section 31(3)(c) of CGST and
SGST Act.
37.6-1 Contents of Bill of supply
A bill of supply referred to in section 31(3)(c) of CGST and SGST Act shall be issued by the
supplier containing the following details [Rule 49 of CGST and SGST Rules, 2017]:
(a) name, address and GSTIN of the supplier
(b) a consecutive serial number, not exceeding 16 characters, in one or multiple series,
containing alphabets or numerals or special characters -hyphen or dash and slash
symbolised as "-" and "/" respectively, and any combination thereof, unique for a
financial year
(c) date of its issue
(d) name, address and GSTIN or UIN, if registered, of the recipient
(e) HSN Code of goods or Accounting Code for services
(f) description of goods or services or both
(g) value of supply of goods or services or both taking into account discount or
abatement, if any, and
(h) signature or digital signature of the supplier or his authorized representative
(signature or digital signature on Bill of Supply is not required if electronic bill of
supply is issued - third proviso to rule 49 of CGST Rules inserted w.e.f. 31-12-2018).

Relaxation is giving HSN code or accounting code of service and making consolidated invoice
as contained in rule 46 shall, mutatis mutandis, apply to the bill of supply issued under this
rule also.
 742

Tax Invoice or other document under other Act acceptable - Tax Invoice or other document
issued under any other Act in respect of non-taxable supply shall be acceptable instead of
Bill of Supply - - second proviso to Rule 49 of CGST and SGST Rules, 2017.
This relaxation is useful for suppliers of petroleum products or alcoholic liquor who are out
of GST net.
37.6-2 Quick Response (QR) Code on Bill of Supply
Government may specify that Bill of Supply shall have Quick Response (QR) Code, subject to
conditions and restrictions as may be specified - fourth proviso to rule 49 of CGST Rules
inserted w.e.f. 28-6-2019.
37.7 Receipt voucher in case of receipt of advance
A registered taxable person shall, on receipt of advance payment with respect to any supply
of goods or services by him, issue a receipt voucher or any other document, including therein
such particulars as may be prescribed, evidencing receipt of such payment - section 31(3)(d)
of CGST Act.
If subsequently, supply is not made and tax invoice not issued, refund voucher should be
issued against such payment - section 31(3)(e) of CGST Act.
If against an advance, tax Invoice is issued in same tax period, advance need not be shown
in the GSTR 1 return. Details of invoice itself should be uploaded. Details of advances against
which supply is not made during the month shall be reported in consolidated basis in table
11 of GSTR 1. As and when invoice is issued against the advance, the invoices should be
uploaded in form GSTR 1 and adjustment of tax paid against these advances against the tax
payable on the invoices uploaded in GSTR 1 shall be done in table 11 of form GSTR-1 - FAQ
No. 18 of FAQ on Mining issued by Directorate General of Taxpayer Services on 31-7-2017.
This is also made clear in Note No. 15 below the form GSTR-1.
Advance can be adjusted in totality. While raising invoice subsequent to receipt of advance
tax payable will get reduced by the amount of tax paid on advance and balance amount of
advance may be adjusted against future supplies - FAQ No. 20 of FAQ on Mining issued by
Directorate General of Taxpayer Services on 31-7-2017.
No tax on advance received in respect of goods - Provision for payment of tax on advances
received have been deleted vide Notification No. 66/2017-CT dated 15-11-2017. This
relaxation is in respect of supply of goods and not in respect of supply of services.
37.7-1 Required contents of Receipt Voucher
A receipt voucher referred to in section 31(3)(d) of CGST Act shall contain the following
particulars - (a) name, address and GSTIN of the supplier (b) a consecutive serial number
(not exceeding 16 characters), containing alphabets or numerals or special characters -
hyphen or dash and slash symbolised as "-" and "/"respectively, and any combination
thereof, unique for a financial year (c) date of its issue; (d) name, address and GSTIN or UIN,
if registered, of the recipient (e) description of goods or services (f) amount of advance taken
(g) rate of tax (central tax, State tax, integrated tax, Union territory tax or cess) (h) amount
of tax charged in respect of taxable goods or services (central tax, State tax, integrated tax,
Union territory tax or cess) (i) place of supply along with the name of State and its code, in
 743

case of a supply in the course of inter-State trade or commerce (j) whether the tax is payable
on reverse charge basis; and (k) signature or digital signature of the supplier or his authorized
representative - Rule 50 of CGST and SGST Rules, 2017.
Provision for payment of tax on advances received have been deleted vide Notification No.
66/2017-CT dated 15-11-2017. This relaxation is only in respect of supply of goods and not
in respect of services.
37.7-2 Contents of Refund Voucher
Contents of Refund Voucher are specified in Rule 51 of CGST and SGST Rules, 2017. The
requirements are identical with requirements of Receipt Voucher as specified in rule 50,
except that cross reference of Receipt Voucher is required and amount of refund is to be
indicated, instead of amount received as advance.
If refund voucher is made, it should be for full value of advance including the amount of GST
- FAQ No. 19 of FAQ on Mining issued by Directorate General of Taxpayer Services on 31-7-
2017.
37.8 Invoice and payment voucher when GST payable under reverse charge, if supplier not
registered
A registered person who is liable to pay tax under section 9(3) or 9(4) of CGST Act [reverse
charge] shall issue an invoice in respect of goods or services received by him on the date of
receipt of goods or services from the supplier who is not registered under the Act - section
31(3)(f) of CGST Act.
Such invoice is required only when supplier is not registered under GST, as the recipient is
required to pay tax when supplier is not registered under GST.
Such invoice can be issued on monthly basis in consolidated form, if reverse charge applies
under section 9(4) of CGST Act, where value of such supplies exceeds Rs. 5,000 in a day from
any or all suppliers - Second proviso to Rule 46 of CGST and SGST Rules, 2017.
This is obviously to reduce compliance costs.
This relaxation is only in respect of invoices where reverse charge is under section 9(4) of
CGST Act. Thus, when tax is payable under reverse charge under section 9(3) of CGST Act
[corresponding section 5(3) of IGST Act] (in case of specified services), consolidated invoice
is not permissible (why? Only God and babu knows).
When payment is made by recipient of supply to supplier in respect of supplies where tax is
payable under reverse charge, payment voucher is required to be issued - Section 31(3)(g)
of CGST Act.
37.8-1 Contents of payment voucher
Contents of Payment Voucher are specified in Rule 52 of CGST and SGST Rules, 2017.
Broadly, contents are similar to receipt voucher with some changes.
37.9 Tax cannot be collected by unregistered taxable person in his invoice
A person who is not a registered taxable person shall not collect in respect of any supply of
goods or services or both any amount by way of tax under the CGST/SGST Act. Further, no
registered person shall collect tax except in accordance with the provisions of this Act and
the rules made thereunder - section 32 of CGST Act.
 744

37.10 Credit note, debit notes or supplementary invoice

A taxable person can issue debit note or supplementary invoice or credit note in case of
supplies made by him, as per provisions of GST Act and Rules.
Recipient is not supposed to or required to issue credit note or debit note with GST.
Debit Note or Credit Notes under GST law can be issued only in specified situations.
Restriction on debit/credit note not applicable to financial credit/debit notes without GST
implications - The provisions under GST Act and Rules are applicable only for debit/credit
notes with GST implications. These restriction are not applicable to financial credit/debit
notes without GST implications. Thus, financial credit/debit notes without GST implications
can be issued as per normal business practices.
37.10-1 Credit Note with GST implications
Credit Note means a document issued by a registered person under section 34(1) - section
2(17) of CGST Act.
Where a tax invoice has been issued for supply of any goods or services or both and the
taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax
payable in respect of such supply, or where the goods supplied are returned by the recipient,
or where goods or services or both supplied are found to be deficient, the registered person,
who has supplied such goods or services or both, may issue to the recipient a credit note
containing such particulars as may be prescribed - section 34(1) of CGST Act.
Credit Note with GST cannot be issued on account of renegotiation of prices after supply, if
price is reduced. In such cases, credit note should be issued without showing GST. This would
be more so when recipient is in position to avail input tax credit. Such credit note (without
GST) is not required to be uploaded in monthly return [confirmed in CBI&C circular No.
72/46/2018-GST dated 26-10-2018 though in different context].
Credit Note with GST cannot be issued in respect of B2C supply as the tax invoice does not
have GSTIN. Credit note can be issued without GST. There is no provision to adjust GST in
B2C invoice.
No credit note with GST for bad debts - Credit Note with GST cannot be issued for bad
debts.
Credit Note in case of supply to unregistered person - The GSTN system does not allow
issue of Credit Note with GST cannot be issued in respect of B2C supply as the tax invoice
does not have GSTIN of buyer. Hence, GST paid on supply to unregistered person cannot be
adjusted against other GST liability.
Really, there is no such restriction under section 34 of CGST Act. In fact, issue of credit note
with GST to unregistered customer is specifically permitted as explained below.
FAQ No. 20 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019 has
clarified as follows.
If apartment is booked before 1-4-2019 but cancelled after 1-4-2019, the promoter can issue
credit note under section 34 of CGST Act and refund the amount with tax to customer. If he
refunds the total amount with GST, the promoter can adjust the tax amount refunded can
 745

be adjusted against other liability of GST including liability arising at the rate of 1%/5% GST
payable, if entire amount is refunded to customer.
If customer who has booked apartment prior to 1-4-2019 cancels the booking made earlier
and makes fresh booking, the tax paid by him earlier will be reversed by promoter.
Though this clarification is in respect of supply of apartments, the principle should apply to
all B2C supplies made.
Issue of Credit Notes - Where one or more tax invoices have been issued for supply of any
goods or services or both and the taxable value or tax charged in that tax invoice is found to
exceed the taxable value or tax payable in respect of such supply, or where the goods
supplied are returned by the recipient, or where goods or services supplied are found to be
deficient, the registered person, who has supplied such goods or services or both, may issue
to the recipient one or more credit notes for supplies made during the financial year
containing such particulars as may be prescribed - section 34(1) of CGST Act. The words in
italics inserted vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019.
Impact of the Amendments made vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019 -
Following is the impact - (1) Flow of debit notes and credit notes with GST is a uni-directional
flow from supplier. Credit Note or Debit Note with GST cannot be issued by recipient (2) One
Credit/Debit Note for multiple tax invoices and multiple credit/debit notes for one tax
invoice is permissible (3) Debit/Credit Note should be financial year-wise i.e. one
credit/debit note cannot cover tax invoices in multiple financial years.
Though the amendment was made long ago, GSTN system has made the corresponding
provision on its portal only w.e.f. 14-9-2020.
Thus, w.e.f. 14-9-2020, date of issuance of credit note and date of issue of underlying invoice
has been de-linked. The effect is that credit note in respect of an invoice can be raised even
after 30th September following end of financial year to which the invoice pertains.
Issue of Credit Note if time expired drugs or medicines are returned - CBI&C circular No.
72/46/2018-GST dated 26-10-2018 has clarified as follows -
If time expired drugs or medicines are returned to manufacturer-supplier, he can issue credit
note. If the goods are returned before 30th September of the following year, the
manufacturer can issue credit note with GST under section 34(2) of CGST Act. In that case,
the GST liability of recipient will get reduced. The Credit Note will have to be uploaded. The
tax liability can be adjusted
However, if such goods are returned after 30th September of following year, the
manufacturer-supplier can still issue credit note but without GST, as the GST in respect of
supplies made in financial year can be adjusted only upto return filed for September of
following year.
When such returned goods are destroyed by the manufacturer, he is required to reverse the
ITC attributable to the manufacture of such goods, in terms of section 17(5)(h) of CGST Act.
Alternatively, the time expired goods may be returned by retailer/wholesaler by issuing
normal tax invoice. The manufacturer who receives such time expired goods can take ITC of
the GST charged by the retailer/wholesaler. When the manufacturer destroys the rejected
 746

goods, he has to reverse the ITC availed by him, as per section 17(5)(h) of IGST Act - CBI&C
circular No. 72/46/2018-GST dated 26-10-2018.
Declaration in return of details of credit notes issued - Any registered person who issues a
credit note in relation to a supply of goods or services or both shall declare the details of
such credit note in the return for the month during which such credit note has been issued
but not later than September following the end of the year in which such supply was made,
or the date of filing of the relevant annual return, whichever is earlier, and the tax liability
shall be adjusted in the manner specified in this Act - section 34(2) of CGST Act.
Reduction in tax liability subject to unjust enrichment - Reduction in output tax liability of
the supplier shall be permitted if the incidence of tax and interest on such supply has been
passed on to any other person - proviso to section 34(2) of CGST Act.
Thus, if the credit note is not accepted by recipient and if he does not reverse equivalent
input tax credit, reduction in tax liability will not be allowed to supplier.
Financial/Commercial Credit Note without GST - The credit note discussed above are with
GST. However, Financial/Commercial Credit Note without GST can be issued.
Financial/commercial credit note means credit note other than that specified in CGST Rules,
i.e. without any GST implication.
This has been specifically permitted vide Para D of CBI&C circular No. 92/11/2019-GST dated
7-3-2019 - view reiterated in para 5 of CBI&C circular No. 105/24/2019-GST dated 28-6-2019.
37.10-2 Debit note or supplementary invoice with GST if amount charged was less
If prices are increased after renegotiations, the supplier should issue debit note or
Supplementary Invoice with GST.
Debit Note means a document issued by a registered person under section 34(1) - section
2(18) of CGST Act.
'Debit Note' shall include a supplementary invoice - Explanation to section 34(4) of CGST Act.
Where one or more tax invoices have been issued for supply of any goods or services or both
and the taxable value or tax charged in that tax invoice is found to be less than the taxable
value or tax payable in respect of such supply, the registered person, who has supplied such
goods or services or both, shall issue to the recipient one or more debit notes for supplies
made during the financial year containing such particulars as may be prescribed - section
34(3) of CGST Act. The words in italics inserted vide CGST (Amendment) Act, 2018 w.e.f. 1-
2-2019.
Impact of the Amendments made vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019 -
Following is the impact - (1) Flow of debit notes and credit notes with GST is a uni-directional
flow from supplier. Credit Note or Debit Note with GST cannot be issued by recipient (2) One
Credit/Debit Note for multiple tax invoices and multiple credit/debit notes for one tax
invoice is permissible (3) Debit/Credit Note should be financial year-wise i.e. one
credit/debit note cannot cover tax invoices in multiple financial years.
Though the amendment was made long ago, GSTN system has made the corresponding
provision on its portal only w.e.f. 14-9-2020.
 747

Debit note includes supplementary invoice --For the purposes of CGST Act, the expression
"debit note" shall include a supplementary invoice - explanation to section 34 of CGST Act.
Recipient can issue debit note without GST - The CGST Act envisages issue of debit/credit
notes only by supplier. However, in my view, this would be so only if debit/credit note is to
be issued with GST for increasing or reducing the GST liability of supplier (and corresponding
reduction or increase in ITC of recipient). However, the recipient may not accept the value
as shown in invoice of supplier. In that case, if the supplier does not issue credit note, the
recipient has no option but to issue debit note without GST. Otherwise, his purchases will
be inflated.
However, in my view, recipient cannot himself issue credit note as that will enhance GST
liability of supplier, without his consent.
Declaration of debit note in the return of supplier - Any registered person who issues a
debit note in relation to a supply of goods or services or both shall declare the details of such
debit note in the return for the month during which such debit note has been issued and the
tax liability shall be adjusted in such manner as may be prescribed- section 34(4) of CGST
Act.
Debit note in respect of an invoice can be issued in subsequent financial year also - Section
16(4) of CGST Act states that a taxable person shall not be entitled to take input tax credit in
respect of any invoice or debit note for supply of goods or services or both, after the filing
of the return under section 39 of CGST Act for the month of September following the end of
financial year to which such invoice or (*) debit note pertains or filing of the relevant annual
return, whichever is earlier.
* The words were 'invoice relating to such'. These words have been omitted vide Finance
Act, 2020, from 1-1-2021.
Thus, Date of issuance of debit note and date of issue of underlying invoice has been de-
linked. The effect is that debit note in respect of an invoice can be raised even after 30th
September following end of financial year to which the invoice pertains.
37.10-3 Requirements of revised tax invoice
A revised tax invoice referred to in section 31 (*) shall contain the following particulars [Rule
53(1) of CGST and SGST Rules, 2017]. (* - The words 'and credit or debit note referred to in
section 34' omitted w.e.f. 1-2-2019 as separate provisions have been made for contents of
debit note and credit note).
(a) the word "Revised Invoice", wherever applicable, indicated prominently
(b) name, address and GSTIN of the supplier
(c) *Omitted [Till 1-2-2019 the words were 'nature of the document'].
(d) a consecutive serial number (not exceeding 16 characters), in one or multiple series,
containing alphabets or numerals or special characters -hyphen or dash and slash
symbolised as "-" and "/" respectively, and any combination thereof, unique for a
financial year
 748

(e) date of issue of the document

(f) name, address and GSTIN or UIN, if registered, of the recipient
(g) name and address of the recipient and the address of delivery, along with the name
of State and its code, if such recipient is unregistered
(h) serial number and date of the corresponding tax invoice or bill of supply (as
applicable)
(i) *Omitted [Till 1-2-2019 the words were 'value of taxable supply of goods or services,
rate of tax and the amount of the tax credited or, as the case may be, debited to the
recipient'] and
(j) signature or digital signature of the supplier or his authorized representative.

37.10-4 Revised Invoice for the period between date of commencement of business and
date of registration
If application for GST registration is made within 30 days from the date the person was liable
to pay GST, he can issue revised invoices for GST for period prior to registration. The
provisions are contained in Rule 53(2) of CGST and SGST Rules, 2017. The recipient can take
ITC on basis of such revised invoice.
Every registered person who has been granted registration with effect from a date earlier
than the date of issuance of certificate of registration to him, may issue revised tax invoices
in respect of taxable supplies effected during the period starting from the effective date of
registration till the date of issuance of certificate of registration - Rule 53(2) of CGST and
SGST Rules, 2017.
The registered person may issue a consolidated revised tax invoice in respect of all taxable
supplies made to a recipient who is not registered under the Act during such period - first
proviso to rule 53(2) of CGST and SGST Rules, 2017.
In case of inter-State supplies, where the value of a supply does not exceed Rs 2,50,000, a
consolidated revised invoice may be issued separately in respect of all recipients located in
a State, who are not registered under the Act - second proviso to rule 53(2) of CGST and SGST
Rules, 2017.
37.10-5 Contents of Debit Note and Credit Note
As per rule 53(1A) of CGST Rules, inserted w.e.f. 1-2-2019, credit or debit note referred to in
section 34 of CGST Act shall contain the following particulars, namely -
(a) name, address and Goods and Services Tax Identification Number of the supplier.
(b) nature of the document.
(c) a consecutive serial number not exceeding sixteen characters, in one or multiple
series, containing alphabets or numerals or special characters-hyphen or dash and
slash symbolised as "-" and "/" respectively, and any combination thereof, unique for
a financial year.
 749

(d) date of issue of the document.

(e) name, address and Goods and Services Tax Identification Number or Unique Identity
Number, if registered, of the recipient.
(f) name and address of the recipient and the address of delivery, along with the name
of State and its code, if such recipient is unregistered.
(g) serial number(s) and date(s) of the corresponding tax invoice(s) or, as the case may
be, bill(s) of supply.
(h) value of taxable supply of goods or services, rate of tax and the amount of the tax
credited or, as the case may be, debited to the recipient; and
(i) signature or digital signature of the supplier or his authorised representative.

37.11 Invoice issued after suppression of facts, fraud, seizure and confiscation
Any tax paid in terms of sections 74, 129 and 130 of CGST Act are not eligible for input tax
credit. This covers GST paid after detection of fraud or suppression or goods removed in
contravention of GST Act - section 17(5)(i) of CGST Act - same provision in Rule 36(3) of CGST
and SGST Rules, 2017.
In such cases, if the supplier issues Tax Invoice at a later stage, it should be clearly marked
as 'INPUT TAX CREDIT NOT ADMISSIBLE' - Rule 53(3) of CGST and SGST Rules, 2017.
 750

E-way Bill for transport of goods

38.1 Background of e-way bill provisions
On introduction of GST w.e.f. 1-7-2017, many States have removed the physical barriers at
State border for transport of goods by road. This has speeded up movement of goods to
some extent.
In absence of physical restrictions on movement of goods, some control is essential to
ensure that goods are not clandestinely removed and sold. Hence, a system of e-way bill has
been introduced.
Provisions relating to E-way Bill have been made by amending rules 138, 138A, 138B, 138C
and 138D in CGST Rules, 2017.
The revised rules were notified on 7-3-2018. These rules were made effective from 1-4-2018,
except one provision relating to issue of e-way bill by transporter when value of consolidated
cargo in inter-State movement of goods in a vehicle exceeds Rs. 50,000 even if individual
consignment value is less than Rs 50,000. This provision may be brought into effect at a later
stage.
FAQ issued by CBI&C - CBI&C (Central Board of Indirect Taxes and Customs) have issued
updated FAQs on 2-4-2018. These answers of most of the questions normally encountered
by suppliers, recipients and transporters.
FAQ on GST Chapter 13.3 issued by CBI&C on 15-12-2018 also contain instructions relating
to e-way bill.
Changes in procedures in April 2019 - Following changes have been made in e-way bill
system April 2019 - (a) Auto calculation of distance based on PIN codes in generation of e-
way bill (b) Knowing distance between places with two PIN Codes (c) Blocking generation of
two e-way bills on one invoice/document (d) Extension of e-way bill in case consignment is
in transit/movement (e) Report on list of e-way bills about to expire.
E-way Bill provision is Highway robbery - Provisions of e-way bill have been introduced to
check tax evasion. However, these are being used to harass transporters and taxable persons
and extract money (both official and unofficial).
E-way bill cannot be generated if returns were not filed by supplier or recipient or
registration was suspended - As per rule 138(E) of CGST Rules (amended on 22-12-2020),
notwithstanding anything contained in rule 138(1), no person (including a consignor,
consignee, transporter, an e-commerce operator or a courier agency) shall be allowed to
furnish the information in PART A of form GST EWB-01 in respect of a registered person,
whether as a supplier or a recipient, who - (a) has not filed statement in form GST CMP-08
(composition scheme) for two consecutive quarters; or (b) has not furnished the GSTR-3B
returns for a consecutive period of two tax periods (other than composition dealer) (c) has
not furnished the statement of outward supplies for any two months or quarters (in GSTR-
1) (other than composition dealer) or (d) whose registration has been suspended under the
provisions of sub-rule (1) or sub-rule (2) or sub-rule (2A) of rule 21A(1), 21A(2) or 21(2A) of
CGST Rules.
Jurisdictional Commissioner may, on receipt of an application from a registered person in
form GST EWB-05, on sufficient cause being shown and for reasons to be recorded in writing,
 751

by order, in form GST EWB-06 allow furnishing of the said information in PART A of form GST
EWB-01, subject to such conditions and restrictions as may be specified by him:
No order rejecting the request of such person to furnish the information in Part A of form
GST EWB-01 shall be passed without affording the said person a reasonable opportunity of
being heard.
The permission granted or rejected by the Commissioner of State tax or Commissioner of
Union territory tax shall be deemed to be granted or, as the case may be, rejected by the
Commissioner:
The said restriction was not applicable during the period from the 20th day of March, 2020
till the 15th day of October, 2020 (Covid-19 period), even if returns were not filed.
Online application for un-blocking of E-way Bill generation facility - As per instructions on
website dated 28-11-2020, for unblocking of this facility, taxpayer need to apply to
jurisdictional Tax Official in form GST EWB 05. To file an online application for unblocking
EWB generation facility on GST Portal, a taxpayer need to login to the portal and navigate to
Services> User services> My Applications. Select application type as "Application for
unblocking of E-way bill" and click 'New Application'. He will submit application in Form EWB-
05, with upload of up to 4 documents.
The application so filed is populated to dashboard of jurisdictional tax official. The tax official
can issue a Notice for personal hearing to the taxpayer. Then the taxpayer can file their reply
to the notice online, along with supporting documents. At conclusion of the proceedings,
the Tax Officer can issue an order (in Form EWB-06) approving the taxpayer application for
unblocking the EWB generation facility, after which their EWB generation facility will be
restored for the duration specified in the order.
If the Tax Officer rejects the taxpayer's application vide order in Form EWB-06, the EWB
generation facility will remain blocked and the taxpayer shall be required to file their
pending returns (in Form GSTR-3B/GSTR-1/Statement in FORM CMP-08), for restoration of
the EWB generation facility.
Online application for un-blocking of E-way Bill generation facility - As per instructions on
website dated 28-11-2020, for unblocking of this facility, taxpayer need to apply to
jurisdictional Tax Official in form GST EWB 05. To file an online application for unblocking
EWB generation facility on GST Portal, a taxpayer need to login to the portal and navigate to
Services> User services> My Applications. Select application type as "Application for
unblocking of E-way bill" and click 'New Application'. He will submit application in Form EWB-
05, with upload of up to 4 documents.
The application so filed is populated to dashboard of jurisdictional tax official. The tax official
can issue a Notice for personal hearing to the taxpayer. Then the taxpayer can file their reply
to the notice online, along with supporting documents. At conclusion of the proceedings,
the Tax Officer can issue an order (in Form EWB-06) approving the taxpayer application for
unblocking the EWB generation facility, after which their EWB generation facility will be
restored for the duration specified in the order.
If the Tax Officer rejects the taxpayer's application vide order in Form EWB-06, the EWB
generation facility will remain blocked and the taxpayer shall be required to file their
 752

pending returns (in Form GSTR-3B/GSTR-1/Statement in FORM CMP-08), for restoration of

the EWB generation facility.
Only one e-way bill for one invoice/document - Only one e-way bill can be generated for
one invoice or document - amendment made in April, 2019.
Procedure for road checks - CBI&C has issued detailed circular No. 41/15/2018-GST dated
13-4-2018, elaborating procedure for interception of conveyances for inspection of goods in
movement, detention, release and confiscation of contravening goods and conveyances.
The provisions are discussed later in this chapter.
38.1-1 Position in respect of applicability of e-way provisions for movement of goods
within the State
The provisions of e-way bill have been made effective from 1-4-2018 all over India for inter-
state movement of goods.
In case of movement of goods within the State, the provisions were implemented in stages.
However, it is stated that by 3-6-2018, inter-state movement of goods in all States will
become mandatory.
State Governments have powers to waive requirement of e-way bill for movement of goods
within the State for specified area as per rule 138(14)(d) of CGST Rules and SGST Rules.
Under these powers, some State Governments have issued notifications. All the State
Governments and Union Territories have issued notification making the provisions
applicable for movement of goods with the State.
Following State Governments have given exemption from requirement of e-way bill for
movement of goods within the State. The relaxations are as follows:
State Relaxation from requirement of e-way Notification No. and date
bill

1. Bihar e-way bill is required only if value Notification No. SO 180 dated 19-4-2018
exceeds Rs one lakh (earlier it was two amended on 14-1-2019
lakhs)

2. Chhattisgarh E-way bill is not required for 15 specified Notification No. F-10-31/2018/CT/V (46)
goods Chhattisgarh dated 19-6-2018.

3. Delhi E-way bill is required if value exceeds Rs. Notification No. 3/2018 dated 15-6-2018
one lakh
4. Goa E-way bill is required only for specified Notification No. CCT/26-2/2018-19/36
22 articles dated 28-5-2018

5. Gujarat e-way bill is not required for intra-city Notification dated 19-9-2018.
movement of goods, irrespective of [Earlier Notification No. GSL/GST/RULE-
value. In case of intra-State movement 138(14)/B.12 dated 11-4-2018 which has
of goods, e-way bill is required for all been rescinded on 19-9-2018].
goods w.e.f. 19-9-2018 [earlier, it was
required on for 19 types of goods].
 753

However, e-way bill is not required for

intra-State movement of flank, yarn,
fabric and garments for job work.
6. Himachal E-way bill is not required for 17 specified Notification No. 12-4/78-EXN-TAX-17408
Pradesh items dated 31-5-2018.
7. Jharkhand Intra-State movement of goods upto Notification No. 66 dated 26-9-2018
value of Rs 1,00,000 exempted, except
in case of 12 specified goods i.e. in case
of the 12 specified goods, e-way bill is
required for intra-state movement of
goods if value exceeds Rs 50,000.
8. Kerala Exemptions, irrespective of limit of value Notification No. 3/2018 - State Tax dated
- (a) sale of goods using sales van (b) 14-5-2018
Rubber latex, rubber sheets and rubber
scrap, spices (c) Movement of goods to
unregistered persons within 25 Km
9. Madhya provisions of e-way bill will apply only to Notification No. F-A-3-08-2018-1-V(43)
Pradesh 11 items specified dated 24-4-2018
10. e-way bill for intra-state movement of Notification No. 15E/2018 - State Tax
Maharashtra goods is not required if value is less than dated 29-6-2018
Rs one lakh. Further, for movement of
Hank, Yarn, Fabric and Garments for job
work, e-way bill is not required
irrespective of value
11. Punjab e-way bill for intra-state movement is Notification No. PA/ETC/2018/175
not required if value is less than Rs one (Punjab) dated 13-9-2018
lakh. Further, for movement of Fabric
for job work, e-way bill is not required
irrespective of value for movement upto
50 Kms within State of Punjab

12. Rajasthan e-way bill is not requirement, but Notification No.

relevant documents like tax invoice, (1) F17(131) ACCT/GST/2017/ 3743
delivery challan, bill of entry etc. should dated 6-8-2018
be carried for
(2) F17(131-Pt-II)ACCT/GST/
(1) movement of goods within
2017/6672 dated 30-3-2021
State (for job work
(2) Movement of goods within
State if value does not
exceed Rs one lakh, except
tobacco and its products like
 754

pan masala, cigarettes,

khaini, bidi w.e.f. 1-4-2021
13. Tamil Nadu e-way bill is required if value exceeds Rs. Notification No. 09/2018 dated 31-5-2018
one lakh. However, in case of some 100
specified items, no e-way bill is required
irrespective of value
14. West e-way bill is required if consignment Notification No. 13/2018-CT/GST dated 6-
Bengal value exceeds Rs. one lakh - E-way bill is 6-2018 and Notification No. 14/2018-
not required if goods are sent for job CT/GST dated 12-7-2018.
work or returned to Principal after job
work

38.1-2 Common portal to upload details of e-way bills

Central Government has notified www.ewaybillgst.gov.in as the common portal for
generation of e-way bill [EWB System for short]. It is managed by National Informa-tics
Centre, as common portal for furnishing e-way bill - Notification No. 9/2018-CT, dated 23-1-
2018.
The portal has following four user manuals -
1. User Manual - E-way Bill System
2. User Manual - Offline Tool (for bulk uploading of e-way bills).
3. User Manual for SMS Operations
4. User Manual for API Interface [site to Site Integration]

The EWB system (website) also has FAQs. These may be referred to as these give many useful
hints.
FAQs have been updated after fresh rules were notified on 7-3-2018. In other cases, there
might be some mismatch.
Various modes of generation of e-way bill - The e-way bill can be generated through various
modes like Web (online), Android App, SMS, using bulk upload tool and API bases site to site
integration.
The mobile app is not available on play store. The taxpayer has to register the mobile
numbers. He has to register the IMEI (International Mobile Equipment Identity) number of
the mobile phones through which he intends to generate e-way bill. He will get link through
SMS. Then he can download the app by clicking that link and enable it to get installed on his
mobile.
38.1-3 Register or enroll on the portal before you start using the EWB portal
Consignor, Consignee or transporter, as the case may be, is required to get registered on the
EWB system even if he has GSTIN.
After filling the GSTIN, he will get OTP and then he can generate username and password. It
is advisable to have same username and password as used for GSTIN.
 755

A transporter not having GSTIN is required to enroll on the EWB system. Income Tax PAN is
mandatory and it should match with details the transporter is uploading. Any one of director,
partner, manager or employee must have Aadhaar. It should be linked with mobile. Without
that the transporter is 'Niradhar'.
After enrolment, the transporter will get a 15 digit number based on State Code, PAN and
check digit. The transporter will get username and password, which should be properly
recorded.
If supplier or recipient himself is transporting the goods - If supplier or recipient himself
wants to transport the goods, he should enter his GSTIN as transporter. Separate registration
on portal as transporter is not required. After that, he can fill both part A and part B of e-
way bill and generate e-way bill. If he enters the portal as supplier or recipient, he can enter
only part A of the e-way bill. Note that e-way bill is complete only when both part A and part
B are completed and e-way bill is generated by system.
The validity period of e-way bill starts only after entire e-way bill is generated (both parts A
and B are filled in and system generates e-way bill).
Transporter or supplier can create multiple sub-users - Transporters or suppliers can create
multiple sub-users and allocate roles to them. The large transporters can declare their
various offices or business places as sub-users. Three sub-users can be generated for each
registered place of business - CBI&C press release dated 1-4-2018.
Unique Common Enrolment Number for transporters registered in more than one
States/Union Territories - Transporters registered in more than one States/Union
Territories can obtain 'Unique Common Enrolment Number' (UCEN) for purpose of
generation of e-way bills. Application for such (UCEN) should be made in form GST ENR-02.
This will be for one GSTIN. Thus, this UCEN should be used only with the GSTIN with which
it is linked - rule 58(1A) of CGST Rules inserted w.e.f. 19-6-2018.
Entering additional places of business by transporter - If the transporter is having additional
places of business in addition to the registered place of business, he can use the "Update
Additional Place" sub-option provided under "Update" option in the main menu of e-way bill
system to add/amend the additional places of business - FAQ dated 29-9-2018.
38.1-4 Amendments made in registration on GSTIN Common portal do not get
automatically amended in e-way bill portal
Amendments of GST registration details in GST Common Portal are not being shown
automatically on the e-way bill system. In such case the taxpayer has to login and use the
"My GSTIN from CP" sub-option provided under "Update" option in the main menu.
Some times, GSTIN in e-Way Bill portal is cancelled but is active in GSTN common portal. In
such cases, the taxpayer has to first go to the Taxpayer search option in the Home page of
e-Way Bill portal. He has to then enter his GSTIN and system will show his corresponding
GSTIN details existing in GST Common Portal. If the status of GSTIN is active, taxpayer can
login and generate the e-Way Bill - FAQ dated 29-9-2018.
38.1-5 New tool for bulk generation of e-way bills w.e.f. 1-10-2018
New e-way bill generating tool has been uploaded on e-way bill portal on 1-10-2018. Using
this tool, one can prepare JSON file to generate large number of e-way bills in one go.
 756

First method is to generate excel sheet from automated system. Another method is to enter
all requests in the format one by one and then keep them ready for upload.
38.1-6 E-way bill cannot be generated w.e.f. 21-8-2019, if supplier or recipient has not filed
two consecutive returns
As per rule 138E of CGST Rules, effective from 21-8-2019 (see notification No. 22/2019-CT
dated 23-4-2019, as amended on 21-6-2019), if the supplier or recipient or transporter or e-
commerce operator or courier has not filed returns for two consecutive months (normal
taxable person) or for two consecutive periods (taxable person covered under composition
scheme or service supplier under simple scheme), part A of e-way bill cannot be generated
by supplier, recipient, transporter, e-commerce operator or a courier agency.
Jurisdictional Commissioner of GST (of taxable person who has not filed the returns) can
grant special permission to file e-way bill in such cases, for which application has to be made.
He can refuse permission or grant permission with conditions after giving personal hearing.
38.2 Generation of e-way Bill
The e-way bill is of three parts.
Part A is description of goods, which is normally expected to be filled by consignor, but can
be filled by others also.
Part B is description of mode of transport, which is normally expected to be filled in by
transporter but in many cases, by others also.
The third part is unique e-way bill number and date, which is generated on common portal
once both parts get filled in.
Only one e-way bill for one invoice/document - Only one e-way bill can be generated for
one invoice or document - amendment made in April, 2019.
38.2-1 Who is required to generate Part A of GST EWB-01
The consignor is required to furnish specified details before movement of goods
commences, if value exceeds Rs 50,000 electronically in Part A of form GST EWB-01. If the
consignor is unregistered, the consignee is required to furnish the information.
Every registered person who causes movement of goods of consignment value exceeding
fifty thousand rupees— (i) in relation to a supply; or (ii) for reasons other than supply; or (iii)
due to inward supply from an unregistered person, shall, before commencement of such
movement, furnish information relating to the said goods as specified in Part A of form GST
EWB-01, electronically, on the common portal along with such other information as may be
required on the common portal, a unique number will be generated on the said portal - rule
138(1) of CGST Rules.
Transporter can fill in Part A - The transporter, on an authorization received from the
registered person, may furnish information in Part A of FORM GST EWB-01, electronically,
on the common portal along with such other information as may be required on the common
portal. A unique number will be generated on the common portal - first proviso to rule 138(1)
of CGST Rules.
Courier agency or e-commerce operator can prepare part A - Provided further that where
the goods to be transported are supplied through an e-commerce operator or a courier
 757

agency, on an authorization received from the consignor, the information in Part A of form
GST EWB-01 may be furnished by such e-commerce operator or courier agency. A unique
number will be generated on the portal - second proviso to rule 138(1) of CGST Rules.
Job worker can prepare part A for inter-State movement in inter-State supply - Where
goods are sent by a principal located in one State or Union territory to a job worker located
in any other State or Union territory, the e-way bill shall be generated either by the principal
or the job worker, if registered, irrespective of the value of the consignment - third proviso
to rule 138(1) of CGST Rules.
Handicraft goods transported from one State to other irrespective of value - Where
handicraft goods are transported from one State or Union territory to another State or Union
territory by a person who has been exempted from the requirement of obtaining registration
under section 24(i) and (ii) of CGST Act, the e-way bill shall be generated by the said person
irrespective of the value of the consignment - fourth proviso to rule 138(1) of CGST Rules.
The expression "handicraft goods" has the meaning as assigned to it in notification No.
56/2018-CT dated 23-10-2018 as amended from time to time - Explanation 1 to rule 138(1)
of CGST Rules, as amended on 31-12-2018.
It is really too much to expect that those small persons selling handicrafts Inter-State, will
know, understand and follow these procedures.
Movement other than supply - E-way bill is required whether the movement is in relation
to a supply or for reasons other than supply. It is difficult imagine what can get covered
under 'other than supply'. Possibly, supply like (a) Sending cranes, bulldozers, cement mixers
to site (b) Sending construction material to and from site (c) Own use elsewhere (d)
Exhibition and fair, may get covered under this clause.
Movement said to be caused by consignee if goods supplied by unregistered person - If the
goods are supplied by an unregistered supplier to a recipient who is registered, the
movement shall be said to be caused by such recipient if the recipient is known at the time
of commencement of the movement of goods [Explanation 1 to rule 138(3) of CGST Rules].
Really, at that stage, the recipient may not even know that the movement of goods has
commenced, unless the unregistered supplier informs him.
Generation of e-way bill by unregistered person - E-way bill can be generated by
unregistered person by using 'citizen' option on e-way bill portal - FAQ on GST Chapter 13.3
Q No. 118 issued by CBI&C on 15-12-2018.
38.2-2 Generation of unique number
At the time of uploading part A of GST EWB-01, a unique number is generated by system,
which is not an e-way bill number.
This unique number generated under rule 138(1) of CGST Rules is valid for 15 days for
updation of part B of GST EWB-01 - second proviso to rule 138(9) of CGST Rules.
38.2-3 E-way bill to be generated for inter-State-supply if aggregate value in conveyance
exceeds Rs. 50,000 - provision not effective from 1-4-2018
It is possible that in a conveyance, each consignment may be less than Rs 50,000 but
aggregate value of consignments may exceed Rs. 50,000. In such case, a provision has been
 758

made to generate e-way bill by transporter, courier or e-commerce operator. However, this
provision is not made effective from 1-4-2018.
Where the consignor or the consignee has not generated the e-way bill in form GST EWB-01
and the aggregate of the consignment value of goods carried in the conveyance is more than
fifty thousand rupees, the transporter, except in case of transportation of goods by railways,
air and vessel, shall, in respect of inter-State supply, generate the e-way bill in FORM GST
EWB-01 on the basis of invoice or bill of supply or delivery challan, as the case may be, and
may also generate a consolidated e-way bill in form GST EWB-02 on the common portal prior
to the movement of goods - rule 138(7) of CGST Rules not yet notified and not made
effective.
Where the goods to be transported are supplied through an e-commerce operator or a
courier agency, the information in Part A of FORM GST EWB-01 may be furnished by such e-
commerce operator or courier agency - proviso to rule 138(7) of CGST Rules, not yet notified
and not made effective.
Provisions will apply to movement of parcels where railways lease parcel space - As per
explanation below rule 138D of CGST Rules, for the purposes of Chapter XVI of CGST Rules
(which contain provisions relating to e-way bill), the expressions 'transported by railways',
'transportation of goods by railways', 'transport of goods by rail' and 'movement of goods
by rail' does not include cases where leasing of parcel space by Railways takes place.
Thus, provisions of rule 138(7) of CGST Rules will apply to railway parcels booked by lessee
of parcel space by railways, when made effective.
E-way bill required when during movement of goods within State, goods pass through
another State - E-way bill is required when during movement of goods within State, goods
pass through another State, as it is an inter-State movement of goods - CBI&C circular No.
47/21/2018-GST dated 8-6-2018.
E-way Bill when supply of goods from DTA unit to SEZ in same State - Supply of goods from
DTA unit to SEZ is defined as 'inter-State supply'. However, if such supply is in same State, e-
way bill is not required if such movement has been exempted from provisions of e-way bill
by concerned State Government under rule 138(14)(d) of CGST Rules - CBI&C circular No.
47/21/2018-GST dated 8-6-2018.
38.2-4 E-way bill even if value of consignment is below Rs. 50,000 in certain cases
In following cases, e-way bill should be generated irrespective of value of consignment i.e.
even if value of consignment is below Rs 50,000 - (a) Sending material Inter-State for job
work in another State (b) handicraft goods transported Inter-State, if turnover of person
below 20/10 lakhs and enjoying exemption under Notification No. 32/2017-CT dated 15-9-
2017 - third and fourth proviso to rule 138(1) of CGST Rules.
Where goods are sent by a principal located in one State or Union Territory to a job worker
located in any other State, the e-way bill shall be generated by the principal or job worker
irrespective of the value of the consignment - fourth proviso to rule 138(1) of CGST Rules.
38.2-5 Option to generate e-way bill even if value less than Rs. 50,000
 759

The registered person or the transporter may, at his option, generate and carry the e-way
bill even if the value of the consignment is less than fifty thousand rupees [first proviso to
rule 138(3) of CGST Rules]
38.2-6 Value of consignment in Part A to be inclusive of tax
The consignment value of goods shall be the value, determined in accordance with the
provisions of section 15 of CGST Act, declared in an invoice, a bill of supply or a delivery
challan, as the case may be, issued in respect of the said consignment. The Value also
includes the central tax, State or Union territory tax, integrated tax and cess charged, if any,
in the document. However, the value shall exclude the value of exempt supply of goods
where the invoice is issued in respect of both exempt and taxable supply of goods
[Explanation 2 to rule 138(1) of CGST Rules].
Value of material in case of job work and leasing - In case of material sent for job work,
the value should be total value of goods. When goods are returned after job work, the 'value'
should be inclusive of value of goods.
In case of equipment sent for leasing, value of equipment should be full value and not merely
leasing charges.
The reason is that as per Explanation 2 to rule 138(1) of CGST Rules, the value should be
determined as per section 15 of CGST Act and includes CGST, SGST/UTGST and GST
Compensation Cess.
38.2-7 Contents of Part A of e-way bill form GST EWB-01
A.1 GSTIN of supplier - If supplier is unregistered, indicate 'URP'.
A.2 Place of despatch - giving PIN code of place of despatch
A.3 GSTIN of recipient - If recipient is unregistered, indicate 'URP'.
A.4 Place of Delivery - PIN Code of place of delivery shall be indicated
A.5 Document Number - Tax Invoice, Bill of Supply, Delivery Challan or Bill of Entry (when
goods transported from port/airport/customs warehouse).
A.6 Document Date - The date of the aforesaid document should be supplied.
A.7 Value of goods - Value shall be as per section 15 of CGST Act, as declared in tax invoice,
bill of supply or delivery challan. The value should be inclusive of IGST, CGST, SGST and GST
Compensation Cess, but exclusive of value of exempted goods - Explanation 2 to rule 138(1)
of CGST Rules.
A.8 HSN Code - Four digits if annual turnover was above Rs. five crores and two digits if
annual turnover is less than Rs. five crores. Minimum two digits mandatory.
A.9 Reason for Transportation - Select one from following - 1 Supply 2 Export or Import 3
Job Work 4 SKD or CKD 5 Recipient not known 6 Line Sales 7 Sales Return 8 Exhibition or fairs
9 For own use 10 Others.
Some changes have been made in mode of preparation of Part A of e-way bill w.e.f. 1-10-
2018. These have been explained in CBES press release dated 26-9-2018 and new FAQs
released on 29-9-2018. These are summarized below.
 760

Display of only relevant document names in "Document Type" dropdown list based on the
selected Transaction "Sub-Type" - In the new version effective from 1-10-2018, once the
user selects the Transaction type and Sub-Type in 'Transaction Details' section, system will
display only the relevant document types in 'Document Type' dropdown pertaining to the
selected sub type as shown in below tables.
For example, if the user selects the Transaction Sub-Type as "Supply" for Outward supplies,
system will display only Tax Invoice and Bill of Supply in the 'Document Type' dropdown list
unlike in previous version where system used to display all the document types irrespective
of the 'Transaction Sub-Type' selected by the user.
Similarly if the user selects the Transaction Sub-Type as "Job Work Returns" for Inward
supplies, system will show only 'Delivery Challan' in the dropdown as it is the only applicable
document for Job Works.
Display of only relevant dropdown options corresponding to the selected Transaction Sub-
Type will make sure that taxpayers will select only the correct document type applicable for
the respective Transaction Sub-Type while generating the EWBs.
Case I: Outward Transactions, if generator is consignor
Sl. No. Transaction Sub-Type Document Type To GSTIN (Bill To)
1. Supply Tax Invoice Other GSTIN/URP

Bill of Supply Other GSTIN/URP

2. Export Tax Invoice URP
Bill of Supply URP
3. Job Work Returns Delivery Challan Other GSTIN/URP
4. SKD/CKD Tax Invoice Other GSTIN/URP

Bill of Supply Other GSTIN/URP

Delivery Challan Other GSTIN/URP
5. Recipient Not Known Delivery Challan Self
Others Self
6. For Own Use Delivery Challan Self
7. Exhibition or Fairs Delivery Challan Self
8. Line Sales Delivery Challan Self
9. Others Delivery Challan Self/Other
Others Self/Other
Case II: Inward Transactions, if generator is consignee
Sl. No. Transaction Sub-Type Document Type To GSTIN (Bill From)
 761

1. Supply Tax Invoice Other GSTIN/URP

Bill of Supply Other GSTIN/URP
2. Import Bill of Entry URP
3. SKD/CKD Bill of Entry URP
Tax Invoice Other GSTIN/URP
Bill of Supply Other GSTIN/URP
Delivery Challan Other GSTIN/URP
4. Job Work Returns Delivery Challan Other GSTIN/URP
5. Exhibition or Fairs Delivery Challan Self
6. For Own Use Delivery Challan Self
7. Others Delivery Challan Self/Other
Others Self/Other

Auto-population of state name based on the entered PIN code - In the new version of e-
way bill w.e.f. 1-10-2018, once the taxpayer enters the pin code in "Bill From" & "Bill To"
sections, state name will be auto-populated based on the entered pin code.
In exceptional cases where one pin code belongs to more than one state (e.g. some places
in Hyderabad & Telangana), system will show the names of the concerning states in the drop
down. User can then select the actual state and proceed further. Auto-population of state
will avoid the chances of errors by taxpayers while generating the EWB.
In case taxpayer feels that particular pin code is genuine but not being accepted, he/she can
raise the issue with helpdesk for resolution and clarification. In the 'PIN CODE' sub-option
under 'Search' option on the e-way bill portal, the taxpayer can enter the pin code and check
the state names pertaining to that pin code.
Auto-population of Standard rates for tax - As per FAQ dated 29-9-2018, it is not mandatory
to select the tax rates or to enter the tax amounts while generating the e-way bill.
However, following instructions are contained in FAQ —
In the new version of EWB entry form w.e.f. 1-10-2018, standard rate of tax (%) is being
auto-populated in the dropdown while entering the HSN code. Taxpayer has to select the
applicable tax rate slab (in %) from the dropdown and based on this, the system calculates
and auto-populates the CGST, SGST, IGST & CESS amount etc.
A new tax rate field namely "CESS Non-Advol Rate" has been introduced where in the 'CESS
non-Advol Tax rate' in Rupees can be selected by the taxpayer as applicable.
The purpose behind providing the dropdowns for applicable tax rates and introducing
additional tax fields is to avoid chances of errors in entering the tax rates and also to match
the values in the invoice and e-way bill.
The following list of rates of tax will be validated.
 762

CGST (%) SGST (%) IGST (%) CESS - CESS - Non-Advol.

Advol (Rs.)
(%)
0 0 0 0 or 1 or 0 or
3 or 5 or
0.05 0.05 0.1 400 or 2076 or
11 or 12
0.125 0.125 0.25 or 12.5 or
15 or 17
1.5 1.5 3 or 21 or 2747 or
2.5 2.5 5 22 or 36 3668 or
or 49 or
6 6 12 60 or 61 4006 or
or 65 or
9 9 18 4170 or
71 or 72
14 14 28 or 89 or 400
96 or 142
or 160 or
204 or
249

Selecting tax rates is not mandatory - It is not mandatory to select the tax rates or to enter
the tax amounts while generating the e-way bill - FAQ dated 29-9-2018.
Additional fields for entering the invoice amount have been introduced - The additional
fields for entering the amounts namely 'CESS Non-Advol Value' & 'Other Amount (+/-)' have
been introduced w.e.f. 1-10-2018. 'Other Amount' column can be used, to enter any other
charges written in the invoice or any discount provided, so that 'Total Invoice Value' will
match with the Invoice for which e-way bill is being generated.
The system will not auto-populate the CESS Non-Advol amount as it depends upon the
quantity and unit. Hence the taxpayer has to manually enter the same in 'CESS non-Advol
Amount' field.
Alert if total invoice value greater or lower than total of taxable value plus taxes plus
charges - If the total invoice value is greater than sum total of taxable value, applicable taxes
and charges, the system will alert the user through pop-up and user can proceed further for
generating the EWB. But if the total invoice value is less than the sum total of taxable value,
applicable taxes and charges, system will not allow the user to proceed further without
correcting the invoice value. However, if the mismatch in the total invoice amount with other
amounts is Rs 2.00, the system will allow to proceed.
Alerting the generator of the EWB through SMS and pop-up, in case the total invoice value
is more than Rs. 10 Crores - In the new version w.e.f. 1-10-2018, in addition to the pop-up
displayed at the time of entering the total invoice value in the old version, an additional pop-
up will be displayed at the time of submission of the form. A SMS will also be sent to the
generator alerting him that invoice value of EWB is more than Rs. 10 Cr. This will assist him
to correct/cancel if it has been entered wrongly.
 763

SMS and pop-up will alert the generator regarding the higher EWB value so that in case the
actual value is less than Rs. 10 Cr. but user enters the higher value due to typo mistake etc.,
the same can be acted upon accordingly.
This is to check and correct unintended mistake in filling part A - FAQ dated 29-9-2018.
Transporter ID is made compulsory for generating Part-A slip - As per the new e-way Bill
rule w.e.f. 1-10-2018, the e-way bill can be generated by the taxpayer after entering the
Part-B. If he is not having the part-B and transporter is going to update the Part-B, then
he/she has to compulsorily enter the transporter id to generate the 'Part-A Slip' - confirmed
in FAQ dated 29-9-2018.
Generation of 'PART-A Slip' when supplier wants to transport goods himself - If the user
wants to generate the 'Part-A slip' and wants to transport the goods himself later, he has to
enter his GSTIN as the 'Transporter Id' and generate 'Part-A slip'. Once he gets the
conveyance details he can update the Part-B by using 'Update Part-B/Vehicle' sub-option
provided under E-Way Bill menu and start the movement of goods - FAQ dated 29-9-2018.
Multi-Vehicle option - When the taxpayer or transporter wants to move the consignment
of one e-Way Bill in multiple vehicles, after moving to transshipment place, he can use the
"Change to Multi Vehicle" sub-option provided under "e-Way Bill" option in the main menu.
For example, let's say one e-Way Bill is generated to move the consignment from place A to
place C. Here, the consignment moves from A to B via Rail or bigger vehicle. Now, it is not
possible to move the consignment from B to C in the same mode of transportation due to
unavailability of that mode or may be due to hilly region where big vehicles cannot be used.
In such cases, the consignment can be moved in multiple smaller vehicles using the Multi-
Vehicle option. - FAQ dated 29-9-2018.
38.2-8 Meaning of 'line sale'
The term 'line sale' is not defined in law. In my view, 'Line sale' means that salesman carries
goods with him, goes from door to door (or shop to shop) and sales goods. Often, he carries
invoice book and prepare invoice on the spot.
As per FAQ of CBI&C, if customer is not known when goods are taken out for delivery, e-way
bill should be generated.
38.2-9 Assignment of Part A of e-way bill by one transporter to another
After filling of part A of GST EWB-01, the e-way bill can be assigned by transporter or
consignee or consignor to another registered or enrolled transporter for filling part B.
However, once part B is filled in, the e-way bill cannot be assigned by consignor or consignee.
However, transporter can still assign part A to another transporter- rule 138(5A) of CGST
Rules.
38.2-10 'Bill to Ship to' transactions
'Bill to Ship to' transactions are those where bill is in name of one person while goods are
despatched to another person e.g. A instructs B to supply goods to C. Here A is intermediary
or middleman (termed as 'third person' in section 10(1)(b) of IGST Act).
The types of 'Bill to Ship to' transactions are indicated in the chart on page 215.
 764

Section 10(1)(b) of IGST Act covers supply before or during movement of goods by transfer
of documents or otherwise. The provision is as follows -
Where the goods are delivered by the supplier to a recipient or any other person on the
direction of a third person, whether acting as an agent or otherwise, before or during
movement of goods, either by way of transfer of documents of title to the goods or
otherwise, it shall be deemed that the said third person has received the goods and the place
of supply of such goods shall be the principal place of business of such person - Section
10(1)(b) of IGST Act.
In case of such sale, if supplier and third party (middle person i.e. intermediary) are in
different States, the supply will be inter-state even if goods are delivered in the same State
to final customer on direction of intermediary (third party). The supplier will charge IGST to
intermediary, even if physically goods do not go out of State. The intermediary will charge
IGST to final customer as both are in different States.
Similarly, if supplier and third party (middle person) are in same State, the supply will be
intra-state even if goods are delivered to final customer in different State on direction of
intermediary (third party). The supplier will charge CGST and SGST to intermediary (middle
person), even if physically goods are going out of the State. The intermediary (middle
person) will charge IGST to final customer as they are in different States.
The question is what is to be filled in column A.3 i.e. GSTIN of recipient and A.4 i.e. Place of
Delivery (PINCODE of place of delivery).
Clarification in FAQ - The position has been clarified in the revised FAQ released on 2-4-
2018. In the e-way bill form, there are two portions under 'TO' section. In the left side, Billing
to GSTIN and trade name is entered and in the right side 'Ship to' address of the movement
is entered. The other details are entered as per the invoice.
In case ship to State is different from Bill to State, the tax components entered as per the
billing State party i.e. if the Bill to location is inter-state for supplier, IGST is entered and if
the Bill to party location is intra-state for the supplier, the SGST and CGST are entered
irrespective of movement of goods, whether movement happened with the State or outside
the State.
This is also clarified in Sanjog Steels (P.) Ltd., In re [2018] 100 taxmann.com 405 (AAR-
Rajasthan).
View that two e-way bills required was not correct - There was a view that in such cases,
two e-way bills are required to be generated. The first one is by supplier in name of party in
whose name the Tax Invoice is issued (Middle person) and his PINCODE should be indicated.
The second e-way bill is to be prepared by the middle person in name of recipient indicating
his PINCODE i.e. where goods are finally destined.
This was not correct and even was not practical. E-way bill is basically a transport document
indicating where goods are actually going. The validity period of e-way bill (number of days
allowed for transport of goods) is determined on that basis. If two e-way bills are generated,
the time allowed for transport of goods as indicated in both the e-way bills will be wrong
and absurd. Making two e-way bills is impractical and will give absurd results. The deeming
provision under Section 10(1)(b) of IGST Act cannot be extended to absurd limits.
 765

Hence, only one e-way is required, as clarified in FAQ.

Clarification by CBIC in press release dated 23-4-2018
The issue has been clarified in CBIC press release dated 23-4-2018. The clarification is as
follows.
A number of representations have been received seeking clarifications in relation to
requirement of e-Way Bill for "Bill To Ship To" model of supplies. In a typical "Bill To Ship To"
model of supply, there are three persons involved in a transaction, namely:
'A' is the person who has ordered 'B' to send goods directly to 'C'.
'B' is the person who is sending goods directly to 'C' on behalf of 'A'.
'C' is the recipient of goods.

2. In this complete scenario two supplies are involved and accordingly two tax invoices are
required to be issued:
Invoice - 1, which would be issued by 'B' to 'A'.
Invoice - 2 which would be issued by 'A' to 'C'.

3. Queries have been raised as to who would generate the e-Way Bill for the movement of
goods which is taking place from 'B' to 'C' on behalf of 'A'. It is clarified that as per the CGST
Rules, 2017 either 'A' or 'B' can generate the e-Way Bill but it may be noted that only one e-
Way Bill is required to be generated as per the following procedure:
Case -1: Where e-Way Bill is generated by 'B', the following fields shall be filled in Part A of
GST FORM EWB-01:
1. Bill From: In this field details of 'B' are supposed to be filled.
2. Dispatch From: This is the place from where goods are actually dispatched. It may be the
principal or additional place of business of 'B'.
3. Bill To: In this field details of 'A' are supposed to be filled.
4. Ship to: In this field address of 'C' is supposed to be filled.
5. Invoice Details: Details of Invoice-1 are supposed to be filled

Case -2: Where e-Way Bill is generated by 'A', the following fields shall be filled in Part A of
GST FORM EWB-01:
1. Bill From: In this field details of 'A' are supposed to be filled.
 766

2. Dispatch From: This is the place from where goods are actually dispatched. It may be the
principal or additional place of business of 'B'.
3. Bill To: In this field details of 'C' are supposed to be filled.
4. Ship to: In this field address of 'C' is supposed to be filled.
5. Invoice Details: Details of Invoice-2 are supposed to be filled.

38.2-11 'Bill from - Dispatch from' transactions

In 'Bill from - Dispatch from' transactions, invoices is prepared at one place while goods are
despatched from other place (e.g. godown or place of job worker). In that case, part A of e-
way bill has two portions under 'FROM' section in left side. In 'Bill from', supplier's GSTN and
name is entered and in right side, 'Dispatch from' are entered. The other details are entered
as per invoice.
In this case, tax is charged on basis of Bill from State even if goods are actually dispatched
from other State.
38.2-12 Moving goods in multiple vehicles under one invoice
If goods are transported in a semi knocked down (SKD) or completely knocked down (CKD)
condition, EWB shall be generated for each of such vehicles, based on delivery challan issued
for that portion of consignment as per CGST Rule 55(5). Complete invoice shall be issued
before dispatch of first consignment. Delivery Challan shall be issued for each subsequent
consignment giving reference of invoice. Each consignment shall be accompanied by delivery
challan and certified copy of invoice, Original copy will be sent with last consignment.
Really, this procedure is possible when entire equipment is moved at one go in various
trucks. This procedure is not practical when the equipment is being despatched in various
consignments spread over months. In my view, in such cases, it is advisable to issue separate
invoices for each consignment.
Removal in separate consignments does not mean that 'parts' are removed - In Shirke
Construction Equipment (P.) Ltd. v. CCE 1997(95) ELT 644 (CEGAT), the assessee removed
bulky machine (crane in this case) in disassembled condition in part consignments. It was
held that it cannot be said that assessee cleared parts of the machinery. The assessee cleared
'crane in parts' and not 'part of crane'.
In CCE v. BHEL (2018) 3 SCC 693 = 66 GST 206 = 90 taxmann.com 297 (SC), essential
components of boiler were removed in different consignments. It was held that these are
not 'parts' of boiler.
In National Steel Industries v. CCE 1999(111) ELT 80 (CEGAT) also, it was held that even if
different components of an article (pre-fabricated building in this case) supplied on different
dates, it would still be clearance of whole article. Supply of goods can be spread over a period
of time. It is not necessary that all elements should be supplied at the same time. - same
view in Vishwa Industrial Co. v. CCE 1999(107) ELT 774 (CEGAT) * Flat Products Equipments
v. CCE 2000(115) ELT 629 (CEGAT) * Vinar Systems v. CC 2001(131) ELT 578 (CEGAT) * Bharat
Heavy Electricals v. CCE (2009) 243 ELT 92 (CESTAT) - same view in CCE v. Conveyor
Equipments 2001(127) ELT 478 (CEGAT), where reliance was placed on HSN Notes, in respect
 767

of classification of unassembled machines - contrary view in Idicol Piping v. CCE (2008) 226
ELT 147 (CESTAT).
In CCE v. BHP Engineers 2000(119) ELT 599 = 40 RLT 791 (CEGAT), it was held that parts of
conveyor, against an order for a conveyor, cleared under different invoices over a period of
time have to be classified as conveyor and not as parts of conveyor.
In Flat Products Equipments v. CCE (2011) 272 ELT 104 (CESTAT), voluminous size machinery
was exported piecemeal over a period of time. This included some bought out parts. Its value
was included in value of machinery. It was held that exporter cleared complete machine, not
spares. Assessee is eligible to avail Cenvat credit of bought out items also.
In McNally Bharat v. CCE 2001(132) ELT 353 (CEGAT), the assessee was manufacturing some
parts and some parts were bought out. He was clearing the whole machine in SKD/CKD
condition. It was held that it is clearance of machinery and not parts and components of
machine - same view in Bharat Heavy Electricals v. CCE (2009) 243 ELT 92 (CESTAT).
In CCE v. Scan Machineries (2009) 234 ELT 282 (CESTAT), assessee cleared machinery in
phased manner but paid entire duty at the time of first clearance of parts, as per trade
practice. Clearance was against single purchase order. It was held that the clearance is of
single machine and not part of machine.
38.2-13 Movement of new vehicles by driving them to destination
In case of new vehicles, often the vehicle itself is driven by driver to destination. In such
cases, the e-way bill is required. The temporary number of vehicle should be indicated.
38.2-14 If consignee refuses to take delivery of goods
If the consignee or recipient refuses to take delivery, transporter can get one more e-way
bill generated with help of supplier or recipient showing it as 'sale return' and return to
supplier.
38.2-15 If consignee refuses to take delivery of goods
If the consignee or recipient refuses to take delivery, transporter can get one more e-way
bill generated with help of supplier or recipient showing it as 'sale return' and return to
supplier.
38.2-16 Inter-state movement of modes of conveyance, carrying goods or passengers or
for repairs and maintenance is neither supply of goods nor services
CBI&C circular No. 1/1/2017-IGST dated 7-7-2017 has clarified as follows -
Inter-state movement of various modes of conveyance, carrying goods or passengers or for
repairs and maintenance is neither supply of goods nor supply of service, as per decision of
GST Council.
This will cover trains, buses, trucks, tankers, Trailers, Vessels, Containers and Aircrafts.
However, if such movement is for further supply of same conveyance, GST provisions will
apply (i.e. car or truck or vehicle itself is driven to other State for sale in that State).
However, generation of e-way bill is required, if value exceeds Rs. 50,000.
38.2-17 Inter-state movement of rigs, tools and spares, and all goods on wheel like cranes
CBI&C circular No. 21/21/2017-GST dated 22-11-2017 has clarified as follows -
 768

Inter-State movement of rigs, tools and spares and all goods on wheels (like cranes) shall be
treated as neither as 'supply of goods' nor 'supply of services'. IGST will not apply. However,
if these are repaired, GST will apply on such repair or maintenance charges.
However, generation of e-way bill is required, if value exceeds Rs. 50,000.
38.3 Part B of the Form GST EWB-01
Part B of GST EWB-01 has following two columns.
B.1 - Vehicle Number for Road
B.2 - Transport Document Number
Part B to be filled in by consignor or consignee if movement of goods in own conveyance -
Part B is to be filled by consignor or consignee if the movement of goods is in own
conveyance or hired conveyance or public conveyance by road - rule 138(2) of CGST Rules.
The e-way bill is valid only when part A and Part B are filled in and e-way bill number is
generated by system.
38.3-1 Filling of Part B by transporter or both Part A and Part B by transporter
Part B is to be filled in by transporter if goods are booked with transporter for further
delivery if part A is filled in by consignor or consignee who is registered under GST - rule
138(3) of CGST Rules.
If the consignor is unregistered, the transporter shall fill in part A on basis of information
supplied by consignor, fill in part B and complete e-way bill - second proviso to rule 138(3)
of CGST Rules.
Filling of vehicle number - The vehicle number should be entered without space in between.
The last number is required to be of four digits. Any middle number is required to be of two
digits. For example, UP 1 345 should be entered as UP010345. AP 5 P 23 should be entered
as AP05P0023. TN 10 DE 45 should be entered as TN10DE0045.
Defence vehicle number should start with DF. Temporary RC vehicle should start with TR.
Bhutan vehicle should start with 'BP'.
Nepal vehicle should start with BP [seems to be mistake in FAQ]. It seems it should be 'NP'.
38.3-2 Verification of vehicle number in EWB portal
As per press release dated 12-2-2020 issued by CBIC, E-way bill system has been integrated
with Vahan System of Transport Department. Vehicle number entered in e-way bill is
verified. If vehicle number is not available, alert message will be given to user. Later (may be
after certain days), vehicle number will not be allowed.
If vehicle number is shown as registered with more than RTO, you should approach your
concerned RTO and get it updated. Otherwise, later, vehicle number will not be allowed.
Vahan system provides a nationwide search over digitized data of registered vehicles. You
can check your vehicle number on https:/vahan.nic.in.
If the vehicle is moving with temporary registration, details are not checked.
If still there is some problem, contact e-way bill help desk.
38.3-3 Transport of goods by railways, air or vessel
 769

If the goods are transported by railways or by air or vessel, the e-way bill shall be generated
by the registered person, being the supplier or the recipient, who shall, either before or after
the commencement of movement, furnish, on the common portal, the information in Part
B of form GST EWB-01 - rule 138(2A) of CGST Rules.
This provision does not apply to booking of parcels in railways through leaseholders
registered with Railway, as explained below. In such cases, part B will be filled in by the
registered leaseholder.
Where the goods are transported by railways, the railways shall not deliver the goods unless
the e-way bill required under these rules is produced at the time of delivery - proviso to rule
138(2A) of CGST Rules - reiterated in CBI&C circular No. 47/21/2018-GST dated 8-6-2018.
The doubt is that if the railway, air or vessel booking office is beyond fifty Kms from the place
of supplier, the consignor is required to fill in part B also. It seems at that time, the supplier
is required to fill in vehicle number in column B1 and invoice number or delivery challan
number in column B2 also.
Such problem will be rare as mostly the railway, air or vessel booking office will be less than
fifty Kms from place of supplier.
Filling in of RR, AWB or BL number - Where the goods are transported by railways or by air
or vessel, the e-way bill shall be generated by the registered person, being the supplier or
the recipient, who shall furnish, on the common portal, - (a) the information in Part B of
FORM GST EWB-01; and (b) the serial number and date of the Railway Receipt or the Air
Consignment Note or Bill of Lading, as the case may be.
After that only, e-way bill will be generated by system.
Instructions by Ministry of Railways - Ministry of Railways has clarified that the goods clerk
should keep copy of e-way bill. If e-way bill is not available, he should take declaration from
customer that either he is not required to generate e-way bill or that in case of non-
compliance, he is solely responsible for all legal and financial consequences for all acts of
omission and commission and that Railway is unconditionally indemnified in such situation
- Railway Board Letter No. TCR/1078/2018/12 dated 23-3-2018. [These instructions are
contrary to Rules and CBI&C circular No. 47/21/2018-GST dated 8-6-2018].
38.3-4 Part B of E-way Bill for transport of parcels in railways to be filled in by registered
leaseholder
As per explanation below rule 138D of CGST Rules, for the purposes of Chapter XVI of CGST
Rules (which contain provisions relating to e-way bill), the expressions 'transported by
railways', 'transportation of goods by railways', 'transport of goods by rail' and 'movement
of goods by rail' does not include cases where leasing of parcel space by Railways takes place.
Leasing of parcel space by Railways to Registered Leaseholders - Railway Board has issued
Comprehensive Parcel Leasing Policy vide Freight Marketing Circular No. 06 of 2014 (No.
2013/TC(FM)/10/02) dated 15-4-2014.
Under the scheme, parcel space of the Assistant Guard's Cabin (AGCs), compartments of
Brake-vans (SLRs), and Parcel Vans (VPHs/VPs/VPUs/VPRs etc.) is leased out by the
divisions/zonal railways to the private parties (registered leaseholders) for the
transportation of parcel traffic.
 770

The registered leaseholder himself books parcels and uses parcel space leased to him by
Railways to transport parcels.
Leasing of parcel cargo express trains - Railways have also issued Freight Marketing Circular
No. 02 of 2007 for leasing of parcel cargo express trains. In that case, the registered
leaseholder himself books parcels and uses parcel cargo express trains leased to him by
Railways to transport parcels.
The registered leaseholder is required to fill in Part B - In case of booking of parcels in
railways through registered leaseholder, the registered leaseholder is required to fill in Part
B of e-way bill.
38.4 When Part B is not required to be filled in
If the goods are transported for a distance of less than fifty kilometres within the State or
Union territory from the place of business of the consignor to the place of business of the
transporter for further transportation, the supplier or the transporter may not furnish the
details of conveyance in Part B of form GST EWB-01 [third proviso to rule 138(3) of CGST
Rules]. If distance exceeds 50 Kms, e-way bill is required to be generated.
Similarly, when transporter delivers goods to ultimate consignee at destination within the
State of Union Territory, details of conveyance may not be furnished in GST EWB-01, if
distance is less than 50 Km [proviso to rule 138(5) of CGST Rules].
If distance is beyond 50 Kms within the State or Union Territory, part B has to be filled in.
38.5 Generation of e-way bill by portal
The portal generates e-way bill after both Part A and Part B are filled in.
Following details will be filled in by portal after Part A and Part B are filled in.
E-way Bill No. -
E-way Bill Date -
Generator - supplier, recipient or transporter. Seems these details are to be filled in when
Part A is filled in.
Valid from -
Valid until -
Validity upto midnight - The e-way bill will be valid upto midnight on last day - Explanation
1 to rule 138(10) of CGST Rules.
Validity period of e-way bill will be counted by Portal on basis of PIN CODE from April 2019
- Part A of e-way bill requires PIN CODE of place of dispatch and place of delivery. On this
basis, the Portal will auto-calculate distance between place of dispatch and place of delivery
and will calculate the validity period of e-way bill. The e-way bill system will calculate and
display motorable distance. This distance can be changed by user upto 10% e.g. if system
calculates distance as 655 KM, use can increase it upto 720 Km (655 + 65).
If PIN Code of source and destination is same, user can enter distance upto 100 Km -
amendment made in April 2019.
User can know distance between source and destination by going to ewaybillgst. gov.in, go
to 'Search' and click on 'PIN to PIN distance'.
 771

It seems the present Part A does not have a column to indicate whether cargo is over-
dimensioned. Hence, the Portal will calculate validity period on basis of e-way bill on basis
of normal cargo. They have to add one column in Part B where transporter has to indicate
whether cargo is over dimensioned.
38.5-1 Validity of e-way bill generated
An e-way bill or a consolidated e-way bill generated shall be valid as follows, for normal
cargo - (1) Upto 200 Km - one day (2) One day for every 200 Km or part after first 200 Km
[rule 138(10) of CGST Rules amended on 1-1-2021. Earlier, the validity period was 100 Km
per day]
In case of over dimensioned cargo, or multimodal shipment in which at least one leg involves
transhipment by ship, an e-way bill or a consolidated e-way bill generated shall be valid as
follows - (1) Upto 20 Km - one day (2) One day for every 20 Km or part after first 20 Km [rule
138(10) of CGST Rules amended w.e.f. 28-6-2019].
Validity period of e-way bill will be counted by Portal on basis of PIN CODE from April 2019
- Part A of e-way bill requires PINCODE of place of dispatch and place of delivery. On this
basis, the Portal will auto-calculate distance between place of dispatch and place of delivery
and will calculate the validity period of e-way bill. The e-way bill system will calculate and
display motorable distance. This distance can be changed by user upto 10% e.g. if system
calculates distance as 655 KM, use can increase it upto 720 Km (655 + 65).
If PIN Code of source and destination is same, user can enter distance upto 100 Km -
amendment made in April 2019.
User can know distance between source and destination by going to e-waybillgst.gov.in, go
to 'Search' and click on 'PIN to PIN distance'.
It seems the present Part A does not have a column to indicate whether cargo is over-
dimensioned. Hence, the Portal will calculate validity period on basis of e-way bill on basis
of normal cargo. They have to add one column in Part B where transporter has to indicate
whether cargo is over dimensioned.
Validity period to be counted after generation of e-way bill only - The validity period of e-
way bill is calculated from date of generation of e-way bill i.e. after filling part B by
transporter and not when supplier fills in part A.
Commissioner can extend validity - The Commissioner may, by notification, extend the
validity period of e-way bill for certain categories of goods as may be specified therein - first
proviso to rule 138(10) of CGST Rules. It seems some general relaxations may be given for
some specified goods.
Meaning of 'relevant date' for purposes of rule 138(1) - The "relevant date" shall mean the
date on which the e-way bill has been generated and the period of validity shall be counted
from the time at which the e-way bill has been generated and each day shall be counted as
the period expiring at midnight of the day immediately following the date of generation of
e-way bill - Explanation 1 to rule 138(10) of CGST Rules.
Meaning of 'Over Dimensional Cargo' - The expression "Over Dimensional Cargo" shall
mean a cargo carried as a single indivisible unit and which exceeds the dimensional limits
 772

prescribed in rule 93 of the Central Motor Vehicle Rules, 1989, made under the Motor
Vehicles Act, 1988 - Explanation 2 to rule 138(10) of CGST Rules.
Extension of validity period of e-way bill if validity expired - Under circumstances of an
exceptional nature, including transhipment, if the goods cannot be transported within the
validity period of the e-way bill, the transporter may extend the validity period after
updating the details in Part B of form GST EWB-01, if required [second proviso to rule 138(10)
of CGST Rules].
The validity of e-way bill may be extended within eight hours from the time of its expiry
[third proviso to rule 138(10) of CGST Rules inserted w.e.f. 28-6-2019] [really the validity of
e-way bill is upto midnight. Hence, transporter will have to keep his office open in night for
this purpose. Otherwise e-way bill will expire by 8 AM, even before office opens !].
General Extension in case of e-way bills where validity expired during lockdown due to
Corona virus - Where an e-way bill has been generated under rule 138 of the Central Goods
and Services Tax Rules, 2017 and its period of validity expires during the period 20th day of
March, 2020 to 15th day of April, 2020, the validity period of such e-way bill shall be deemed
to have been extended till the 30th day of April, 2020. - - Where an e-way bill has been
generated under rule 138 of the Central Goods and Services Tax Rules, 2017 on or before
the 24th day of March, 2020 and whose validity has expired on or after the 20th march, 2020
the validity of such e-way bill shall be deemed to have been extended till the 30th day of
June, 2020 - Notification No. 35/2020-CT dated 3-4-2020 amended on 9-6-2020.
38.5-2 Extension of validity period of e-way bill
Validity period can be extended for reasons like delay due to vehicle breakdown. Natural
calamity, Law & order issue on the transit Accident of conveyance. Trans-shipment delay
etc.
You can extend the validity period of e-way bill by applying before 8 hours or after 8 hours
of expiry of validity.
The Generator or Transporter can extend the validity of e-Way Bill only between 8 hours
before and 8 hours after the expiry time of the existing E-Way Bill validity.For example, if the
validity of the E-Way Bill is till midnight of 2nd Oct. 2018, then the user can extend the same
after 4 PM on 2nd Oct. 2018 or before 8 AM on 3rd Oct. 2018 - FAQ dated 29-9-2018.
Often this is not possible. This much efficiency and preciseness cannot be expected in Indian
situation.
In that case, in my view, only option is to prepare fresh e-way bill from the place where
goods are lying to the destination. The earlier invoice has to be cancelled as two e-way bills
cannot be generated for same invoice w.e.f. April, 2019. Alternatively, delivery challan may
be prepared.
Procedure for extension - The user should go to E-way Bill and then 'Extend Validity and fill
e-way bill number and then fill the required details in Part B of e-way bill. Route distance will
be calculated on the basis of PIN Code where presently consignment is located - amendment
made in April 2019.
 773

Report of e-way bills about to expire - Facility has been provided to generate list of e-way
bills which are about to expire soon. This facility can be used to control movement of goods
- amendment in April 2019.
38.5-3 Verification of authenticity of e-way bill
Authenticity of e-way bill can be verified by entering EWB No. EWB date, Generator ID and
Doc No. in the search option of EWB portal. This seems to be difficult.
Simple solution seems to be through SMS by sending EWBVER <EWB_NO> to the mobile
number 77382 99899 (For example EWBVER 120100231897).
38.6 Procedure by transporter after generation of e-way bill
The procedure to be followed by transporter is as follows -
E-way bill to accompany goods - E-way bill in electronic or physical form must accompany
the goods.
Transhipment of goods to another conveyance - Any transporter transferring goods from
one conveyance to another in the course of transit shall, before such transfer and further
movement of goods, update the details of conveyance in the e-way bill on the common
portal in form GST EWB-01 [rule 138(5) of CGST Rules]
Multiple consignments in one conveyance - After e-way bill has been generated in
accordance with the provisions of rule 138(1), where multiple consignments are intended to
be transported in one conveyance, the transporter may indicate the serial number of e-way
bills generated in respect of each such consignment electronically on the common portal
and a consolidated e-way bill in form GST EWB-02 may be generated by him on the common
portal prior to the movement of goods [rule 138(6) of CGST Rules]
38.6-1 Cancellation of e-way bill
If an e-way bill has been generated under the rule 138 of CGST Rules, but goods are either
not transported or are not transported as per the details furnished in the e-way bill, the e-
way bill may be cancelled electronically on the common portal, within 24 hours of
generation of the e-way bill - rule 138(9) of CGST Rules.
Thus, if there is accident to truck, the driver should first rush to cancel e-way bill before
sending injured persons to hospital and even before informing police and owner of vehicle
about accident !
An e-way bill cannot be cancelled if it has been verified in transit in accordance with the
provisions of rule 138B [proviso to rule 138(9) of CGST Rules].
It is not clear what would be the consequences if the transport is unable to cancel the e-way
bill. In such case, only option seems to show delivery as complete at place where goods are
lying and prepare fresh e-way bill either for onward journey or for return to supplier. [I
cannot imagine any other solution].
38.6-2 Radio Frequency Identification Device (RFID) by specified transporters
The Commissioner may, by notification, require a class of transporters to obtain a unique
Radio Frequency Identification Device and get the said device embedded on to the
conveyance and map the e-way bill to the Radio Frequency Identification Device (RFID) prior
to the movement of goods [rule 138A(4) of CGST Rules].
 774

38.6-3 Documents and devices to be carried by a person-in-charge of a conveyance

The person in charge of a conveyance shall carry— (a) the invoice or bill of supply or delivery
challan, as the case may be; and (b) a copy of the e-way bill or the e-way bill number, either
physically or mapped to a Radio Frequency Identification Device embedded on to the
conveyance in such manner as may be notified by the Commissioner [rule 138A(1) of CGST
Rules].
Rule 138A(1)(b) shall not apply for transport of goods by rail or air or vessel [proviso to rule
138A(1) of CGST Rules].
Thus, for transport by rail, air or vessel, copy of e-way bill is not required to be carried.
Copy of Bill of Entry in case of imported goods - In case of imported goods, the person in
charge of a conveyance shall also carry a copy of the bill of entry filed by the importer of
such goods and shall indicate the number and date of the bill of entry in Part A of form GST
EWB-01 - second proviso to rule 138A(1) of CGST Rules inserted w.e.f. 4-9-2018.
38.6-4 Tax Invoice or bill of supply to accompany transport of goods when e-way bill not
required
The person-in-charge of the conveyance shall carry a copy of the tax invoice or the bill of
supply issued in accordance with the provisions of rule 46, 46A or 49 of CGST Rules in a case
where such person is not required to carry an e-way bill under CGST Rules - rule 55A of CGST
Rules inserted w.e.f. 23-1-2018.
Where tax invoice or Bill of Supply is not required, Delivery Challan should accompany the
goods.
Even when e-way bill is required, tax invoice or bill of supply or delivery challan should
accompany the goods.
38.6-5 Invoice Reference Number (IRN) can be obtained by supplier electronically
In case, invoice is issued in the manner prescribed under rule 48(4) [e-invoice], the Quick
Response (QR) code having an embedded Invoice Reference Number (IRN) in it, may be
produced electronically, for verification by the proper officer in lieu of the physical copy of
such tax invoice - Rule 138A(2) of CGST rules as substituted w.e.f. 30-9-2020.
Earlier, the rule was reading as follows - A registered person (supplier) may obtain an Invoice
Reference Number (IRN) from the common portal by uploading on the portal, a tax invoice
issued by him in form GST INV-1 and produce the same for verification by the proper officer
in lieu of the tax invoice and such number shall be valid for a period of thirty days from the
date of uploading [rule 138A(2) of CGST Rules as existing upto 30-9-2020].
If such IRN is obtained, it is not necessary for transporter to carry physical copy of tax invoice,
unless specifically ordered under rule 138A(5) of CGST Rules.
Commissioner can require that physical copy of tax invoice of delivery challan should be
carried - Even if rule 138A(1)(b) of CGST Rules enable dispensing with carrying physical copy
of tax invoice, the Commissioner may, by notification, require the person-in-charge of the
conveyance to carry the following documents instead of the e-way bill- (a) tax invoice or bill
of supply or bill of entry; or (b) a delivery challan, where the goods are transported for
reasons other than by way of supply [rule 138A(5) of CGST Rules]
 775

Auto population of information in part A if IRN obtained - If the registered person uploads
the invoice under rule 138A(2), the information in Part A of form GST EWB-01 shall be auto-
populated by the common portal on the basis of the information furnished in form GST INV-
1 [rule 138A(3) of CGST Rules].
38.6-6 Storing goods in godown of transport after goods reach destination
In some cases, the recipient uses godown of transporter for storage of goods after goods
reach destination. This may be for reasons like want of storage space or weak financial
position.
In such cases, the recipient should declare the place of godown as additional place of
business. The delivery of goods will be deemed to be terminated when goods reach the
godown of transporter. Thus, the e-way bill will expire. When goods are transported from
place of transporter to the place of recipient, fresh e-way bill is required (as such transport
cannot be on basis of earlier e-way bill). Proper records should be maintained - CBI&C
circular No. 61/35/2018-GST dated 4-9-2018.
38.7 Intimation of acceptance of details by recipient/supplier
The details of part A of e-way bill generated under rule 138(1) shall be made available on
common portal, to the following—
(a) to recipient, if he is registered, if the information was uploaded by supplier,
(b) to supplier, if he is registered, if the information was uploaded by recipient.

The supplier/recipient shall communicate his acceptance or rejection of the consignment

covered by the e-way bill [rule 138(11) of CGST Rules].
Where the recipient referred to in rule 138(11) does not communicate his acceptance or
rejection within seventy two hours of the details being made available to him on the
common portal, or the time of delivery of goods, whichever is earlier, it shall be deemed that
he has accepted the said details [rule 138(12) of CGST Rules].
This seems a risky proposal. In any case, this is not conclusive evidence about receipt of
goods. The supplier/recipient can any time prove that the consignment does not belong to
him.
Note that the communication is not of receipt of goods by recipient (consignee) or supply of
goods by supplier but only acceptance of details as contained in the e-way bill. What it really
means that his acceptance that the goods are meant for him only and his name, as recipient,
is not false or incorrect.
38.8 Transport of goods for which e-way bill is not required
No e-way bill is required to be generated in following cases [rule 138(14) of CGST Rules].
(a) The goods being transported are specified in Annexure (see below) [these cover
jewellery, coral, pearls, personal and household goods, currency].
(b) The goods are being transported by a non-motorised conveyance.
 776

(c) The goods are being transported from the port, airport, air cargo complex and land
customs station to an inland container depot or a container freight station for
clearance by Customs.
(d) In respect of movement of goods within such areas as are notified under rule
138(14)(d) of the GST Rules of the concerned State. Thus, each State has been
delegated powers to grant exemptions from provisions relating to e-way bill within
area notified.
(e) All items (except de-oiled cake) exempted under Notification No. 2/2017-CT (Rate)
and No. 2/2017-IT (Rate) both dated 28-6-2017. The major among them are as
follows - Fresh Meat, Fish Chicken, Eggs, Milk, Butter Milk, Curd, Natural Honey, Fresh
Fruits and Vegetables, coffee beans, wheat, rye, rice, Flour, Besan, Bread, Prasad,
Salt, Bindi, Sindoor, Stamps, Judicial Papers, Printed Books, Newspapers, Bangles,
Handloom, Pooja equipment, jute, khadi, national flag, raw silk.
(f) Alcoholic liquor for human consumption, Petroleum crude, HSD, petrol, natural gas
or aviation turbine fuel.
(g) where the supply of goods being transported is treated as no supply under Schedule
III of the Act.
(h) where the goods are being transported— (i) under customs bond from an inland
container depot or a container freight station to a customs port, airport, air cargo
complex and land customs station, or from one customs station or customs port to
another customs station or customs port, or (ii) under customs supervision or under
customs seal.
(i) where the goods being transported are transit cargo from or to Nepal or Bhutan.
(j) where the goods being transported are exempt from tax under notification No.
7/2017-CT (Rate), dated 28-6-2017 and notification No. 26/2017-CT (Rate), dated 21-
9-2017 as amended from time to time.
Notification No. 7/2017-CT (Rate) exempts supplies of goods by Canteen Stores
Department.
Notification No. 26/2017-CT (Rate) exempts intra-state supplies of heavy water and
nuclear fuels by Department of Atomic Energy to Nuclear Power Corporation Ltd.
(k) any movement of goods caused by defence formation under Ministry of defence as
a consignor or consignee.
(l) where the consignor of goods is the Central Government, Government of any State
or a local authority for transport of goods by rail.
(m) where empty cargo containers are being transported; and
(n) where the goods are being transported upto a distance of twenty kilometers from
the place of the business of the consignor to a weighbridge for weighment or from
 777

the weighbridge back to the place of the business of the said consignor subject to the
condition that the movement of goods is accompanied by a delivery challan issued in
accordance with rule 55.
(o) Empty cylinders for packing of LPG removed for reasons other than supply [clause (o)
inserted w.e.f. 13-6-2018].

38.8-1 Goods for which e-way bill not required as per Annexure to rule 138(1)
E-way bill is not required for transport of following goods as specified in Annexure A to rule
138(14) of CGST Rules.
Liquefied petroleum gas (LPG) for supply to household and non-domestic exempted
category (NDEC) customers
Kerosene oil sold under PDS
Postal baggage transported by Department of Posts

Natural or cultured pearls and precious or semi-precious stones; precious metals and
metals clad with precious metal (Chapter 71)

Jewellery, goldsmiths' and silversmiths' wares and other articles (Chapter 71)
Currency
Used personal and household effects
Coral, unworked (0508) and worked coral (9601).

Transport of motor vehicle after sale is transfer of used personal effects and e-way bill is
not required - Transport of motor car after sale by dealer is transfer of used personal effects
and e-way bill is not required this is so even if the dealer of motor vehicle arranges such
transport upto place of buyer in a carriage, as it is 'used' may be even for very small period
- Kun Motor Co. (P.) Ltd. v. Assistant State Tax Officer [2018] 100 taxmann.com 271 (Kerala
HC DB).
38.9 Other provisions relating to e-way bill
Other provisions in respect of e-way bill are as follows.
Unregistered person can also generate e-way bill - If the movement is caused by an
unregistered person either in his own conveyance or a hired one or through a transporter,
he or the transporter may, at their option, generate the e-way bill in form GST EWB-01 on
the common portal in the manner specified in this rule [second proviso to rule 138(3) of
CGST Rules].
The unregistered person has to enrol on EWB system. He can do so only if he has income tax
PAN and Aadhaar. Otherwise, he is Niradhar.
E-way Bill generated is valid all over India - The e-way bill generated under rule 138 of
CGST Rules or under rule 138 of the SGST Rules of any State shall be valid in every State and
Union territory [rule 138(13) of CGST Rules]
 778

Generation, updation, assignment and cancellation of e-way Bill through SMS - The facility
of generation, cancellation, updation and assignment of e-way bill shall be made available
through SMS - Explanation to rule 138(14) of CGST Rules.
Generation of e-way bill number (EBN) by GSTN and information to
supplier/recipient/transporter - Upon generation of the e-way bill on the common portal, a
unique e-way bill number (EBN) will be generated by GSTN. This number shall be made
available to the supplier, the recipient and the transporter on the common portal [rule
138(4) of CGST Rules].
Supplier can use the information in Part A to furnish details in GSTR-1 return - The
information furnished in Part A of form GST EWB-01 shall be made available to the registered
supplier on the common portal who may utilize the same for furnishing details in form GSTR-
1 [rule 138(8) of CGST Rules]
Information to unregistered supplier - If the information has been furnished by an
unregistered supplier in form GST EWB-01, he shall be informed electronically, if his mobile
number or the e -mail is available [proviso to rule 138(8) of CGST Rules]
38.10 Road checks and Verification of documents and conveyances
There are no physical barriers like check posts. Hence, provision of road checks has been
made.
The Commissioner or an officer empowered by him in this behalf may authorise the proper
officer to intercept any conveyance to verify the e-way bill or the e-way bill number in
physical form for all Inter-State and Intra-State movement of goods [rule 138B(1) of CGST
Rules]
The Commissioner shall get Radio Frequency Identification Device Readers (RFIDR) installed
at places where the verification of movement of goods is required to be carried out and
verification of movement of vehicles shall be done through such device readers where the
e-way bill has been mapped with the said device [rule 138B(2) of CGST Rules]
The physical verification of conveyances shall be carried out by the proper officer as
authorised by the Commissioner or any officer empowered by him in this behalf - rule
138B(3) of CGST Rules.
Physical verification on basis of specific intelligence - On receipt of specific information on
evasion of tax, physical verification of a specific conveyance can also be carried out by any
other officer after obtaining necessary approval of the Commissioner or an officer
authorised by him in this behalf [proviso to rule 138B(3) of CGST Rules]
38.10-1 Inspection and verification of goods during road checks
A summary report of every inspection of goods in transit shall be recorded online by the
proper officer in Part A of FORM GST EWB-03 within twenty four hours of inspection and the
final report in Part B of FORM GST EWB-03 shall be recorded within three days of such
inspection [rule 138C(1) of CGST Rules]
Commissioner or any other officer authorised by him can extend the period of three days by
further three days for submission of final report - proviso to rule 138C(1) of CGST Rules
inserted w.e.f. 19-6-2018.
 779

The period of 24 hours or three days shall be counted from midnight of the date on which
the vehicle is intercepted - Explanation to rule 138C(1) of CGST Rules inserted w.e.f. 19-6-
2018.
No further verification in State if once verification done - The physical verification of goods
being transported on any conveyance has been done during transit at one place within the
State or Union Territory or in any other State or Union Territory, no further physical
verification of the said conveyance shall be carried out again in the State or Union Territory,
unless a specific information relating to evasion of tax is made available subsequently [rule
138C(2) of CGST Rules]
38.10-2 Transporter can upload details if vehicle detained for more than 30 minutes
If a vehicle has been intercepted and detained for a period exceeding thirty minutes, the
transporter may upload the said information in form GST EWB-04 on the common portal
[rule 138D of CGST Rules]
It is not clear what action will be taken and by whom. In fact, the officer may get alloyed,
and his 'rate' and 'charges' will increase.
38.10-3 Procedure for road checks
CBI&C has issued detailed circular No. 41/15/2018-GST dated 13-4-2018, elaborating
procedure for interception of conveyances for inspection of goods in movement, detention,
release and confiscation of contravening goods and conveyances.
Proper Officer authorised by jurisdictional Commissioner can conduct interception and
inspection of conveyances and goods in the prescribed jurisdictional area [para 2(a) of
Circular].
The proper officer can intercept a vehicle. If prima facie, no discrepancy is found, he can
release the vehicle.
E-way bill number may be available on the print out, SMS or it may be written on invoice.
Any of this mode is permissible.
All these forms of having an e-way bill are valid. Wherever a facility exists to verify the e-way
bill electronically, the same shall be so verified, either by logging on to
http://mis.ewaybillgst.gov.in or the Mobile App or through SMS by sending EWBVER
<EWB_NO> to the mobile number 77382 99899 (For example EWBVER 120100231897)
If proper officer intends to undertake inspection, he should first record the statement of
person in charge of conveyance (normally driver) in form GST MOV-01. In addition, the
proper officer shall issue order of physical verification in form GST MOV-02.
Within 24 hours of issue of such order, the proper officer shall prepare a report in part A of
form GST EWB-03 and upload the same on common portal.
Within three * days from order in form GST MOV-02, the proper officer shall conclude
inspection proceedings. This period can be extended by Additional/Joint Commissioner by
issuing order in form GST MOV-03. Copy of that order shall be served on the person in charge
of the conveyance [* - The words were 'working'. This word has been deleted vide CBI&C
circular No. 49/23/2018-GST dated 21-6-2018. Thus, now, the proceedings should be
concluded in 'three days' and not 'three working days'].
 780

The final report shall be prepared in form GST MOV-04. Its copy will be served on the person
in charge of conveyance. The final report shall be uploaded in part B of form GST EWB-03.
If no discrepancy was found, release order shall be issued in form GST MOV-05. If
discrepancy is noticed, order of detention shall be served in form GST MOV-06 and a notice
in form GST MOV-07, specifying tax and payable.
If tax and penalty is paid as per provisions of section 129(1)(a) or 129(1)(b) of CGST Act,
goods and conveyance will be released by issuing order in form GST MOV-05. The order in
form GST MOV-09 will be uploaded on common portal, demand will be added in electronic
liability register and amount will be debited from electronic cash ledger or electronic credit
ledger of the concerned person [really, penalty cannot be paid through electronic credit
ledger].
If the person in charge refuses to pay the tax and penalty, the goods and conveyance shall
be released on receipt of bond in form GST MOV-08 and security in form of bank guarantee
equal to amount specified in section 129(1)(a) or 129(1)(b) of CGST Act.
If objection is raised, personal hearing shall be given and speaking order shall be passed in
form GST MOV-09, quantifying tax and penalty payable. On payment of such amount release
order shall be issued in form GST MOV-05 and uploaded.
If amount is not paid within fourteen days of order of detention in form GST MOV-06, notice
proposing confiscation of goods shall be issued in form GST MOV-10. [The time limit was
seven days upto 1-2-2019].
In case of public conveyance, notice shall be issued proposing to impose fine equal to tax
payable on the goods being transported in lieu of confiscation of conveyance.
Order of confiscation of goods and conveyance shall be issued in form GST MOV-11. This will
be added to electronic liability register. If the person is unregistered, temporary ID shall be
created.
After issue of order in form GST MOV-11, earlier order under GST MOV-09 shall be
withdrawn.
If the owner does not pay within specified time, goods and conveyance shall be auctioned.
38.10-4 No ITC of tax paid after road check under section 129
If tax is paid after road check, its input tax credit is not available to recipient - section 17(5)(i)
of CGST Act.
However, luckily, there is no provision that the supplier will be liable to pay tax again on
goods seized during road check.
38.10-5 Penalty equal to tax mandatory - Highway Robbery
Section 129(1) of CGST Act envisages deposit of penalty equal to tax. Second proviso to
section 130(2) of CGST Act states that fine and penalty on seizure of goods shall not be less
than penalty specified in section 129(1) of CGST Act.
Thus, the penalty is mandatory. There is no discretion to impose lower penalty even if there
is bona fide mistake and no intention to evade taxes.
It is seen that road checks have become an official 'high way robbery'. Penalty is imposed
even for bona fide mistakes.
 781

Taxable person can argue on basis of following case law, but results are uncertain.
Supreme Court in Hindustan Steel Ltd. v. State of Orissa AIR 1970 SC 253 = 25 STC 211 = 83
ITR 26 = (1969) 2 SCC 627 = 2 ELT (J159) (SC), observed as follows : The discretion to impose
penalty must be exercised judicially. A penalty will ordinarily be imposed in case where the
party acts deliberately in defiance of law, but not in cases where there is a technical or venial
breach of the provisions of the Act or where the breach flows from a bona fide belief that
the offender is not liable under the Act. - - An order imposing penalty for failure to carry out
a statutory obligation is the result of quasi-judicial proceeding. Penalty will not be ordinarily
imposed unless the party obliged either acted deliberately in defiance of law or was guilty
of conduct contumacious or dishonest or acted in conscious disregard of its obligation.
Penalty will not be imposed merely because it is lawful to do so. - - Even if a minimum penalty
is prescribed, the Authority will be justified in refusing to impose penalty, when there is a
technical or venial breach of the Act or where breach flows from a bona fide belief that the
offender is not liable to act in the manner prescribed by the Statute - quoted with approval
in Shiv Dutt Fateh Chand v. UOI - (1983) 53 STC 289 (SC) = AIR 1984 SC 1194 = 148 ITR 664
(SC).
In Cement Marketing Co. of India v. Asstt. Commissioner of Sales Tax - (1980) 1 SCC 71 = (6)
ELT 295 (SC) = 124 ITR 15 = 4 Taxman 44 = (1980) 45 STC 197 (SC) = AIR 1980 SC 346 also, it
was held that even if a minimum penalty is prescribed, the authority will be justified in
refusing to impose a penalty when there is a technical or venial breach of the provisions of
the Act.
In D Navinchandra v. UOI - 1987 (29) ELT 492 (SC) = 1987 (3) SCC 66 and B Vijay Kumar v.
UOI - AIR 1987 SC 1794 also, it has been held that bona fides must be considered while
imposing penalty. This view has been followed in various judgments like * Akbar Badruddin
Jiwani v. CC - 1990 (47) ELT 161 (SC) * Extrusion v. CC 1994 (70) ELT 52 (Cal HC).
38.10-5A Penalty of only Rs. 1,000 for minor mistakes in e-way bill
Luckily, it seems harassment caused to truck drivers and owners of goods has been noticed
by Government.
CBIC, vide circular No. 64/38/2018-GST dated 14-9-2018 has clarified as follow.
The consignment of goods must be accompanied by tax invoice or delivery challan and e-
way bill. In case a consignment of goods is accompanied with an invoice or any other
specified document and also an e-way bill, proceedings under section 129 of the CGST Act
may not be initiated in the following situations -
(a) Spelling mistakes in the name of the consignor or the consignee but the GSTIN,
wherever applicable, is correct;
(b) Error in the pin-code but the address of the consignor and the consignee mentioned
is correct, subject to the condition that the error in the PIN code should not have the
effect of increasing the validity period of the e-way bill;
(c) Error in the address of the consignee to the extent that the locality and other details
of the consignee are correct;
 782

(d) Error in one or two digits of the document number mentioned in the e-way bill;
(e) Error in 4 or 6 digit level of HSN where the first 2 digits of HSN are correct and the
rate of tax mentioned is correct;
(f) Error in one or two digits/characters of the vehicle number.

In case of the above situations, penalty to the tune of Rs. 500 each under section 125 of the
CGST Act and the respective State GST Act should be imposed (Rs.1,000 under the IGST Act)
in form GST DRC-07 for every consignment. A record of all such consignments where
proceedings under section 129 of the CGST Act have not been invoked in view of the
situations listed above shall be sent by the proper officer to his controlling officer on a
weekly basis.
In Godrej Consumer Products Ltd. v. ACST (2020) 81 GST 608 = 114 taxmann.com 453
(Appellate Authority - GST - HP), the distance was erroneously types as 20 Km instead of
2000 Km, due to which validity was calculated as one day instead of 20 days. It was held that
this is typographical mistake and penalty cannot be imposed - relying on Sabitha Riyaz v. UOI
(2018) 100 taxmann.com 23 (Ker HC).
In Integrated Constructive Solutions v. ACST [2020] 82 GST 772 = 121 taxmann.com 104 (AA-
GST-HP), penalty of Rs 16.28 crores was imposed when truck number could not be changed
due to poor connectivity. The truck number was corrected within two hours. It was (indeed
rightly) held that it is only a procedural lapse. A minor penalty of Rs 10,000 was imposed.
In Mahalakshmi Packagers v. ACSTE (2021) 115 taxmann.com 391 = 83 GST 144 (AA-GST-
HP], mistake in two digits while entering motor vehicle number was held as minor and
penalty of Rs 1,000 was imposed.
38.10-6 Is it worth going to High Courts with writ petition?
Provision of e-way bill has become easy source of making quick money by tax officers.
Vehicles are detained on flimsy grounds and under threat of heavy penalty, money is
extracted. Even bogus persons sometimes pose as tax officers to extract money.
E-way bill provisions have become official high way robbery.
In Gati Kintetsu Express P Ltd. v. C. CT (2018) 95 taxmann.com 254 (MP HC DB), penalty of
Rs 1.32 crores imposed on transporter for not carrying e-way bill has been upheld.
Many taxable persons have filed writ petition before High Court seeking relief. There are
over 100 cases reported on taxmann.com itself.
In most of the cases before High Courts, normally goods are ordered to be released under
bond and guarantee with directions to Competent Authority to take decision quickly.
Practically, this is no relief.
Hence, in my view, approach to High Court may be useful only when you have some unique
point to state.
In K P Sugandh v. State of Chhattisgarh (2020) 122 taxmann.com 291 (Chhattisgarh HC), it
was held that goods cannot be seized on the ground that there are discrepancies in the
valuation of goods.
 783

In Kamlesh Steels v. Deputy State Tax Officer (2021) 84 GST 93 = 123 taxmann.com 375
(Telangana HC DB), it was held that the authorities should closely examine whether the
contravention of the provisions was with intent to evade payment of taxes. Distinction
should be made between serious and substantive violations and those that are
minor/procedural in nature - quoting and following Synergy Fertichem v. State of Gujarat
(2020) 76 GSTR 81 (Guj HC).
38.11 Penalty for transporting goods without valid documents
The present provisions are given below. The provisions have been amended vide Finance
Act, 2021. The new provisions are discussed in para 38.12. The new provisions may be
effective by December, 2021 or even earlier.
Notwithstanding anything contained in this Act, where any person transports any goods or
stores any goods while they are in transit in contravention of the provisions of this Act or
rules made thereunder, all such goods and the conveyance used as a means of transport for
carrying the said goods and documents relating to such goods and conveyances shall be
liable to detention or seizure.
After detention or seizure, the goods and conveyance shall be released—
(a) on payment of the applicable tax and penalty equal to 100% of the tax payable on
such goods and, in case of exempted goods, on payment of an amount equal to two
per cent of the value of goods or twenty five thousand rupees, whichever is less,
where the owner of the goods comes forward for payment of such tax and penalty.
(b) on payment of the applicable tax and penalty equal to the 50% of the value of the
goods reduced by the tax amount paid thereon and, in case of exempted goods, on
payment of an amount equal to five per cent of the value of goods or twenty five
thousand rupees, whichever is less, where the owner of the goods does not come
forward for payment of such tax and penalty.
(c) upon furnishing a security equivalent to the amount payable under clause (a) or
clause (b) in such form and manner as may be prescribed - section 129(1) of CGST
Act.

No detention or seizure without serving order - No such goods or conveyance shall be

detained or seized without serving an order of detention or seizure on the person
transporting the goods - Proviso to section 129(1) of CGST Act.
Powers of police to seize goods for suspected violation of provisions of any law - Police can
detain and seize goods which they believe are being transported in violation of any law.
However, subsequently, they should hand over goods to concerned department which is
empowered to enforce that law - Sangai Enterprise v. State of Assam - (2020) 77 GST 592 =
111 taxmann.com 143 (Gau HC). [In this case, the goods were smuggled and hence violation
of Customs Act].
Who is 'owner of goods'? - If invoice or delivery challan or other specified document is
accompanying the goods, then either consignor or consignee should be deemed to be the
owner. If invoice or other document is not accompanying the goods, the proper officer shall
 784

determine who should be declared to be owner of goods - para 6 of CBI&C circular No.
76/50/2018-GST dated 31-12-2018.
Provisional release on bond and security - - The provisions of section 67(6) shall, mutatis
mutandis, apply for detention and seizure of goods and conveyances - section 129(2) of CGST
Act.
Under section 67(2) of CGST Act, goods can be released on execution of bond with security.
In State of Uttar Pradesh v. Kay Pan Fragrance (P.) Ltd. [2019] 112 taxmann.com 81 = 77 GST
576 = (2020) 5 SCC 811 (SC), it has been held that release of seized goods should be only as
per provisions of section 67 of CGST Act and relevant rule. High Court should not give any
relaxation in these requirements.
38.11-1 Passing of order after seizure or provisional release
The proper officer detaining or seizing goods or conveyances shall issue a notice specifying
the tax and penalty payable and thereafter, pass an order for payment of tax and penalty
under clause (a) or clause (b) or clause (c) - Section 129(3) of CGST Act.
Deputy/Assistant Commissioner of Central Tax has been designated as 'proper officer' for
the purpose of section 129(3) - CBI&C circular No. 3/3/2017-GST dated 5-7-2017 [State
Government will prescribe 'proper officer' for purpose of SGST in the respective State].
No tax, interest or penalty shall be determined under section 129(3) without giving the
person concerned an opportunity of being heard - Section 129(4) of CGST Act.
On payment of amount referred in section 129(1), all proceedings in respect of the notice
specified in section 129(3) shall be deemed to be concluded.
Procedure for imposing penalty and confiscation of goods - Procedure for imposing penalty
and confiscation of goods has been prescribed in rule 142 of CGST Rules, as inserted w.e.f.
1-4-2019 and amended on 15-10-2020 [See details of procedure under 'Penalties'].
Recovery by confiscating offending goods if person does not pay - Where the person
transporting any goods or the owner of the goods fails to pay the amount of tax and penalty
as provided in section 129(1) within fourteen days of such detention or seizure, further
proceedings shall be initiated in accordance with the provisions of section 130 - section
129(6) of CGST Act.- The words in italics amended vide CGST (Amendment) Act, 2018 w.e.f.
1-2-2019. Earlier, the time limit was seven days.
Where the detained or seized goods are perishable or hazardous in nature or are likely to
depreciate in value with passage of time, the said period of fourteen days may be reduced
by the proper officer - Proviso to Section 129(6) of CGST Act.
'Proper Officer' to reduce the period of fourteen days under proviso to section 129(6) of
CGST Act, for the purpose of CGST is Additional Commissioner/Joint Commissioner of Central
Tax, vide CBI&C circular No. 3/3/2017-GST dated 5-7-2017 [State Government will prescribe
'proper officer' for purpose of SGST in the respective State].
Section 130 of CGST Act makes provisions for confiscation of goods.
Who is 'owner of goods'? - If invoice or delivery challan or other specified document is
accompanying the goods, then either consignor or consignee should be deemed to be the
owner. If invoice or other document is not accompanying the goods, the proper officer shall
 785

determine who should be declared to be owner of goods - para 6 of CBI&C circular No.
76/50/2018-GST dated 31-12-2018.
Detention and confiscation only of consignments for which there is violation - It is possible
that in a vehicle there may be 25 consignments, out of which e-way bill for 20 consignments
is available and only five consignments are without e-way bill. In such case, detention and
confiscation should be only of those five consignments and not all 25 consignments CBI&C
circular No. 49/23/2018-GST dated 21-6-2018.
38.11-2 Detention, seizure and confiscation
'Detention' means the goods are temporarily detained by officers to check whether there is
any violation of law. If there is any violation, goods are seized. Otherwise, goods are
released. Often 'detention' is only by verbal instructions and goods can be released without
any formality, if the documents etc. are found to be in order.
'Seizure' means goods are taken in custody by the department. 'Confiscation' means the
goods become property of Government and Government can deal with it as it wants. On the
other hand 'seizure' means goods are in custody of Government, but the property of goods
remains with the owner.
Contravening goods are liable to confiscation. Conveyance involved in offence is also liable
to confiscation.
Goods confiscated by Government can be taken back on payment of redemption fine.
38.11-3 Disposal of perishable, hazardous and depreciable seized goods
If goods seized are of perishable, hazardous or depreciable nature, these should be disposed
of by proper officer. The list of such goods has been given in Notification No. 27/2018-CT
dated 13-6-2018.
The list covers salt, raw hides, newspapers, cell, batteries, fireworks, red sander,
sandalwood, food articles, unclaimed goods which are depreciable on account of change in
technology, change in model etc.
Similarly, if seized goods are not provisionally released under section 67(6) of CGST Act can
be disposed of if not got released under bond within one month.
38.12 Proposed changes in Penalty provisions for transporting goods without valid
documents
Provisions relating to detention, seizure and release of goods and conveyances in transit are
revamped vide Section 117 of Finance Act, 2021 w.e.f. date to be notified. Sections 129 and
130 of CGST Act have been amended for this purpose. The provisions apply if goods are
transported in contravention of provisions of CGST Act and Rules.
The revised provisions, as contained in amended section 129 of CGST Act are discussed
below. The existing provisions are discussed earlier. The revised provisions, which will be
effective from date to be notified, are broadly as follows. These are expected to be effective
before December, 2021.
Proceedings under section 129 of CGST Act have been de-linked from provisions in
sections 73 and 74 of CGST Act, relating to determination of tax not paid or short paid
 786

Goods and conveyance can be detained and seized if goods are being transported in
contravention of provisions of GST Act and Rules [may be any contravention, not
merely relating to eway bill)
If goods are taxable, penalty equal to 200% of tax payable will be imposed. In case of
exempted goods, penalty equal to 2% of value of goods or Rs 25,000 whichever is
lower - section 129(1)(a) of CGST Act [presently, there is provision of payment of tax
plus penalty equal to 100% of tax payable in case of taxable goods].
Provisions of release of seized goods on bond and security as contained in section
67(6) of CGST Act shall not apply to goods seized under section 129 of CGST Act. Thus,
release of goods and conveyance will be as per provisions of section 129 of CGST Act
only

Goods can be released either on payment of entire penalty or on provision of security

for amount equal to penalty (may be in cash or in form of bank guarantee)

Conveyance can be released on payment of penalty of Rs one lakh - first proviso to

section 129(6) of CGST Act as substituted vide section 117 of Finance Act, 2021 w.e.f.
date to be notified.

Notice of seizure of goods or conveyance shall be issued within seven days and order
for penalty shall be issued within seven days from date of notice - section 129(3) of
CGST Act as substituted
Sale or disposal of goods if person fails to pay penalty within 15 days from date of
receipt of order imposing penalty. This period of 15 days can be reduced in case of
hazardous goods or goods that are likely to deteriorate - section 129(6) of CGST Act
as substituted vide section 117 of Finance Act, 2021 w.e.f. date to be notified. - - The
goods are not confiscated. Hence, balance amount is required to be refunded to
owner of goods.
Appeal can be filed on payment of 25% of penalty imposed. There is provision for
release of seized goods on furnishing security (mere bond is not sufficient). Hence, it
may be advisable to pay 25% penalty and give security of balance amount, as security
in form of bank guarantee costs money in form of bank charges. Banks often insist
on deposit also.

No provision for confiscation of goods or conveyance when goods are seized in

transit. The goods can be sold straight away, if security is not provided or penalty not
paid [section 130 de-linked from section 129].

Provisions of confiscation of goods or conveyances and penalty as contained in

section 130 of CGST Act will not apply to detention and seizure under section 129 of
CGST Act

The amended statutory provisions are as follows -

 787

Detention and seizure of goods and conveyance if goods transport in contravention of

CGST Act or Rules - Notwithstanding anything contained in the CGST Act, where any person
transports any goods or stores any goods while they are in transit in contravention of the
provisions of this Act or the rules made thereunder, all such goods and conveyance used as
a means of transport for carrying the said goods and documents relating to such goods and
conveyance shall be liable to detention or seizure and after detention or seizure, shall be
released - (a) on payment of penalty equal to 200% of the tax payable on such goods and, in
case of exempted goods, on payment of an amount equal to 2% of the value of goods or Rs
25,000, whichever is less, where the owner of the goods comes forward for payment of such
penalty (b) on payment of penalty equal to 50% of the value of the goods or 200% of the tax
payable on such goods, whichever is higher, and in case of exempted goods, on payment of
an amount equal to 5% of the value of goods or Rs 25,000, whichever is less, where the
owner of the goods does not come forward for payment of such penalty [If owner does not
come forward, the penalty can be recovered only by sale of seized goods) (c) upon furnishing
a security equivalent to the amount payable under clause (a) or clause (b) in such form and
manner as may be prescribed. - section 129(1) of CGST Act substituted vide Finance Act, 2021
w.e.f. date to be notified.
Detention or seizure only after serving order - No such goods or conveyance shall be
detained or seized without serving an order of detention or seizure on the person
transporting the goods - proviso to section 129(1) of CGST Act substituted vide Finance Act,
2021 w.e.f. date to be notified.
Detention and confiscation only of consignments for which there is violation - It is possible
that in a vehicle there may be 25 consignments, out of which e-way bill for 20 consignments
is available and only five consignments are without e-way bill. In such case, detention and
confiscation should be only of those five consignments and not all 25 consignments - CBI&C
circular No. 49/23/2018-GST dated 21-6-2018.
Who is 'owner of goods'? - If invoice or delivery challan or other specified document is
accompanying the goods, then either consignor or consignee should be deemed to be the
owner. If invoice or other document is not accompanying the goods, the proper officer shall
determine who should be declared to be owner of goods - para 6 of CBI&C circular No.
76/50/2018-GST dated 31-12-2018.
Release of goods on payment of penalty or providing security equal to penalty - Goods
seized can be released either on payment of penalty or on providing security equal to
penalty. In State of Uttar Pradesh v. Kay Pan Fragrance (P.) Ltd. [2019] 112 taxmann.com 81
= 77 GST 576 = (2020) 5 SCC 811 (SC), it has been held that release of seized goods should
be only as per provisions of CGST Act and relevant rules. High Court should not give any
relaxation in these requirements.
Issue of Notice and passing of order by proper officer - The proper officer detaining or
seizing goods or conveyance shall issue a notice within seven days of such detention or
seizure, specifying the penalty payable, and thereafter, pass an order within a period of
seven days from the date of service of such notice, for payment of penalty under section
129(1)(a) or 129(1)(b) of CGST Act -section 129(3) of CGST Act substituted vide Finance Act,
2021 w.e.f. date to be notified.
 788

Deputy/Assistant Commissioner of Central Tax has been designated as 'proper officer' for
the purpose of section 129(3) - CBI&C circular No. 3/3/2017-GST dated 5-7-2017 [State
Government will prescribe 'proper officer' for purpose of SGST in the respective State].
Opportunity of personal hearing - No penalty shall be determined under section 129(3)
without giving the person concerned an opportunity of being heard - section 129(4) of CGST
Act substituted vide Finance Act, 2021 w.e.f. date to be notified.
Closure of notice on payment of penalty - On payment of amount referred in section 129(1),
all proceedings in respect of the notice specified in section 129(3) shall be deemed to be
concluded - section 129(4) of CGST Act.
Sale of seized goods or conveyance if penalty not paid within 15 days of the order - Where
the person transporting any goods or the owner of such goods fails to pay the amount of
penalty under section 129(1) within fifteen days from the date of receipt of the copy of the
order passed under section 129(3), the goods or conveyance so detained or seized shall be
liable to be sold or disposed of otherwise, in such manner and within such time as may be
prescribed, to recover the penalty payable under section 129(3) of CGST Act -section 129(6)
of CGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified. - - Since goods are
not confiscated, balance amount has to be refunded to owner of goods.
Release of conveyance on payment of penalty of Rs one lakh - The conveyance shall be
released on payment by the transporter of penalty under section 129(3) or Rs one lakh,
whichever is less - first proviso to section 129(6) of CGST Act substituted vide Finance Act,
2021 w.e.f. date to be notified.
Immediate disposal and sale if goods are perishable or hazardous - where the detained or
seized goods are perishable or hazardous in nature or are likely to depreciate in value with
passage of time, the said period of fifteen days may be reduced by the proper officer -
second proviso to section 129(6) of CGST Act substituted vide Finance Act, 2021 w.e.f. date
to be notified.
'Proper Officer' to reduce the period of fourteen days under proviso to section 129(6) of
CGST Act, for the purpose of CGST is Additional Commissioner/Joint Commissioner of Central
Tax, vide CBI&C circular No. 3/3/2017-GST dated 5-7-2017 [State Government will prescribe
'proper officer' for purpose of SGST in the respective State].
Disposal of perishable, hazardous and depreciable seized goods - If goods seized are of
perishable, hazardous or depreciable nature, these should be disposed of by proper officer.
The list of such goods has been given in Notification No. 27/2018-CT dated 13-6-2018.
The list covers salt, raw hides, newspapers, cell, batteries, fireworks, red sander,
sandalwood, food articles, unclaimed goods which are depreciable on account of change in
technology, change in model etc.
 789

Payment of taxes by cash and through input tax credit

39.1 Tax payment
The tax due can be paid either by cash or through utilization of input tax credit. Payment of
interest, penalty, fee and other payments have to be made through cash only.
Payment by cash is to be made electronically. This is reflected in Electronic Cash Ledger (form
GST PMT-5). The Input Tax Credit available is reflected in Electronic Credit Ledger (form GST
PMT-2).
All return related liabilities are reflected in Electronic Liability Register (GST PMT-01 part I).
When the closing balance in Electronic Liability Register is Nil, the return of that month will
be treated as valid.
Payment of tax by unregistered person - Such payment will be made on basis of a
temporary identification number generated through common portal - FAQ on GST Chapter
7 Q No. 37 issued by CBI&C on 15-12-2018.
No provision for payment of tax under protest - There is no provision for payment of tax
under protest - FAQ on GST Chapter 14 Q No. 55 issued by CBI&C on 15-12-2018. Thus, the
time limit for filing refund claim is mandatory and does not get extended by paying GST
under protest.
39.1-1 Major and minor heads in the electronic ledgers and challans
The major heads in the electronic cash ledger (GST PMT-5), electronic liability register (GST
PMT-1) and challan for deposit of tax (GST PMT-6) are -Central tax (CGST), State Tax (SGST),
UT Tax (UTGST) and GST Compensation Cess. In each major head, the minor heads are - Tax,
Interest, Penalty, Fee, others and total.
Payments and debits in each major head and minor head are required to be shown.
In Electronic Credit Ledger (GST PMT-2), there will be only column of tax as interest, penalty,
fee and other payments cannot be made through Input Tax Credit (ITC). This ledger can be
used only for payment of output tax (and not where tax is payable under reverse charge).
Payment of tax, interest or penalty for each month shall be made by debiting electronic cash
ledger or electronic credit ledger on or before the due date of filing return - Notification No.
35/2017-CT dated 15-9-2017 and No. 56/2017-CT dated 15-11-2017.
39.1-2 Transfer in electronic cash ledger from one head to another
The electronic cash ledger has various heads like tax, interest, penalty, fee or other amount.
Often, the taxable person makes payment in wrong head and then he has to pay amount in
proper head and claim refund of amount paid in wrong head.
To avoid such problems, it is provided that a registered person may transfer any amount of
tax, interest, penalty, fee or any other amount available in electronic cash ledger to
electronic cash ledger for IGST, CGST or UTGST or cess. He has to file form GST PMT-09 for
this purpose - rule 87(13) of CGST Rules inserted w.e.f. 28-6-2019.
This form is effective from 21-4-2020.
[a good provision indeed. In fact, there should be only one electronic cash ledger from which
debit may be made to any major and minor head. However, as often said, common sense is
most uncommon].
 790

39.2 Electronic payment of tax, interest, penalty and other amounts

Every deposit made towards tax, interest, penalty, fee or any other amount by a taxable
person by internet banking or by using credit/debit cards or National Electronic Fund
Transfer [NEFT] or Real Time Gross Settlement [RTGS] or by such other mode and subject to
such conditions and restrictions as may be prescribed. The payment shall be credited to the
electronic cash ledger of such person. - section 49(1) of CGST Act.
"Electronic Cash ledger" means the electronic cash ledger referred to in section 49(1) of
CGST Act - section 2(43) of CGST Act.
Payment in single Electronic Cash Ledger and then transfer to other heads - A registered
person may, on the common portal, transfer any amount of tax, interest, penalty, fee or any
other amount available in the electronic cash ledger under this Act, to the electronic cash
ledger for integrated tax, central tax, State tax, Union territory tax or cess, in such form and
manner and subject to such conditions and restrictions as may be prescribed and such
transfer shall be deemed to be a refund from the electronic cash ledger under this Act -
section 49(10) of CGST Act, inserted vide Finance (No. 2) Act, 2019 with effect from 1-1-
2020.
Where any amount has been transferred to the electronic cash ledger under this Act, the
same shall be deemed to be deposited in the said ledger as provided in section 49(1) of CGST
Act - section 49(11) of CGST Act inserted vide Finance (No. 2) Act, 2019 with effect from 1-
1-2020.
Earlier, different electronic cash ledgers are maintained for different major heads and minor
heads, which was very clumsy and prone to mistakes. Now, it is provided that payment can
be made in single electronic cash ledger from which amount may be transferred to other
electronic cash ledgers of different major heads and minor heads - insertion of section 49(10)
of CGST Act vide Finance (No. 2) Act, 2019 with effect from 1-1-2020.
[ease of doing business. It is common sense but as is rightly said, common sense is most
uncommon].
Section 53A of CGST Act and section 17A of IGST Act have been inserted w.e.f. 1-1-2020 to
transfer amounts deposited in electronic cash ledger to SGST/UTGST.
Form PMT-09 can be used for transfer of cash balance from one head to another. This form
is effective from 21-4-2020.
Rounding off of tax etc . - The amount of tax, interest, penalty, fine or any other sum
payable, and the amount of refund or any other sum due, under the provisions of the Act
shall be rounded off to the nearest rupee and, for this purpose, where such amount contains
a part of a rupee consisting of paise then, if such part is fifty paise or more, it shall be
increased to one rupee and if such part is less than fifty paise it shall be ignored - section 170
of CGST Act.
Note that rounding of tax shown in each invoice is not required to be rounded off. Only
consolidated payment to Government has to be rounded off.
Credit of ITC to Electronic Credit Ledger - The input tax credit as self-assessed in the return
of a taxable person shall be credited to his electronic credit ledger in accordance with section
41 or section 43A, to be maintained in prescribed manner - section 49(2) of CGST Act. The
 791

words in italics inserted vide CGST (Amendment) Act, 2018. This amendment has not been
made effective though other provisions have been notified and made effective on 1-2-2019,
as provisions of section 43A have not been made effective.
At present, credit is taken in GSTR-3B on self assessment basis.
"Electronic credit ledger" means the electronic credit ledger referred to in section 49(2) -
section 2(46) of CGST Act.
39.2-1 Identification number for each transaction
A unique identification number shall be generated at the Common Portal for each debit or
credit to the electronic cash or credit ledger, as the case may be - Rule 88(1)of CGST and
SGST Rules, 2017.
The unique identification number relating to discharge of any liability shall be indicated in
the corresponding entry in the electronic liability register - Rule 88(2) of CGST and SGST
Rules, 2017.
A unique identification number shall be generated at the Common Portal for each credit in
the electronic liability register for reasons other than those covered under rule 88(2) - Rule
88(3) of CGST and SGST Rules, 2017.
39.2-2 Utilisation of amount in electronic cash ledger
The amount available in the electronic cash ledger may be used for making any payment
towards tax, interest, penalty, fees or any other amount payable under the provisions of
CGST Act or the rules made thereunder in such manner and subject to such conditions and
within such time as may be prescribed. - section 49(3) of CGST Act.
39.2-3 Maintenance of Electronic Cash Ledger
The electronic cash ledger under section 49(1) shall be maintained in form GST PMT-05 for
each person, liable to pay tax, interest, penalty, late fee or any other amount, on the
Common Portal for crediting the amount deposited and debiting the payment therefrom
towards tax, interest, penalty, fee or any other amount - Rule 87(1) of CGST and SGST Rules,
2017.
39.2-4 Generation of challan for payment of tax, interest, penalty or fee
Any person, or a person on his behalf, shall generate a challan in form GST PMT-06 on the
Common Portal and enter the details of the amount to be deposited by him towards tax,
interest, penalty, fees or any other amount - Rule 87(2) of CGST and SGST Rules, 2017.
The challan generated will be valid for fifteen days - first proviso to Rule 87(2) of CGST and
SGST Rules, 2017 inserted w.e.f. 17-8-2017.
A 14 digit CPIN (Common Portal Identification Number) is given at the time of generation of
challan - FAQ on GST Chapter 7 Q No. 18 issued by CBI&C on 15-12-2018.
The deposit under rule 87(2) shall be made through any of the following modes - (i)Internet
Banking through authorized banks (ii) Credit card or Debit card through the authorised bank
(iii) National Electronic Fund Transfer (NEFT) or Real Time Gross Settlement (RTGS) from any
bank (iv) Over the Counter payment (OTC) through authorized banks for deposits up to ten
thousand rupees per challan per tax period, by cash, cheque or demand draft - Rule 87(3) of
CGST and SGST Rules, 2017.
 792

39.2-5 Over the Counter payment to Bank

Over the Counter payment (OTC) can be made through authorized banks for deposits up to
Rs 10,000 per challan per tax period, by cash, cheque or demand draft.
The restriction for deposit up to ten thousand rupees per challan in case of an Over the
Counter (OTC) payment shall not apply to deposit to be made by - (a) Government
Departments or any other deposit to be made by persons as may be notified by the
Commissioner in this behalf (b) Proper officer or any other officer authorised to recover
outstanding dues from any person, whether registered or not, including recovery made
through attachment or sale of movable or immovable properties (c)Proper officer or any
other officer authorized for the amounts collected by way of cash, cheque or demand draft
during any investigation or enforcement activity or any ad hoc deposit - first proviso to rule
87(3) of CGST and SGST Rules, 2017.
For making payment of any amount indicated in the challan, the commission, if any, payable
in respect of such payment shall be borne by the person making such payment.
Any payment required to be made by a person who is not registered under the Act, shall be
made on the basis of a temporary identification number generated through the Common
Portal - Rule 87(4) of CGST and SGST Rules, 2017.
39.2-6 Mandate when payment made by NEFT or RTGS
Where the payment is made by way of NEFT or RTGS mode from any bank, the mandate
form shall be generated along with the challan on the Common Portal and the same shall be
submitted to the bank from where the payment is to be made - Rule 87(5) of CGST and SGST
Rules, 2017.
The mandate form shall be valid for a period of fifteen days from the date of generation of
challan.
Generation of CIN on successful payment - On successful credit of the amount to the
concerned government account maintained in the authorised bank, a Challan Identification
Number (CIN) will be generated by the collecting Bank and the same shall be indicated in the
challan - Rule 87(6) of CGST and SGST Rules, 2017.
On receipt of CIN from the authorized Bank, the said amount shall be credited to the
electronic cash ledger of the person on whose behalf the deposit has been made and the
Common Portal shall make available a receipt to this effect - Rule 87(7) of CGST and SGST
Rules, 2017.
39.2-7 Intimation when CIN not generated
If the bank account of the person concerned, or the person making the deposit on his behalf,
is debited but no Challan Identification Number (CIN) is generated or generated but not
communicated to the Common Portal, the said person may represent electronically in form
GST PMT-07 through the Common Portal to the Bank or electronic gateway through which
the deposit was initiated - Rule 87(8) of CGST and SGST Rules, 2017.
39.2-8 Credit of TDS or TCS
Any amount deducted under section 51 (TDS) or collected under section 52 (TCS) and
claimed by the registered taxable person from whom the said amount was deducted or
 793

collected shall be credited to his electronic cash ledger - Rule 87(9) of CGST and SGST Rules,
2017 as amendment w.e.f. 28-6-2019.
39.2-9 Debit to Electronic Cash Ledger if refund claimed
Where a person has claimed refund of any amount from the electronic cash ledger, the said
amount shall be debited to the electronic cash ledger - Rule 87(10) of CGST and SGST Rules,
2017.
If the refund so claimed is rejected, either fully or partly, the amount debited under rule
87(10), to the extent of rejection, shall be credited to the electronic cash ledger by the
proper officer by an order made in form GST PMT-03 - Rule 87(11) of CGST and SGST Rules,
2017.
A refund shall be deemed to be rejected if the appeal is finally rejected or if the claimant
gives an undertaking to the proper officer that he shall not file an appeal - Explanation to
Rule 87 of CGST and SGST Rules, 2017.
Deputy/Assistant Commissioner of Central Tax has been designated as 'proper officer' for
the purpose of re-crediting the amount if refund claim is finally rejected- CBE&C circular No.
3/3/2017-GST dated 5-7-2017 [State Government will prescribe 'proper officer' for purpose
of SGST in the respective State].
39.2-10 Payment by person supplying OIDAR service from out of India
Person supplying OIDAR service from out of India to a non-taxable online recipient may
deposit the amount in Electronic Cash Ledger through CBE&C's payment system i.e.
Electronic Accounting System in Excise and Service tax from date to be notified - second
proviso to Rule 87(2) of CGST and SGST Rules, 2017 inserted w.e.f. 17-8-2017.
They can make payment through Society for Worldwide Interbank Financial
Telecommunication payment network from date to be notified - second proviso to Rule 87(3)
of CGST and SGST Rules, 2017 inserted w.e.f. 17-8-2017.
39.3 Utilisation of amount in electronic credit ledger
The amount available in the electronic credit ledger may be used for making any payment
towards output tax under the provisions of the Act or the rules made thereunder in
prescribed manner - section 49(4) of CGST Act.
"Output tax" in relation to a taxable person, means the tax chargeable under this Act on
taxable supply of goods or services or both made by him or by his agent but excludes tax
payable by him on reverse charge basis - section 2(82) of CGST Act.
Thus, amount in electronic credit ledger cannot be used for payment of interest, penalty or
fees. It also cannot be used where GST is payable under reverse charge basis.
39.3-1 Sequence (order) of utilization of Input Tax Credit
Order (sequence) of utilization of ITC has been specified in sections 49(5) and 49A of CGST
Act.
However, as per section 49B of CGST Act, the order can be changed by Government on
recommendation of Council. The section reads as follows -
Notwithstanding anything contained in this Chapter and subject to the provisions of clause
(e) and clause (f) of sub-section (5) of section 49, the Government may, on the
 794

recommendations of the Council, prescribe the order and manner of utilisation of the input
tax credit on account of integrated tax, central tax, State tax or Union territory tax, as the
case may be, towards payment of any such tax. - section 49B of CGST Act, inserted vide CGST
(Amendment) Act, 2018 inserted w.e.f. 1-2-2019.
Thus, provisions of section 49(5)(e) and 49(5)(f) cannot be altered. However, other
provisions can be altered.
Under these powers rule 88A of CGST Rules has been inserted w.e.f. 1-4-2019, which reads
as follows -
Order of utilization of input tax credit as per rule 88A .- Input tax credit on account of
integrated tax shall first be utilised towards payment of integrated tax, and the amount
remaining, if any, may be utilised towards the payment of central tax and State tax or Union
territory tax, as the case may be, in any order.- rule 88A of CGST Rules, inserted w.e.f. 1-4-
2019.
The input tax credit on account of central tax, State tax or Union territory tax shall be utilised
towards payment of integrated tax, central tax, State tax or Union territory tax, as the case
may be, only after the input tax credit available on account of integrated tax has first been
utilised fully - proviso to rule 88A of CGST Rules inserted w.e.f. 1-4-2019.
Section 49(5)(a) of CGST Act provides that the amount of input tax credit on account of IGST
available in the electronic credit ledger shall first be utilized towards payment of IGST and
the amount remaining, if any, may be utilized towards the payment of CGST and
SGST/UTGST, in that order.
Normally, section prevails over the rules. However, in this case, rule 88A of CGST Rules, will
override provisions of section 49(5)(a) in view of section 49B of CGST Act. Hence, order of
utilization of Input Tax Credit w.e.f. 1-4-2019 is as follows.
Payment of IGST - The ITC of IGST should first be utilised fully for payment of IGST through
electronic credit ledger.
If the credit is insufficient, balance IGST can be paid through ITC of CGST and SGST/UTGST as
explained below.
If that credit is insufficient, balance IGST should be paid through electronic cash ledger.
Utilisation of excess ITC of IGST (if any) - If after payment of entire IGST through electronic
credit ledger, there is balance of IGST in electronic credit ledger, if any may be used either
for payment of CGST or SGST/UTGST in any order i.e. as per choice of taxable person - rule
88A of CGST Rules [it overrides section 49(5)(a) of CGST Act].
The taxable person can partially utilise IGST credit for CGST and partially for SGST/UTGST as
per his choice (after first utilising fully for payment of IGST) - CBI&C circular No. 98/17/2019-
GST dated 23-4-2019.
Credit of CGST, SGST and UTGST can be used only for payment of CGST, SGST/UTGST or IGST,
only after ITC of IGST is fully utilised - proviso to rule 88A of CGST Rules inserted w.e.f. 1-4-
2019 and section 49A of CGST Act.
Thus, credit of IGST should be fully exhausted before utilising credit of CGST and
SGST/UTGST.
 795

Payment of CGST - After full utilisation of ITC of IGST, if some CGST is still payable, it can be
paid through CGST Electronic Credit Ledger. If the credit is not sufficient, balance CGST
should be paid through electronic cash ledger.
Credit of CGST can never be utilised for payment of SGST/UTGST - section 49(5)(e) of CGST
Act.
After full payment of CGST, if some ITC of CGST is available in electronic credit ledger, that
can be utilised for payment of IGST (if payable) - section 49(5)(b) of CGST Act.
If no IGST is payable, that credit should be carried forward.
Payment of SGST/UTGST - After full utilisation of ITC of IGST, if some SGST/UTGST is still
payable, it can be paid through SGST/UTGST Electronic Credit Ledger. If the credit is not
sufficient, balance SGST/UTGST should be paid through electronic cash ledger.
Credit of SGST/UTGST can never be utilised for payment of CGST - section 49(5)(f) of CGST
Act.
After full payment of SGST/UTGST, if some ITC of SGST/UTGST is available in electronic credit
ledger, that can be utilised for payment of IGST (if payable) - section 49(5)(c) of CGST Act for
SGST and section 49(5)(d) of CGST Act for UTGST.
The input tax credit on account of SGST/UTGST shall be utilised towards payment of IGST
only where the balance of the input tax credit on account of CGST is not available for
payment of IGST, if ITC of CGST has been fully utilised - proviso to sections 49(5)(c) of CGST
Act for SGST and 49(5)(d) of CGST Act for UTGST inserted vide CGST (Amendment) Act, 2018
w.e.f. 1-2-2019.
Thus, ITC of SGST/UTGST can be utilised for payment of IGST only when ITC of CGST is not
available for utilization.
If no IGST is payable, that credit should be carried forward.
Sequence of utilisation of Input Tax Credit at a glance - The sequence of utilisation of ITC
has been specified in sections 49, 49A and 49B of CGST Act and rule 88A of CGST Rules. The
provisions as applicable w.e.f. 1-4-2019 are summarised below -
Input Tax First to be If balance, can be utilised for Remarks
Credit utilised for
payment of

IGST IGST CGST or SGST/UTGST at option of CGST or SGST/UTGST credit can

taxable person. He can partially be utilised only after credit of
utilise IGST credit for CGST and IGST is fully utilised
partially for SGST/UTGST as
confirmed in CBI&C circular No.
98/17/2019-GST dated 23-4-2019.
CGST CGST IGST CGST credit can be utilised only
after all credit of IGST is utilised
 796

SGST/UTGS SGST/UTGST IGST SGST/UTGST credit can be

T utilised only after all credit of
IGST is utilised

39.3-2 Invoice matching in GST

One big nuisance in Input Tax Credit system is bogus invoices. Since, credit can be taken on
basis of tax invoice, there is huge incentive in preparing bogus invoices.
One of the conditions in taking ITC is that the supplier must have paid the tax.
In Mahalakshmi Cotton Ginning Pressing and Oil Industries v. State of Maharashtra (2012)
35 STT 589 = 21 taxmann.com 528 = 51 VST 1 (Bom HC DB), the Maharashtra Vat Act
provided that set off (input tax credit) will not be available if selling dealer had not paid the
tax. This provision was held as valid.
This principle has been incorporated in CGST and SGST Act.
It is envisaged that invoice matching will be done on GSTN to avoid misuse.
Initially, this idea did not work. However, now system of invoice matching has been
introduced to minimise bogus invoices. Supplier furnishes his tax invoices in his GSTR-1
return. The tax invoice contains GSTIN of recipient. The details of tax invoice of supplier
appear in GSTR-2A and GSTR-2B of recipient. Figure in GSTR-2B is auto-populated in GSTR-
3B return of recipient. The ITC taken cannot be more that 105% of tax invoices appearing in
his GSTR-2B, though the figure auto-populated in GSTR-3B from GSTR-2B can be edited.
Presently, there is no provision by which the recipient would know whether the supplier has
paid the taxes on invoices furnished by him in his GSTR-1.
39.3-3 Restriction on availing ITC if supplier has not uploaded details of supplies in his
GSTR-1 return
Supplier is required to upload details of his tax invoices and debit notes in his GSTR-1 return.
The details uploaded include GSTIN of recipient. On basis of GSTR-1 return filed by supplier,
the details of tax invoices and debit notes issued to recipient appear in GSTR-2A of the
recipient. The recipient can take ITC on basis of such tax invoices and debit notes. It is
possible that in some cases (like mistake in indicating correct GSTIN of recipient or GSTN
system mistake or non-filing of GSTR-1 by suppler), the details may not appear in GSTR 2A
of recipient. Even then, the recipient can take ITC in his GSTR-3B return and utilise the same.
Supplier is required to upload details of his tax invoices and debit notes in his GSTR-1 return.
The details uploaded include GSTIN of recipient. On basis of GSTR-1 return filed by supplier,
the details of tax invoices and debit notes issued to recipient appear in GSTR-2A and GSTR-
2B of the recipient.
Facility of input tax credit is being misused to take bogus and ineligible Input Tax Credit (ITC).
To minimize, it has been provided that the ITC availed by recipient on basis of tax invoices
or debit notes (which have been received by recipient) not furnished by supplier under
section 37(1) [i.e. in his GSTR-1] shall not exceed 5% of eligible credit available in respect of
invoices and debit notes which have been furnished by supplier in his GSTR-1 return under
section 37(1) of CGST Rules - rule 36(4) of CGST Rules, inserted w.e.f. 9-10-2019 and
amended w.e.f. 1-1-2021 [The limit was 20% during 9-10-2019 to 1.1.2020 and 10% during
 797

1-1-2000 to 31-12-2020. It is 5% w.e.f. 1-1-2021]. The words 'uploaded' have been changed
to 'furnished' w.e.f. 1-1-2021.
This restriction is not supplier wise but total of invoices and debit notes uploaded by all
suppliers.
For example, if the ITC as per tax invoices and debit notes uploaded by supplier is Rs 100 in
his GSTR-1, the recipient can avail ITC of Rs 100 plus upto Rs 5 in respect of tax invoices and
debit notes received by recipient but not uploaded by supplier in his GSTR-1.
Since similar provision is in SGST Rules also, the limit of 5% (earlier 20% during 9-10-2019 to
31-12-2019) should apply separately for CGST, SGST/UTGST and IGST and not total ITC.
CBI&C, vide circular No. 123/42/2019-GST dated 11-11-2019 had clarified as follows - (a) The
restriction does not apply to IGST paid on imports, documents issued under RCM, credit
received from ISD etc. (b) The restriction is not supplier wise (c) The limit of 5% (earlier 20%
during 9-10-2019 to 31-12-2019) is of 'total eligible credit' and not where ITC is not available
at all (d) The invoices furnished by supplier upto date of filing of GSTR-1 by supplier [i.e. 11th
of each month] will only be considered (e) Balance credit will be available when tax invoices
are furnished by supplier.
Meaning of 'eligible credit available' - GSTR-2B us a static statement and will be made
available once a month. The documents filed by supplier in form GSTR-1, 5 and 6 would
reflect in next open form GSTR-2B of the recipient irrespective of supplier's date of filing. - -
The restriction of 5% is of 'eligible credit available'. This term is not defined. 'Eligible credit
available' does not mean ITC as reflected in GSTR-2B. In fact, Instruction 2(a) below GSTR-
2B (w.e.f. 1-1-2021) clearly states as follows - 'Taxpayers are advised to refer form GSTR-2B
for availing credit in form GSTR-3B. However, in case for additional details, they may refer
to their respective form GSTR-2A (which is updated on near real time basis) for more details.
Instruction 2(b) below GSTR-2B (w.e.f. 1-1-2021) clarifies Input Tax Credit shall be indicated
as 'non-available' only when (i) recipient is not entitled under section 16(4) of CGST Act (i.e.
date after September of next financial year) or (ii) Invoice or debit note of supplier and place
of supply are in same State while recipient is in another State [i.e. supplier charging CGST
and SGST of his State while recipient is not registered in that State]. - - There may be other
scenarios for which ITC may not be available to tax papers. Taxpayers should self assess and
reverse such credit in their form GSTR-3B.
Restriction not applicable for period March 2020 to August 2020 due to Corona Virus - The
aforesaid condition under rule 36(4) shall apply cumulatively for the period February, March,
April, May, June, July and August, 2020 and the return in FORM GSTR-3B for the tax period
September, 2020 shall be furnished with the cumulative adjustment of input tax credit for
the said months in accordance with the condition above. - proviso to rule 36(4) of CGST
Rules, inserted on 3-4-2020 w.e.f. 31-3-2020.
In effect, rule 36(4) of CGST Rules has been kept in cold storage upto August, 2020.
In effect, rule 36(4) of CGST Rules was kept in cold storage upto August, 2020. Now, the
credit has to be cumulatively adjusted as explained below.
10% restriction applies cumulatively for February 2020 to September 2020 - Tax-payers
shall reconcile the ITC availed in their FORM GSTR-3B for the period February, 2020 to
 798

August, 2020 with the details of invoices uploaded by their suppliers of the said months, till
the due date of furnishing FORM GSTR-1 for the month of September, 2020. The cumulative
amount of ITC availed for the said months in FORM GSTR-3B should not exceed 110% of the
cumulative value of the eligible credit available In respect of invoices or debit notes the
details of which have been uploaded by the suppliers under section 37(1) of the CGST Act,
till the due date of furnishing of the statements in FORM GSTR-1 for the month of
September, 2020.
Availability of 110% of the cumulative value of the eligible credit available in respect of
invoices or debit notes the details of which have been uploaded by the suppliers does not
mean that the total credit can exceed the tax amount as reflected in the total invoices for
the supplies received by the taxpayer i.e. the maximum credit available in terms of provisions
of section 16 of the CGST Act. The excess ITC availed arising out of reconciliation during this
period, if any, shall be required to be reversed in Table 4(B)(2) of FORM GSTR-3B, for the
month of September, 2020 - CBI&C Circular No. 142/12/2020- GST dated 9-10-2020.
39.3-3A Can CGST and SGST paid in one State be utilized for payment of CGST or IGST in
another State?
This issue is highly relevant in case of GST on services relating to immovable property
(renting of premises, hotel accommodation), restaurant and catering. As per section 12(3)
and 12(4) of IGST Act, the place of supply will be place where immovable property is located
or where service is performed. Thus, the supplier of services will levy SGST and CGST of the
State in which the immovable property is situated or service is performed.
If the recipient of service is from other State, he may give his GSTN number. However, the
supplier has to charge only SGST and CGST in his invoice.
The supplier may upload the tax invoice on GSTN portal with GSTN number of recipient and
SGST and CGST. The issue is whether the recipient can avail Input Tax Credit of that SGST
and CGST.
If we refer to section 49(5) of CGST Act and SGST Act, one thing is obvious that SGST paid in
one State cannot be utilized for payment of SGST in another State as SGST is State specific -
S No. 39 of Tweet FAQ released by CBE&C on 26-6-2017.
As per departmental clarification, SGST and CGST credit for a State can be utilized for
payment of their respective CGST/SGST liabilities within the State for same GSTIN only - S
Nos. 40 and 41 of Tweet FAQ released by CBE&C on 26-6-2017 and FAQ No. 50 issued by
CBE&C on 20-7-2017.
If you go by basic principle of GST, which is to avoid cascading effect of taxes, such credit
should be admissible. However, the scheme of GST Act seems to be that GST Registration is
State specific. Outside the State, such person is an 'unregistered person', even if he gives his
registration number to the supplier.
Though this is against 'one nation one tax' principle, in my view, such credit may not be
admissible - view expressed in IMF Cognitive Technology P Ltd. In re (2019) 72 GST 243 = 102
taxmann.com 211 (AAR-Rajasthan) and Storm Communications (P.) Ltd., In re [2019] 101
taxmann.com 479 (AAR-West Bengal).
 799

It is possible that Court may take a view that though SGST Registration is State specific, CGST
registration is not State specific and CGST credit should be admissible.
However, if GSTN system does not permit such cross utilization, they the taxable person has
to contest, with uncertain final outcome.
Instruction 2(b)(ii) below GSTR-2B (w.e.f. 1-1-2021) clarifies Input Tax Credit shall be
indicated as 'non-available' when Invoice or debit note of supplier and place of supply are in
same State while recipient is in another State [i.e. supplier charging CGST and SGST of his
State while recipient is not registered in that State].
Thus, it seems that utilisation of SGST and CGST credit for GSTIN of other State will not be
allowed in GSTIN system and issue may have to be contested in Court.
Transfer through mechanism of ISD - If a taxable person has ISD Registration in that State,
such transfer is permissible through mechanism of Input Service Distributor [ISD]. However,
with ISD registration, it seems that utilisation of SGST and CGST paid in one State is not
possible.
39.3-4 Electronic Credit Ledger to record ITC
The electronic credit ledger shall be maintained in form GST PMT-02 for each registered
person eligible for input tax credit under the Act on the Common Portal and every claim of
input tax credit under the Act shall be credited to the said Ledger - Rule 86(1) of CGST and
SGST Rules, 2017.
39.3-5 Debits to Electronic Credit Ledger
The electronic credit ledger shall be debited to the extent of discharge of any liability in
accordance with section 49 or section 49A or section 49B of CGST Act - Rule 86(2) of CGST
and SGST Rules, 2017 [The words in italics inserted w.e.f. 1-2-2019].
Section 49 of CGST Act prescribes procedure for payment of tax, interest, penalty and other
amounts. Section 49A of CGST Act prescribes conditions for utilisation of ITC and section 49B
of CGST Act prescribes order of utilisation of ITC].
Debit to Electronic Credit Ledger if refund of credit claimed under section 54 - If a registered
person has claimed refund of any unutilized amount from the electronic credit ledger in
accordance with the provisions of section 54 of CGST Act (refund in case of zero rated supply
or inverted tax structure), the amount to the extent of the claim shall be debited in the said
ledger - Rule 86(3) of CGST and SGST Rules, 2017.
Such claim is for refund of ITC in case of export of goods or services or supplies to SEZ. The
amount is required to be debited at the time of filing refund claim.
Re-credit if refund claim is rejected - If the refund so filed is rejected, either fully or partly,
the amount debited under rule 2(3), to the extent of rejection, shall be re-credited to the
electronic credit ledger by the proper officer by an order made in form GST PMT-03 - Rule
86(4) of CGST and SGST Rules, 2017.
For the purpose of this rule, a refund shall be deemed to be rejected, if the appeal is finally
rejected or if the claimant gives an undertaking to the proper officer that he shall not file an
appeal - Explanation to Rule 86 of CGST and SGST Rules, 2017.
 800

Deputy/Assistant Commissioner of Central Tax has been designated as 'proper officer' for
the purpose of accepting undertaking and granting re-credit of refund claim- CBE&C circular
No. 3/3/2017-GST, dated 5-7-2017 [State Government will prescribe 'proper officer' for
purpose of SGST in the respective State].
No other debit or credit in Electronic Credit Ledger - Save as provided in the chapter relating
to payments [Chapter IX of CGST and SGST Rules], no entry shall be made directly in the
electronic credit ledger under any circumstance - Rule 86(3) of CGST and SGST Rules, 2017.
Intimation of discrepancy to officer - A registered person shall, upon noticing any
discrepancy in his electronic credit ledger, communicate the same to the officer exercising
jurisdiction in the matter, through the Common Portal in form GST PMT-04 - Rule 86(4) of
CGST and SGST Rules, 2017.
39.3-6 Departmental Authority can block ITC which is not eligible
The Commissioner or an officer authorised by him in this behalf, not below the rank of an
Assistant Commissioner, having reasons to believe that ITC in electronic credit ledger has
been fraudulently availed or is ineligible, he may not allow debit from electronic credit ledger
(offset of liability in GSTR-3B) or claim of any refund on the grounds given below:
(a) Where ITC was availed based on the tax invoice or debit note or any other document
prescribed under rule 36, although - (i) issued by a supplier who is non-existent or
not conducting any business from the registered premises (or) (ii) without receipt of
goods or services are both
(b) taxes were collected and not been paid to the government
(c) The registered person availing ITC has been found non-existent or not conducting
any business from registered premises
(d) the registered person availing any credit of input tax is not in possession of a tax
invoice or debit note or any other document prescribed under rule 36.

In such cases, he may, for reasons to be recorded in writing, not allow debit of an amount
equivalent to such credit in electronic credit ledger for discharge of any liability under
section 49 or for claim of any refund of any unutilised amount - rule 86A(1) of CGST Rules
inserted w.e.f. 26-12-2019.
The Commissioner, or the officer authorised by him under rule 86A(1) may, upon being
satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer
exist, allow such debit - rule 86A(2) of CGST Rules.
Such restriction shall cease after one year from date of imposition - rule 86A(3) of CGST
Rules.
It is obvious that such order cannot be issued whimsically arbitrarily. Principles of natural
justice have to be followed.
Further, the order can be only in respect of specific invoices for which there are allegations.
The wording of rule is such that there cannot be any blanket ban on availment of Input Tax
Credit.
 801

However, from wording of rule 86A(3) of CGST Rules, it seems that the GST Authorities may
order complete ban on ITC, though rule 86A(1) of CGST Rules speak of specific invoices only.
This is an adjudication order and hence appeal can be filed under section 107(1) of CGST Act.
Instructions to Principal Commissioners/Commissioners by CBI&C - CBI&C has issued
circular No. 587/CE/167/POL/2019/11219-11269 dated 13-1-2020 asking Commissioner to
make detailed list of such exporters and send to CBI&C in form specified in Circular No.
587/CE/167/POL/2019/11219-11269 dated 13-1-2020.
39.3-7 Restrictions on use of amount in Credit ledger and payment of 1% in cash in certain
situations
In order to curb misuse of Input Tax Credit by bogus invoices, rule 86B of CGST Rules has
been inserted w.e.f. 1-1-2021 to provide that at least 1% of tax liability shall be paid in cash
in certain situations. As per CBI&C, this provision will affect less than 0.5% of total taxpayers
and genuine taxpayers will not be affected at all.
The provisions are as follows.
Notwithstanding anything contained in these rules, the registered person shall not use the
amount available in electronic credit ledger to discharge his liability towards output tax in
excess of 99% of such tax liability, in cases where the value of taxable supply other than
exempt supply and zero-rated supply, in a month exceeds fifty lakh rupees:
As per first proviso to rule 86B of CGST Rules inserted w.e.f. 1-1-2021, the said restriction
shall not apply where -
(a) the said person or the proprietor or karta or the managing director or any of its two
partners, whole-time Directors, Members of Managing Committee of Associations or
Board of Trustees, as the case may be, have paid more than one lakh rupees as
income tax under the Income-tax Act, 1961 in each of the last two financial years for
which the time limit to file return of income under section 139(1) of the said Act has
expired; or
(b) the registered person has received a refund amount of more than one lakh rupees in
the preceding financial year on account of unutilised input tax credit under section
54(3)(i); or
(c) the registered person has received a refund amount of more than one lakh rupees in
the preceding financial year on account of unutilised input tax credit under section
54(3)(ii); or
(d) the registered person has discharged his liability towards output tax through the
electronic cash ledger for an amount which is in excess of 1% of the total output tax
liability, applied cumulatively, upto the said month in the current financial year; or
(e) the registered person is - (i) Government Department; or (ii) a Public Sector
Undertaking; or (iii) a local authority; or (iv) a statutory body:

Commissioner or officer authorised by him can remove restrictions - Provided further that
the Commissioner or an officer authorised by him in this behalf may remove the said
 802

restriction after such verifications and such safeguards as he may deem fit - second proviso
to rule 86B of CGST Rules inserted w.e.f. 1-1-2021.
39.3-8 Unutilised Input Tax Credit at year end
Unutilised Input Tax Credit lying in Electronic Credit Ledger (as reflected in GSTR-3B return)
at end of financial year can be carried forward to next financial year.
However, such amount cannot be treated as tax paid and its deduction under section 43B of
Income Tax Act is not permissible - Maruti Suzuki India Ltd. v. CIT 2020 (372) ELT 785 (SC).
39.4 Refund of balance to credit of cash or credit ledger
The balance in the cash or credit ledger after payment of tax, interest, penalty, fee or any
other amount payable under the Act or the rules made thereunder may be refunded in
accordance with the provisions of section 54 of CGST Act - section 49(6) of CGST Act.
39.5 Electronic Liability Register (ELR) for recording liability of a taxable person
All liabilities of a taxable person under this Act shall be recorded and maintained in an
electronic liability register (ELR) as may be prescribed - section 49(7) of CGST and SGST Act.
39.5-1 Form of Electronic Liability Register
The electronic liability register specified under section 49(7) shall be maintained in form GST
PMT-01 for each person liable to pay tax, interest, penalty, late fee or any other amount on
the Common Portal and all amounts payable by him shall be debited to the said register -
Rule 85(1) of CGST and SGST Rules, 2017.
39.5-2 Amounts that will be debited to Electronic Liability Register
The electronic liability register of the person shall be debited by:- (a) the amount payable
towards tax, interest, late fee or any other amount payable as per the return furnished by
the said person (b) the amount of tax, interest, penalty or any other amount payable as
determined by a proper officer in pursuance of any proceedings under the Act or as
ascertained by the said person (c) the amount of tax and interest payable as a result of
mismatch under section 42 or section 43 or section 50; or (d) any amount of interest that
may accrue from time to time - Rule 85(2) of CGST and SGST Rules, 2017.
Payment of liability through Electronic Liability Register - Subject to the provisions of
section 49, section 49A and section 49B of CGST and SGST Act, payment of every liability by
a registered person as per his return shall be made by debiting the electronic credit ledger
maintained as per rule 86 or the electronic cash ledger maintained as per rule 87 and the
electronic liability register shall be credited accordingly - Rule 85(3) of CGST and SGST Rules,
2017. [The words in italics inserted w.e.f. 1-2-2019].
Section 49 of CGST Act prescribes procedure for payment of tax, interest, penalty and other
amounts. Section 49A of CGST Act prescribes conditions for utilisation of ITC and section 49B
of CGST Act prescribes order of utilisation of ITC.
The adjustment is subject to section 49 of CGST and SGST Act, i.e. where payment by cash is
mandatory, liability cannot be adjusted through Electronic Credit Ledger. Similarly,
restrictions and sequence of utilization of Input Tax Credit is required to be followed.
39.5-3 Certain payments only through Electronic Cash Ledger
 803

The amount deducted under section 51 (TDS), or the amount collected under section 52
(TCS), or the amount payable under section 9(3) or 9(4) of CGST and SGST Act (reverse
charge), or the amount payable under section 10 (composition scheme), or section 5(3) or
5(4) of the Integrated Goods and Services Act [reverse charge of IGST] or section 7(3) or 7(4)
of the Union Territory Goods and Services Tax Act [reverse charge of UTGST], any amount
payable towards interest, penalty, fee or any other amount under the Act or the Integrated
Goods and Services Act shall be paid by debiting the electronic cash ledger maintained as
per rule 87 and the electronic liability register shall be credited accordingly - Rule 85(4) of
CGST and SGST Rules, 2017.
Reduction in Electronic Liability Register if relief granted in appeal - Any amount of demand
debited in the electronic liability register shall stand reduced to the extent of relief given by
the appellate authority or Appellate Tribunal or court and the electronic liability register
shall be credited accordingly - Rule 85(5) of CGST and SGST Rules, 2017.
Reduction in Electronic Liability Register if amount of penalty reduced by making payment
in time - The amount of penalty imposed or liable to be imposed shall stand reduced partly
or fully, as the case may be, if the taxable person makes the payment of tax, interest and
penalty specified in the show cause notice or demand order. The electronic liability register
shall be credited accordingly - Rule 85(6) of CGST and SGST Rules, 2017.
39.5-4 Communication if discrepancy in Electronic Liability Register
If there is any discrepancy in the electronic liability register, the same shall be informed to
jurisdictional officer in form GST PMT-04 electronically - Rule 85(7) of CGST and SGST Rules,
2017.
39.6 Sequence of discharge of tax and dues by taxable person
Every taxable person shall discharge his tax and other dues under this Act or the rules made
thereunder in the following order:
(a) self-assessed tax, and other dues related to returns of previous tax periods
(b) self-assessed tax, and other dues related to return of current tax period
(c) any other amount payable under the Act or the rules made thereunder including the
demand determined under section 73 or 74 of CGST Act - section 49(8) of CGST Act.

Unless all earlier dues of tax, interest, penalty and fee are paid, the return filed will not be
considered as valid return. Thus, the recipient of goods and services will not be entitled to
get input tax credit.
Luckily, demands raised under sections 73 and 74 of CGST Act are not required to be adjusted
before adjusting the dues. For recovery of those dues, separate provisions have been made.
Meaning of 'tax dues' and 'other dues' - The expression "tax dues" means the tax payable
under this Act and does not include interest, fee and penalty - Explanation (b)(i) to section
49(9) of CGST Act.
The expression "other dues" means interest, penalty, fee or any other amount payable
under the Act or the rules made thereunder - Explanation (ii) to section 49(9) of CGST Act.
39.7 Incidence of tax deemed to have been passed to recipient
 804

Every person who has paid the tax on goods or services or both under this Act shall, unless
the contrary is proved by him, be deemed to have passed on the full incidence of such tax
to the recipient of such goods or services or both - section 49(9) of CGST Act.
This is for application of doctrine of 'unjust enrichment' when refund claim is filed.
39.8 Interest on delayed payment of tax
Every person liable to pay tax in accordance with the provisions of the Act or rules made
thereunder, who fails to pay the tax or any part thereof to the account of the Central or a
State Government within the period prescribed, shall, on his own, for the period for which
the tax or any part thereof remains unpaid, pay interest at such rate, not exceeding 18%, as
may be notified by the Central or a State Government on the recommendation of the Council
- section 50(1) of CGST Act.
The interest shall be calculated from the day succeeding the day on which such tax was due
to be paid - section 50(2) of CGST Act.
The interest rate notified is 18% w.e.f. 1-7-2017 - Notification No. 6/2017-IT dated 28-6-2017
and 13/2017-CT dated 28-6-2017.
Interest payable on net amount payable by cash i.e. after deducting allowable ITC - The
interest on tax payable in respect of supplies made during a tax period and declared in the
return for the said period furnished after the due date in accordance with the provisions of
section 39, except where such return is furnished after commencement of any proceedings
under section 73 or section 74 in respect of the said period, shall be levied on that portion
of the tax that is paid by debiting the electronic cash ledger. - proviso to section 50(1) of
CGST Act, inserted vide Finance (No. 2) Act, 2019 with effect from 1-9-2020.
The effect of the proviso is that interest will be payable on net amount payable by cash
through electronic cash ledger and not gross amount. However, if such payment is made
after commencement of proceedings under section 73 or 74 of CGST Act [i.e. demand for
short payment of taxes], interest will be payable on gross amount.
This amendment is notified and effective from 1-9-2020. However, the intention of GST
Council is to make the provision effective from 1-7-2017 itself. Hence, CBI&C has advised
officers to recover interest only on net liability till statutory amendment is made and keep
existing demands and notices pending - CBI&C F No. CBEC-20/01/08/2019-GST dated 18-9-
2020.
Now, proviso to section 50(1) of CGST Act has been substituted w.r.e.f. 1-7-2017, which
reads as follows -
Interest on tax payable in respect of supplies made during a tax period and declared in the
return for the said period furnished after the due date in accordance with the provisions of
section 39, except where such return is furnished after commencement of any proceedings
under section 73 or section 74 in respect of the said period, shall be payable on that portion
of the tax which is paid by debiting the electronic cash ledger - proviso to section 50(1) of
CGST Act substituted vide Finance Act, 2021 w.r.e.f. 1-7-2017.
For earlier controversy, see below.
 805

Was interest payable on gross amount of tax or net amount after allowing deduction of
eligible ITC Section 50(1) of CGST Act provides for interest on 'tax payable'. Issue is Interest
payable is on gross amount of tax or net amount after allowing deduction of eligible ITC? It
was taken for granted that interest is payable on net amount payable to Government in
electronic cash ledger. However, Government was of the view that interest is payable on
gross amount of tax. Hence, in 31st GST Council meeting held on 22-12-2018, it was stated
that section 50 of CGST Act will be amended to provide that interest will be payable only on
tax payable in cash through electronic cash ledger.
However, the amendment to law was made only w.e.f. 1-9-2020 but not with retrospective
effect, though intention was to make provision w.e.f. 1-7-2017 only. Even without
amendment, in my view, interest was payable only on net amount only for reasons explained
below.
In Pratibha Processors v. UOI 1996 AIR SCW 4299 = AIR 1997 SC 138 = 88 ELT 12 (SC) = 1996
(11) SCC 101, it was observed that Interest is compensatory in character and is imposed on
an assessee who has withheld payment of any tax as and when it is due and payable. The
levy of interest is geared to actual amount of tax withheld and the extent of delay in paying
the tax on due date. Essentially, it is compensatory and different from penalty - which is
penal in character - quoted and followed in Bhai Jaspal Singh v. ACCT (2011) 1 SCC 39.
Interest is basically compensation for the use or retention of money - State of Karnataka v.
Karnataka Pawn Brokers Association [2018] 6 SCC 363 = 255 Taxman 12 = 91 taxmann.com
228 (SC).
In Refex Industries Ltd. v. Sherisha Technologies (P.) Ltd. [2020] 114 taxmann.com 447
(Madras HC), it was held that interest is payable on net amount. However, in this judgment,
support was drawn from amendment to section 50(1) of CGST Act, presuming that this
amendment has come into effect [though it has not come into effect]. Hence, validity of this
decision is diluted, though it was independently held that interest is payable on net amount
(after deducting ITC) only.
Unfortunately, in Megha Engineering & Infrastructures Ltd. v. Commissioner of Central Tax
[2019] 73 GST 787 = 104 taxmann.com 393 (Telangana HC DB), it has been held that ITC is
adjusted only when return is filed. Hence, if return is filed late, interest is payable on gross
amount excluding ITC available [really, adjustment in return is only a technical matter. Fact
remains that Government has received the money].
Luckily, now the controversy has been sorted out - better late than never.
Interest if undue or excess ITC claimed - In case a taxable person makes an undue or excess
claim of input tax credit under section 42(10) or undue or excess reduction in output tax
liability under section 43(10), he shall be liable to pay interest on such undue or excess claim
at such rate not exceeding 24%, as may be notified by Government on the recommendation
of GST Council - section 50(3) of CGST Act.
If undue ITC is claimed or undue or excess reduction in output tax liability is claimed, interest
is payable @ 24% - Notification Nos. 13/2017-CT, dated 28-6-2017 and 6/2017-IT, dated 28-
6-2017, w.e.f. 1-7-2017.
 806

Section 42 of CGST Act relates to matching, reversal and reclaim of Input Tax Credit. The
matching of inward supplies of recipient are to be matched with outward supplies of supplier
as uploaded by him in his GSTR-1.
Section 43 of CGST Act provides for matching of ITC on basis of credit notes issued by
supplier.
At present, there is no procedure for matching of tax invoices or credit notes. However,
issues are possible during audit, where recipient has taken ITC though supplier has not
uploaded his tax invoice in his GSTR-1.
No interest if CGST and SGST paid instead of IGST - No interest is payable if CGST and SGST
paid instead of IGST - Shree Nanak Ferro Alloys v. UOI (2020) 114 taxmann.com 102
(Jharkhand HC) [However, legally, IGST would be payable and then refund of CGST and SGST
should be claimed].
39.8-1 No show cause notice or demand necessary if interest is automatic
In Haji Lal Mohd Biri Works v. State of UP (1974) 3 SCC 137 = AIR 1973 SC 2226 = 32 STC 496
(SC), it was held that when liability to pay interest is automatic and arises by operation of
law, it is not necessary to make an assessment in respect of interest or issue notice of
demand in respect of interest - similar views in Royal Boot House v. State of J&K (1984) 56
STC 21 (SC) * CST v. Qureshi Crucible Centre AIR 1994 SC 25 = 1993 AIR SCW 3859 = (1993)
Suppl (3) SCC 495 = 89 STC 467 (SC) * Prahlad Rai v. STO (1991) Supp 2 SCC 612 = AIR 1991
SC 1737 = 1991 AIR SCW 245 = 84 STC 375 (SC) * CTO v. Kanhai Ram Thekedar AIR 2005 SC
3033 = 185 ELT 3 = 141 STC 1 (SC) * CCE v. K L Concast 2007 (209) ELT 425 (CESTAT SMB) *
CST v. Pepsi Cola (2007) 8 STR 246 (CESTAT SMB) * Bimetal Bearings v. CCE (2008) 232 ELT
790 (CESTAT 3 member bench) * Bisleri International v. CCE (2009) 241 ELT 556 (CESTAT
SMB) * Needle Industries v. CCE (2010) 256 ELT 767 (CESTAT SMB) * Vijay Cine Services v. CC
(2015) 315 ELT 447 (CESTAT).
Adjudication required if assessee disputes interest liability or its computation - In Mahadeo
Construction Co. v. UOI (2020) 81 GST 271 = 116 taxmann.com 262 (Jharkhand HC DB), it was
held that though interest is automatic, if assessee disputes computation of liability of
interest, adjudication proceedings under section 73 or 74 of CGST Act are required - relying
on AC, CGST v. Daejung Moparts (2020) 116 taxmann.com 372 (Mad HC DB).
39.8-2 Interest allowable as deduction for Income Tax, but not penalty/fines
If interest is compensatory in nature, it will be allowable as deduction under section 37(1) of
IT Act - Nomenclature of the impost (damages, penalty or interest) is not important. If it is
partly compensatory and partly penal nature, authorities can bifurcate the two components
and give deduction to that component which is not penal in nature - Prakash Cotton Mills
(P.) Ltd. v. CIT 67 Taxman 546 (SC) = (1993) 3 SCC 452 = 1993 AIR SCW 2412 = 201 ITR 684
(SC) - followed in Swadeshi Cotton Mills v. CIT AIR 1999 SC 1579 = 233 ITR 199 (SC) - same
view in Mahalakshmi Sugar Mills Co. v. CIT - (1980) 123 ITR 429 (SC).
In Standard Batteries Ltd. v. CIT (1994) 75 Taxman 333 (SC), it was held that nomenclature
of impost (e.g. interest, penalty, damages etc.) is not important. If the amount is
compensatory in nature, it is allowable as deduction for Income Tax. If it is penal in nature,
it is not allowable. If the amount is composite, bifurcation has to be made - similar views in
 807

Malwa Vanaspati v. CIT (1997) 105 STC 188 = 225 ITR 383 (SC) * Organo Chemical Industries
v. UOI AIR 1979 SC 1803 * Malwa Vanaspati v. CIT (1997) 105 STC 188 = 225 ITR 383 (SC).
39.9 Adjustment of credit between State Government and Central Government
If credit of CGST is utilized for payment of IGST, the credit of CGST will be transferred by
Central Government to IGST
If credit of SGST is utilized for payment of IGST, the credit of SGST will be transferred by State
Government to IGST - section 53 of CGST Act and SGST Act.
[This is adjustment between Central Government and State Governments. The taxable
person does not come into picture]
Goods and Services Tax Settlement of Funds Rules, 2017 have been notified for this purpose.
 808

Returns under GST

40.1 Returns to be filed under GST Law
Return is very important aspect of GST as all control over tax paid and input tax credit availed
is on the basis of return filed by taxable person. Return is also basis for assessment. The
returns are to be filed electronically. GSTN has been assigned the task of developing system
for filing of returns.
Major changes have been made in system of filing returns by supplier of goods or services
or both. Large taxpayers are required to file GSTR-3B return on monthly basis.
A QRMP scheme (Quarterly Return Monthly Payment) scheme has been introduced w.e.f. 1-
1-2021 for the taxpayers whose aggregate turnover in previous financial years was less than
Rs. five crores.
CBIC has issued Circular No. 143/13/2020-GST dated 10-11-2020 explaining salient features
of the QRMP scheme. These are explained at appropriate places.
In addition to GSTR-3B return, invoice wise details of supplied made and credit/debit notes
(with GST) issued by taxable person are to be filed in form GSTR-1. This return is monthly for
taxable persons with annual aggregate turnover exceeding Rs 5 crores w.e.f. 1-1-2021.
Those who are filing quarterly return are required to file quarterly GSTR-1 return. However,
they can file details of invoices of supplies made by them monthly in IFF (Invoice Furnishing
Facility).
The invoices and credit/debit notes (with GST) uploaded by supplier appear in GSTR-2A and
GSTR-2B of recipient of goods and services, to enable him to avail Input Tax Credit. GSTR-2B
was introduced w.e.f. July, 2020 on trial basis and has been statutorily provided w.e.f. 1-1-
2021.
GSTR-3B, GSTR-1, GSTR-4 and CMP-08 returns are mandatory, other returns to be filed only
when transaction - GSTR-3B and GSTR-1 returns are mandatory, i.e. Nil return is required to
be filed even if there is no transaction - section 39(8) of CGST Act.
CMP-08 Nil return is also mandatory. GSTR-4 annual return for composition dealers is also
mandatory.
Subsequent Return cannot be filed. If return for previous period was not filed - A registered
person shall not be allowed to furnish a return for a tax period if the return for any of the
previous tax periods has not been furnished by him - section 39(10) of CGST Act.
Penalty if return does not contain all required details - If return filed does not contain all
prescribed details, penalty upto Rs 25,000 can be imposed - CBI&C circular No. 89/08/2019-
GST dated 18-2-2019.
Extension of time limit of filing return - Commissioner can extend the time limit for
furnishing such return by issuing notification. Any extension granted by Commissioner of
State GST/UTGST shall be deemed to be notified by Commissioner - section 39(6) of CGST
Act. [Thus, extension by Commissioner of State GST/UTGST is sufficient]
To ensure uniformity all over India, such notification shall be issued by Commissioner or Joint
Secretary in Board - section 168(2) of CGST Act.
 809

Credit in GSTR-3B by taxable person on his own - Details of tax invoices furnished by
supplier in his GSTR-1 return appear in GSTR-2A and GSTR-2B of recipient. Figures in GSTR-
2B are auto-populated in GSTR-3B of recipient. However, the recipient can edit those figures.
However, there are restrictions on availment of ITC, if details of suppliers invoices do not
appear in GSTR-2A or GSTR-2B of recipient.
Supplies made prior to registration to be included in First Return - Every registered taxable
person who has made outward supplies in the period between the date on which he became
liable to registration till the date on which registration has been granted shall declare the
same in the first return filed by him after grant of registration. - section 40 of CGST Act.
E-way Bill provision is Highway robbery - Provisions of e-way bill have been introduced to
check tax evasion. However, these are being used to harass transporters and taxable persons
and extract money (both official and unofficial).
E-way bill cannot be generated if returns were not filed by supplier or recipient or
registration was suspended - As per rule 138(E) of CGST Rules (amended on 22-12-2020),
notwithstanding anything contained in rule 138(1), no person (including a consignor,
consignee, transporter, an e-commerce operator or a courier agency) shall be allowed to
furnish the information in PART A of form GST EWB-01 in respect of a registered person,
whether as a supplier or a recipient, who - (a) has not filed statement in form GST CMP-08
(composition scheme) for two consecutive quarters; or (b) has not furnished the GSTR-3B
returns for a consecutive period of two tax periods(other than composition dealer) (c) has
not furnished the statement of outward supplies for any two months or quarters (in GSTR-
1) (other than composition dealer) or (d) whose registration has been suspended under the
provisions of sub-rule (1) or sub-rule (2) or sub-rule (2A) of rule 21A(1), 21A(2) or 21(2A) of
CGST Rules.
Jurisdictional Commissioner may, on receipt of an application from a registered person in
form GST EWB-05,on sufficient cause being shown and for reasons to be recorded in writing,
by order, in form GST EWB-06 allow furnishing of the said information in PART A of form GST
EWB- 01, subject to such conditions and restrictions as may be specified by him.
40.1-1 Returns - biggest failure in implementation of GST
The system of electronic filing returns has been the biggest failure in implementation of GST.
Initially, filing of return was a nightmare. For whatever reasons, GSTN system was a big
failure. Many problems in smooth implementation of GST are associated with failed GSTN.
Now, the system has improved considerably but still not 100% reliable and satisfactory.
When GST was introduced on 1-7-2017, three monthly returns i.e. GSTR-1, GSTR-2 and GSTR-
3, with elaborate system of allowing Input Tax Credit (ITC) on basis of invoice matching was
envisaged. However, the system as envisaged did not work as GSTN was not geared for such
elaborate exercise. Hence, that system failed miserably.
A simple GSTR-3B monthly return was introduced as stop gap arrangement from 1-7-2017.
However, this return has practically become permanent and is likely to continue for quite
some time, even after 1-4-2021
GSTR-3B return continues to be monthly for taxpayers with annual aggregate turnover
exceeding Rs five crores. In case of taxpayers with annual aggregate of turnover less that Rs
 810

five crores, they have option to file GSTR-3B return on quarterly basis (with monthly
payment of 'amount' as taxes) w.e.f. 1-1-2021.
40.1-2 Meaning of certain terms
CGST Act and Rules make provisions in respect of filing of returns.
Quarter - "quarter" shall mean a period comprising three consecutive calendar months,
ending on the last day of March, June, September and December of a calendar year - section
2(92) of CGST Act.
Tax period - "Tax period'' means the period for which the tax return is required to be filed -
section 2(106) of CGST Act (Monthly or quarterly).
Meaning of 'Valid return' - "Valid return" means a return furnished under section 39(1) of
CGST Act on which self-assessed tax has been paid in full - section 2(117) of CGST Act.
Thus, a return is not valid unless all tax dues as shown in the return (including of previous
period, interest and penalty) are paid in full. This definition has no meaning, as GSTN does
not accept return unless all taxes as shown in GSTR-3B return are paid.
40.1-3 Notice to non-filers of returns
If a registered taxable person fails to furnish a return under section 39, 44 or 45, a notice
shall be issued requiring him to furnish such return within 15 days in prescribed form and
manner - section 46 of CGST Act.
A notice in form GSTR-3A shall be issued, electronically, to a registered person who fails to
furnish return under section 39, 44, 45 or 52 of CGST Act - Rule 68 of CGST and SGST Rules,
2017.
40.1-4 Discharge of tax liability before filing of GSTR-3B return
Every registered person required to furnish return, under rule 61(1) shall, subject to the
provisions of section 49 [utilization of Input Tax Credit], discharge his liability towards tax,
interest, penalty, fees or any other amount payable under the CGST Act or the provisions of
this Chapter by debiting the electronic cash ledger or electronic credit ledger and include
the details in the return in form GSTR-3B-Rule 61(2) of CGST Rules, w.e.f. 1-1-2021.
Since details of tax paid have to be included in GSTR-3B return, the return cannot be filed
unless taxes are paid.
Subject to section 49 of CGST Act [utilization of Input Tax Credit] means payment in
Electronic Cash Ledger, after adjusting the Input Tax Credit available in Electronic Credit
Ledger.
40.2 Various Returns required to be filed w.e.f. 1-1-2021
Returns to be filed by registered persons w.e.f. 1-1-2021 are as follows -
Form of return Person required to file return Periodicity

GSTR-1 Details of tax invoices, debit notes and Monthly within 11 days from end of
credit notes issued for supplies made by month. For those who opt to file GSTR-
taxable person (including casual taxable 3B return on quarterly basis, the GSTR-1
person) other than under composition return should be filed by 13th of month
scheme. following the quarter - Notification No.
 811

83/2020 - CT dated 10-11-2020. This is

w.e.f. 1-1-2021.
Nil return is required even if there are
no transactions in a month/quarter. [Nil
return can be filed through SMS]
GSTR-2A/GSTR- This is not a return. Details of tax ITC can be taken on basis of invoices of
2B invoices, debit notes and credit notes supplier as reflected in GSTR-2A/GSTR-
issued for supplies made by supplier 2B. There are restrictions in taking ITC if
(including casual taxable person) appear invoices are not reflected in GSTR-
in GSTR-2A and GSTR-2B of recipient. 2A/GSTR-2B of recipient.

GSTR-3B Taxable person (including casual taxable Monthly, within 20 days from end of
person) other than under composition month for registered persons with
scheme. aggregate turnover exceeding Rs five
crores in preceding financial year
(within 22/24 days in respect of taxable
persons with aggregate turnover upto
Rs five crores in preceding financial year
and those opting for QRMP).
Nil return is required even if there are
no transactions in a month/quarter. [Nil
return can be filed through SMS]
GSTR-4 Taxable person under composition Yearly before 30th April from end of
scheme financial year Nil return is to be filed
even if there are no transactions in a
month
GST CMP-08 Statement of self-assessed tax by taxable Quarterly within 18 days from close of
persons under composition scheme quarter Nil return can be filed through
SMS.
ITC-04 Details of inputs sent for job work Quarterly within 25 days from end of
quarter
GSTR-5 Return by non-resident taxable person within 20 days from end of taxable
period or seven days after end of validity
period pf registered person
GSTR-5A Taxable person supplying OIDAR services Monthly, within 20 days from end of
month
GSTR-6 Input Service Distributor Monthly, within 13 days from end of
month
GSTR-7 Return by person required to deduct tax Within 10 days at end of each month
at source under section 51
 812

GSTR-8 Return by e-commerce operator of tax Within 10 days at end of each month
collected at source under section 52
GSTR-9 Annual Return On or before 31st December after close
of financial year (for FYs 2017-18, 2018-
19 and 2019-20, this return is optional
for those with aggregate turnover upto
Rs 2 crores - Notification No. 47/2019-CT
dated 9-10-2019 amended on 15-10-
2020
GSTR-9A Annual Return by taxable person under On or before 31st December after close
composition scheme of financial year (not required for FYs
2017-18 and 2018-19)
GSTR-9B Annual Return by e-commerce operator Provision notified and made effective
who are required to collect TCS under from 1-10-2018, but it seems the form is
section 52 not yet notified
GSTR-9C Audit report if aggregate turnover This audit report is being omitted and
exceeds Rs two crores [The monetary may not be required for FY 2020-21 and
limit is Rs five crores for FYs 2018-19 and onwards.
2019-20 - amendment dated 15-10-2020]
GSTR-10 Final Return after cancellation of GST Within three months from date of
registration cancellation
GSTR-11 Inward supply details by persons having Periodicity not itemized
UIN

40.3 GSTR-3B return by every registered person supplying goods or services or both
Every registered person who is supplying goods or services or both is required to file a
periodic return in prescribed form GSTR-3B.
GSTR-3B is a return containing summary of outward and inward supplies, tax payable, tax
paid, ITC availed, ITC utilised, payment of taxes, interest etc.
The return is monthly in cases of registered persons whose aggregate turnover in previous
financial year exceeded Rs five crores. For others, they have option to file quarterly return
with monthly payment of tax.
Nil GSTR-3B return can be filed monthly.
Nil GSTR-3B, GSTR-1 and GSTR-4 mandatory even if no supplies made - Every registered
taxable person who is required to file return under section 39(1) [tax under normal scheme]
or 39(2) [composition scheme] shall furnish a return for every tax period, whether or not any
supplies of goods or services or both have been effected during such tax period - section
39(8) of CGST Act.
 813

Monthly return is not mandatory for ISD, person covered under TDS, non-resident taxable
person or e-commerce operator making tax collection at source (TCS), if there is no
transaction during a month.
Correcting mistakes made in filing GSTR-3B return -Department has issued a detailed
circular No. 26/26/2017-GST dated 29-12-2017 giving instructions to correct errors made in
filing GSTR-3B.
The error may be - (a) Liability under reported (b) Liability was over reported (c) Liability was
wrongly reported (d) Input Tax Credit was under reported (e) Input tax credit was over
reported (f) Input tax credit of wrong tax was taken. (g) Cash Ledger wrongly updated.
The CBIC circular gives instructions for correcting each type of mistake.
Filing of GSTR-3B return is a four step process - Stage 1 - Confirmed Submission, Stage 2 -
Cash Ledger Updated. Stage 3 - Offset Liability, Stage 4 - Return filed.
The return can be edited at Stage 1 and Stage 2 only. The return cannot be edited at stage 3
and stage 4. In that case, the adjustment can be made only in return of next month, as there
is no provision to amend the GSTR-3B return after filing.
No penalty under section 73(11) if belated return filed and tax paid with interest- It has
been clarified that provisions of section 73(11) of CGST Act are invoked only when section
73 is invoked. In case of delay in filing return in form GSTR-3B, section 73 cannot be invoked
as tax is paid along with return. In that case, penalty under section 73(11) of CGST Act cannot
be imposed. [As per section 73(11) of CGST Act penalty equal to 10% of tax is payable if self
assessed tax is not paid within 30 days from due date]. However, general penalty under
section 125 of CGST Act for contravention of provisions of CGST Act can be imposed (like
SCN, hearing, reasoned order etc.) [The maximum penalty is Rs 25,000 under CGST Act plus
Rs 25,000 under SGST/UTGST Act] - para 2 of CBI&C circular No. 76/50/2018-GST dated 31-
12-2018.
40.3-1 Auto-population of details in form GSTR-3B from GSTR-1 and GSTR-2B
System will generate form GSTR-3B for every registered person based on his GSTR-1 and
GSTR-2B (which will be auto-populated on basis of details furnished by supplier in his GSTR-
1 and also from GSTR-5 and GSTR-6). However, taxpayer can edit the values. The system will
alert if variation is higher that specified threshold. Detailed instructions have been given in
press release dated 17-12-2020.
40.4 Monthly GSTR-3B Return by taxable person (other than those eligible and opting to
file quarterly return) w.e.f. 1-1-2021
Supplier of goods or services or both (other than those paying tax under composition scheme
and non-resident taxable person (paying tax on OIDAR services), whose aggregate turnover
in previous financial year has exceeded Rs five crores is required to file a monthly return in
form GSTR-3B, w.e.f. 1-1-2021.
Supplier of goods or services or both (other than those paying tax under composition scheme
and non-resident taxable person (paying tax on OIDAR services), whose aggregate turnover
in previous financial year was less than Rs five crores has option to file a quarterly return in
form GSTR-3B, w.e.f. 1-1-2021.
 814

Input Service Distributor, a non-resident taxable person (paying tax on OIDAR services) or a
person paying tax under the provisions of section 10 (composition scheme) or section 51
(TDS) or section 52 (TCS) are also required to file returns under different statutory
provisions.
Monthly return, except those who opt to file quarterly return - Every registered person,
other than an Input Service Distributor or a non-resident taxable person (paying tax on
OIDAR services) or a person paying tax under the provisions of section 10 (composition
scheme) or section 51 (TDS) or section 52 (TCS) shall, for every calendar month or part
thereof, furnish, a return, electronically, of inward and outward supplies of goods or services
or both, input tax credit availed, tax payable, tax paid and such other particulars, in such
form and manner, and within such time, as may be prescribed - section 39(1) of CGST Act,
2017 as substituted w.e.f. 1-1-2021.
40.4-1 Form of return and due date of filing monthly return
The registered persons who are required to file monthly return should file return in form
GSTR-3B on or before 20th of succeeding month.
Every registered person other than a person referred to in section 14 of IGST Act, 2017
(OIDAR services where tax is payable by supplier in non-taxable territory) or an Input Service
Distributor or a non-resident taxable person or a person paying tax under section 10
(composition scheme) or section 51 (TDS) or section 52 (TCS) shall furnish a return in form
GSTR-3B, electronically through the common portal either directly or through a Facilitation
Centre notified by the Commissioner under section 39(1) of CGST Act, for each month, or
part thereof, on or before the 20th day of the month succeeding such month - Rule 61(1)(i)
of CGST Rules, substituted w.e.f. 1-1-2021.
40.4-2 Payment of tax before filing monthly GSTR-3B return
Every registered person who is required to furnish a return under section 39(1), other than
the person referred to in the proviso thereto [i.e. quarterly return], or section 39(3) [TDS
return] or section 39(5) (non-resident taxable person), shall pay to the Government the tax
due as per such return not later than the last date on which he is required to furnish such
return - section 39(7) of CGST Act, 2017 as substituted w.e.f. 1-1-2021.
Every registered person required to furnish return, under rule 61(1) shall, subject to the
provisions of section 49, discharge his liability towards tax, interest, penalty, fees or any
other amount payable under the CGST Act or the provisions of this Chapter by debiting the
electronic cash ledger or electronic credit ledger and include the details in the return in form
GSTR-3B-Rule 61(2) of CGST Rules, w.e.f. 1-1-2021.
40.5 Quarterly Return by taxable person who are eligible and opting to file quarterly return
w.e.f. 1-1-2021
A QRMP Scheme [Quarterly Return and Monthly Payment Scheme] has been introduced
w.e.f. 1-1-2021.
Supplier of Suppliers of goods or services or both (other than those paying tax under
composition scheme and non-resident taxable person (paying tax on OIDAR services), whose
aggregate turnover in previous financial year was less than Rs five crores has option to file a
quarterly return in form GSTR-3B, w.e.f. 1-1-2021.
 815

Quarterly return by specified registered persons - The Government may, on the

recommendations of the Council, notify certain class of registered persons who shall furnish
a return for every quarter or part thereof, subject to such conditions and restrictions as may
be specified therein- proviso to section 39(1) of CGST Act, 2017 as substituted w.e.f. 1-1-
2021.
40.5-1 Persons eligible for filing quarterly return
Registered persons, other than a person referred to in section 14 of the IGST Act, 2017
(OIDAR services), having an aggregate turnover of up to five crore rupees in the preceding
financial year, and who have opted to furnish a return for every quarter under rule 61A(1)
of CGST Rules, are eligible to file quarterly return from January, 2021. They have to pay the
tax due every month in accordance with the proviso to section 39(7) of CGST Act -
introductory para of Notification No. 84/2020-CT dated 10-11-2020.
Calculation of aggregate turnover in common portal - In terms of notification No. 84/2020-
Central Tax, dated 10-11-2020, a registered person who is required to furnish a return in
form GSTR-3B, and who has an aggregate turnover of up to 5 crore rupees in the preceding
financial year, is eligible for the QRMP Scheme. The aggregate annual turnover for the
preceding financial year shall be calculated in the common portal taking into account the
details furnished in the returns by the taxpayer for the tax periods in the preceding financial
year. In case the aggregate turnover exceeds 5 crore rupees during any quarter in the current
financial year, the registered person shall not be eligible for the Scheme from the next
quarter - Para 3 of CBIC Circular No. 143/13/2020-GST dated 10-11-2020.
Eligibility of filing quarterly return from January, 2021, only if return for preceding month
is filed - The registered persons are eligible for quarterly return if the return for the
preceding month, as due on the date of exercising such option, has been furnished -
introductory para clause (i) of Notification No. 84/2020-CT dated 10-11-2020.
Eligibility of facility of quarterly return after January 2021, only when GSTR-3B return was
filed for earlier complete tax period - The registered person shall not be eligible for the said
special procedure (of filing quarterly return), unless he has furnished the return for a
complete tax period preceding such month - second proviso to Notification No. 85/2020-CT
dated 10-11-2020, effective from 1-1-2021.
Meaning of 'complete tax period' - For the purpose of this notification, the expression "a
complete tax period" means a tax period in which the person is registered from the first day
of the tax period till the last day of the tax period - Explanation to Notification No. 85/2020-
CT dated 10-11-2020, effective from 1-1-2021.
Registered person not eligible to file quarterly return once his aggregate turnover crosses
Rs five crores in a financial year - A registered person whose aggregate turnover crosses
five crore rupees during a quarter in a financial year shall not be eligible for furnishing of
return on quarterly basis from the first month of the succeeding quarter - para 2 of
Notification No. 84/2020-CT dated 10-11-2020.
40.5-2 Procedure for Exercise of option to file GSTR-3B return on quarterly basis and opting
out
 816

Registered persons having an aggregate turnover of up to five crore rupees in the preceding
financial year can opt for filing GSTR-3B return on quarterly basis. They have to exercise the
option on the portal.
The option can be changed to monthly return during the financial year also, within
prescribed time period, as given below.
Every registered person intending to furnish return on a quarterly basis under proviso to
section 39(1) of CGST Act, shall in accordance with the conditions and restrictions notified
in this regard, indicate his preference for furnishing of return on a quarterly basis,
electronically, on the common portal, from the 1st day of the second month of the preceding
quarter till the last day of the first month of the quarter for which the option is being
exercised - Rule 61A(1)(i) of CGST Rules, inserted w.e.f. 10-11-2020.
Option to be exercised by freshly registered persons - All persons who have obtained
registration during any quarter or the registered persons opting out from paying tax under
section 10 of the CGST Act (composition scheme) during any quarter shall be able to opt for
the QRMP Scheme for the quarter for which the opting facility is available on the date of
exercising option - Para 4.5 of CBIC Circular No. 143/13/2020-GST dated 10-11-2020.
Option is GSTIN wise and not Income tax PAN wise - The option to avail the QRMP Scheme
is GSTIN wise and therefore, distinct persons as defined in Section 25 of the CGST Act
(different GSTINs on same PAN) have the option to avail the QRMP Scheme for one or more
GSTINs. In other words, some GSTINs for that PAN can opt for the QRMP Scheme and
remaining GSTINs may not opt for the Scheme - Para 4.7 of CBIC Circular No. 143/13/2020-
GST dated 10-11-2020.
Option once exercised continues till opted out or till annual turnover exceeds Rs 5 crores -
Where such option has been exercised once, the registered person shall continue to furnish
the return on a quarterly basis for future tax periods, unless the registered person - (a)
becomes ineligible for furnishing the return on a quarterly basis as per the conditions and
restrictions notified in this regard; or (b) opts for furnishing of return on a monthly basis,
electronically, on the common portal - first proviso to Rule 61A(1) of CGST Rules, inserted
w.e.f. 10-11-2020.
Option of filing quarterly return once exercised continues unless revised - Where such
option has been exercised once, they shall continue to furnish the return as per the selected
option for future tax periods, unless they revise the same - introductory para clause (ii) of
Notification No. 84/2020-CT dated 10-11-2020.
Registered persons are not required to exercise the option every quarter. Where such option
has been exercised once, they shall continue to furnish the return as per the selected option
for future tax periods, unless they revise the option - Para 4.2 of CBIC Circular No.
143/13/2020-GST dated 10-11-2020.
Option can be changed only after last due return furnished - A registered person shall not
be eligible to opt for furnishing quarterly return in case the last return due on the date of
exercising such option has not been furnished - second proviso to Rule 61A(1) of CGST Rules,
inserted w.e.f. 10-11-2020.
 817

Departmental clarifications in respect of exercising option for QRMP Scheme - Facility to

avail the Scheme on the common portal would be available throughout the year. In terms of
rule 61A of the Central Goods and Services Tax Rules, 2017, a registered person can opt in
for any quarter from first day of second month of preceding quarter to the last day of the
first month of the quarter. In order to exercise this option, the registered person must have
furnished the last return, as due on the date of exercising such option. For example, a
registered person intending to avail of the Scheme for the quarter 'July to September' can
exercise his option during 1st of May to 31st of July. - - If he is exercising his option on 27th
July for the quarter (July to September), in such case, he must have furnished the return for
the month of June which was due on 22/24th July - Para 4.1 of CBIC Circular No.
143/13/2020-GST dated 10-11-2020.
Opting out by registered tax person form QRMP scheme -The facility for opting out of the
Scheme for a quarter will be available from first day of second month of preceding quarter
to the last day of the first month of the quarter - Para 4.4 of CBIC Circular No. 143/13/2020-
GST dated 10-11-2020.
Opting out when aggregate turnover in financial year exceeds Rs five crores - A registered
person, whose aggregate turnover exceeds 5 crore rupees during the current financial year,
shall opt for furnishing of return on a monthly basis, electronically, on the common portal,
from the first month of the quarter, succeeding the quarter during which his aggregate
turnover exceeds 5 crore rupees - Rule 61A(2) of CGST Rules, inserted w.e.f. 10-11-2020.
Any taxpayer whose aggregate turnover has exceeded 5 crore rupees in the financial year
2020-21, shall opt out of the Scheme - Para 4.3 of CBIC Circular No. 143/13/2020-GST dated
10-11-2020.
In case the aggregate turnover exceeds 5 crore rupees during any quarter in the current
financial year, the registered person shall not be eligible for the QRMP Scheme from the next
quarter - Para 4.6 of CBIC Circular No. 143/13/2020-GST dated 10-11-2020.
Registered persons who have deemed to have opted for filing quarterly return from
January, 2021 - Following registered persons shall be deemed to have opted for filing
quarterly GSTR-3B return under rule 61A(1) of CGST Rules - (1) Registered persons having
aggregate turnover of up to 1.5 crore rupees, who have furnished form GSTR-1 on quarterly
basis in the current financial year (i.e. 2020-21) (2) Registered persons having aggregate
turnover more than 1.5 crore rupees and up to 5 crore rupees in the preceding financial year
(i.e. 2019-20) - para 3 of Notification No. 84/2020-CT dated 10-11-2020.
The registered persons may change the default option electronically, on the common portal,
during the period from the 5-12-2020 to the 31-1-2021 - para 4 of Notification No. 84/2020-
CT dated 10-11-2020.
Registered persons who have deemed to have opted for filing monthly return from
January, 2021 - Registered persons having aggregate turnover of up to 1.5 crore rupees,
who have furnished form GSTR-1 on monthly basis in the current financial year (i.e. 2020-
21) shall be deemed to have opted for filing monthly GSTR-3B return under rule 61A(1) of
CGST Rules -- para 3 of Notification No. 84/2020-CT dated 10-11-2020.
 818

The registered persons may change the default option electronically, on the common portal,
during the period from the 5-12-2020 to the 31-1-2021 - para 4 of Notification No. 84/2020-
CT dated 10-11-2020.
Departmental clarification in respect of Automatic migration to QRMP scheme - For the
first quarter of the Scheme i.e. for the quarter January, 2021 to March, 2021, all the
registered persons, whose aggregate turnover for the FY 2019-20 is up to 5 crore rupees and
who have furnished the return in form GSTR-3B for the month of October, 2020 by 30th
November, 2020, have been automatically migrated on the common portal, except those
whose turnover is below Rs 1.50 crores and who have furnished Form GSTR-1on monthly
basis in the current financial year.
However, they will be able to opt for the QRMP Scheme, if they so desire, from 5-12-2020
to 31-1-2021, after filing form GSTR-3B as due - Para 4.3 of CBIC Circular No. 143/13/2020-
GST dated 10-11-2020.
40.5-3 Payment of 'amount' and taxes by person opting for quarterly filing of GSTR-3B
return
Registered persons opting to file GSTR-3B return on quarterly basis have to deposit 'amount'
for first two months of quarter and pay balance amount as tax at end of quarter before filing
quarterly GSTR-3B return.
Every registered person furnishing return under the proviso to section 39(1) of CGST Act
[quarterly basis] shall pay to the Government, the tax due taking into account inward and
outward supplies of goods or services or both, input tax credit availed, tax payable and such
other particulars during a month, in such form and manner, and within such time, as may be
prescribed - first proviso to section 39(7) of CGST Act, 2017 as substituted w.e.f. 1-1-2021.
Every registered person required to furnish return, under rule 61(1) shall, subject to the
provisions of section 49 of CGST Act [utilization of Input Tax Credit], discharge his liability
towards tax, interest, penalty, fees or any other amount payable under the CGST Act or the
provisions of this Chapter by debiting the electronic cash ledger or electronic credit ledger
and include the details in the return in form GSTR-3B-Rule 61(2) of CGST Rules, w.e.f. 1-1-
2021.
Payment of tax in first two months by those who are filing quarterly return - Every
registered person required to furnish return, every quarter, under rule 61(1)(ii) shall pay the
tax due under proviso to section 39(7), for each of the first two months of the quarter, by
depositing the said amount in form GST PMT-06, by the 25th day of the month succeeding
such month -Rule 61(3) of CGST Rules, w.e.f. 1-1-2021.
Extension of due date of payment of taxes - Commissioner may, on the recommendations
of the Council, by notification, extend the due date for depositing the said amount in form
GST PMT-06, for such class of taxable persons as may be specified therein. Any extension of
time limit notified by the Commissioner of State tax or Union territory tax shall be deemed
to be notified by the Commissioner - first and second provisos to Rule 61(3) of CGST Rules,
w.e.f. 1-1-2021.
Thus, extension either by Central Commissioner or State/Union Territory Commissioner is
sufficient.
 819

Deposit of 'amount' in first two months by registered persons opting to file return on
quarterly basis - Those who are eligible and have opted to fine GSTR-3B return on quarterly
basis, may, in first month or second month or both months of the quarter, deposit of an
amount in the electronic cash ledger equivalent to - (i) 35% of the tax liability paid by debiting
the electronic cash ledger in the return for the preceding quarter where the return is
furnished quarterly; or (ii) the tax liability paid by debiting the electronic cash ledger in the
return for the last month of the immediately preceding quarter where the return is furnished
monthly - Notification No. 85/2020-CT dated 10-11-2020.
Thus, the 'amount' to be paid in first two months can be either at flat rate of 35% of tax
liability of preceding quarter or on actual calculations basis.
Any 'amount' is not required to be deposited in first and second months of quarter, if there
is balance in electronic cash or credit ledger - Deposit of any 'amount' is not required - (a)
for the first month of the quarter, where the balance in the electronic cash ledger or
electronic credit ledger is adequate for the tax liability for the said month or where there is
nil tax liability (b) for the second month of the quarter, where the balance in the electronic
cash ledger or electronic credit ledger is adequate for the cumulative tax liability for the first
and the second month of the quarter or where there is nil tax liability - first proviso to
Notification No. 85/2020-CT dated 10-11-2020, effective from 1-1-2021.
Calculation of tax payable in first two months of a quarter - While making a deposit in form
GST PMT-06, such a registered person may - (a) for the first month of the quarter, take into
account the balance in the electronic cash ledger (b) for the second month of the quarter,
take into account the balance in the electronic cash ledger excluding the tax due for the first
month -third proviso to Rule 61(3) of CGST Rules, w.e.f. 1-1-2021.
Adjustment of amount in electronic cash ledger at the time of filing GSTR-3B quarterly
return - The amount deposited by the registered persons under rule 61(3) of CGST Rules,
shall be debited while filing the return for the said quarter in form GSTR-3B, and any claim
of refund of such amount lying in balance in the electronic cash ledger, if any, out of the
amount so deposited shall be permitted only after the return in form GSTR-3B for the said
quarter has been filed -Rule 61(4) of CGST Rules, w.e.f. 1-1-2021.
Deposit in first two months cannot be used for any other purpose - The deposit of 'amount'
in first two months cannot be used by the taxpayer for any other purpose till the filing of
return for the quarter - Para 6.4 of CBIC Circular No. 143/13/2020-GST dated 10-11-2020.
40.5-4 Departmental clarification and illustrations in respect of mode of Payment of
'amount'
he registered person under the QRMP Scheme would be required to pay the tax due in each
of the first two months of the quarter by depositing the due amount in form GST PMT-06,
by the twenty fifth day of the month succeeding such month. While generating the challan,
taxpayers should select "Monthly payment for quarterly taxpayer" as reason for generating
the challan - Para 6.1 of CBIC Circular No. 143/13/2020-GST dated 10-11-2020.
The registered person can use any of the following two options provided below for monthly
payment of tax during the first two months -
 820

40.5-4a Fixed Sum Method of paying deposit amount monthly - A facility is being made
available on the portal for generating a pre-filled challan in form GST PMT-06 for an amount
equal to 35% of the tax paid in cash in the preceding quarter where the return was furnished
quarterly; or equal to the tax paid in cash in the last month of the immediately preceding
quarter where the return was furnished monthly - Para 6.1(a) of CBIC Circular No.
143/13/2020-GST dated 10-11-2020.
For example, in case of persons filing return on quarterly basis, if CGST of Rs 100 was paid in
cash during quarter January-March 2021, tax required to be paid in cash for April 2021 and
May 2021 will be Rs 35 each month. Similar calculations will be made for each of tax i.e.
SGST, IGST and GST Compensation Cess.
In case of persons filing return on monthly basis, if CGST of Rs 50 was paid in cash for March,
2021, tax required to be paid in cash for April 2021 and May 2021 will be Rs 50 each month.
Similar calculations will be made for each of tax i.e. SGST, IGST and GST Compensation Cess.
Monthly tax payment through this method would not be available to those registered
persons who have not furnished the return for a complete tax period preceding such month.
A complete tax period means a tax period in which the person is registered from the first
day of the tax period till the last day of the tax period - Para 6.1(a) of CBIC Circular No.
143/13/2020-GST dated 10-11-2020.
40.5-4b Self-Assessment Method of depositing amount monthly- The registered person,
can pay the tax due by considering the tax liability on inward and outward supplies and the
input tax credit available, in form GST PMT-06. In order to facilitate ascertainment of the ITC
available for the month, an auto-drafted input tax credit statement has been made available
in form GSTR-2B, for every month - Para 6.1(b) of CBIC Circular No. 143/13/2020-GST dated
10-11-2020.
40.5-4c Option can be changed every month - The registered person is free to avail either
of the two tax payment method above in any of the two months of the quarter - Para 6.2 of
CBIC Circular No. 143/13/2020-GST dated 10-11-2020.
40.5-4d No deposit required if there is balance in cash ledger and credit ledger - In case the
balance in the electronic cash ledger and/or electronic credit ledger is adequate for the tax
due for the first month of the quarter or where there is nil tax liability, the registered person
may not deposit any amount for the said month. Similarly, for the second month of the
quarter, in case the balance in the electronic cash ledger and/or electronic credit ledger is
adequate for the cumulative tax due for the first and the second month of the quarter or
where there is nil tax liability, the registered person may not deposit any amount - Para 6.3
of CBIC Circular No. 143/13/2020-GST dated 10-11-2020.
40.5-5 Form of quarterly return and due date of filing quarterly return
The registered persons who have opted to file quarterly return should file return in form
GSTR-3B on or before 22nd/24th of month succeeding the quarter.
Rule 61(1)(ii) of CGST Rules, w.e.f. 1-1-2021 states as follows.
Every registered person other than a person referred to in section 14 of IGST Act, 2017
(OIDAR services where tax is payable by supplier in non-taxable territory) or an Input Service
Distributor or a non-resident taxable person or a person paying tax under section 10
 821

(composition scheme) or section 51 (TDS) or section 52 (TCS) shall furnish a return in form
GSTR-3B, electronically through the common portal either directly or through a Facilitation
Centre notified by the Commissioner as specified under proviso to section 39(1), for each
quarter, or part thereof as follows -
(A) Registered persons whose principal place of business is in the States of Chhattisgarh,
Madhya Pradesh, Gujarat, Maharashtra, Karnataka, Goa, Kerala, Tamil Nadu, Telangana,
Andhra Pradesh, the Union territories of Daman and Diu and Dadra and Nagar Haveli,
Puducherry, Andaman and Nicobar Islands or Lakshadweep - twenty-second day of the
month succeeding such quarter.
(B) Registered persons whose principal place of business is in the States of Himachal Pradesh,
Punjab, Uttarakhand, Haryana, Rajasthan, Uttar Pradesh, Bihar, Sikkim, Arunachal Pradesh,
Nagaland, Manipur, Mizoram, Tripura, Meghalaya, Assam, West Bengal, Jharkhand or
Odisha, the Union territories of Jammu and Kashmir, Ladakh, Chandigarh or Delhi - twenty-
fourth day of the month succeeding such quarter.
40.5-6 Quarterly GSTR-3B to contain details of whole quarter
Registered persons under QRMP scheme would be required to furnish form GSTR-3B, for
each quarter, on or before 22nd or 24th day of the month succeeding such quarter. In form
GSTR-3B, they shall declare the supplies made during the quarter, ITC availed during the
quarter and all other details required to be furnished therein. The amount deposited by the
registered person in the first two months shall be debited solely for the purposes of
offsetting the liability furnished in that quarter's form GSTR-3B. However, any amount left
after filing of that quarter's form GSTR-3B may either be claimed as refund or may be used
for any other purpose in subsequent quarters - Para 7 of CBIC Circular No. 143/13/2020-GST
dated 10-11-2020.
Cancellation of registration during the quarter - In case of cancellation of registration of
such person during any of the first two months of the quarter, he is still required to furnish
return inform GSTR-3B for the relevant tax period - Para 7 of CBIC Circular No. 143/13/2020-
GST dated 10-11-2020.
40.5-7 Provisions relating to payment of interest under QRMP scheme
The registered persons paying tax under QRMP scheme will be liable to pay interest @18%
on delayed payment -
40.5-7a Interest where registered person is making payment under Fixed sum Method -For
registered person making payment of tax by opting Fixed Sum Method (35% for first two
months of quarter and balance while filing quarterly GSTR-3B return), applicability of
interest as per Para 8.1 of CBIC Circular No. 143/13/2020-GST dated 10-11-2020 is as follows.
i. No interest would be payable in case the tax due is paid in the first two months of
the quarter by way of depositing auto-calculated fixed sum amount by the due date.
In other words, if while furnishing return inform GSTR-3B, it is found that in any or
both of the first two months of the quarter, the tax liability net of available credit on
the supplies made/received was higher than the amount paid in challan, then, no
interest would be charged provided they deposit system calculated amount for each
 822

of the first two months and discharge their entire liability for the quarter in the form
GSTR-3B of the quarter by the due date.
ii. In case such payment of tax by depositing the system calculated amount in form GST
PMT-06 is not done by due date, interest would be payable at the applicable rate,
from the due date of furnishing form GST PMT-06 till the date of making such
payment.
iii. Further, in case form GSTR-3B for the quarter is furnished beyond the due date,
interest would be payable as per the provisions of Section 50 of the CGST Act for the
tax liability net of ITC.

Illustration 1 - A registered person, who has opted for the Scheme, had paid a total amount
of Rs. 100/- in cash as tax liability in the previous quarter of October to December. He opts
to pay tax under fixed sum method. He therefore pays Rs. 35/- each on 25th February and
25th March for discharging tax liability for the first two months of quarter viz. January and
February. In his return for the quarter, it is found that liability, based on the outward and
inward supplies, for January was Rs. 40/- and for February it was Rs. 42/-. No interest would
be payable for the lesser amount of tax (i.e. Rs. 5 and Rs. 7 respectively) discharged in these
two months provided that he discharges his entire liability for the quarter in the form GSTR-
3B of the quarter by the due date.
Illustration 2 - A registered person, who has opted for the Scheme, had paid a total amount
of Rs. 100/- in cash as tax liability in the previous quarter of October to December. He opts
to pay tax under fixed sum method. He therefore pays Rs. 35/- each on 25th February and
25th March for discharging tax liability for the first two months of quarter viz. January and
February. In his return for the quarter, it is found that total liability for the quarter net of
available credit was Rs. 125 but he files the return on 30th April. Interest would be payable
at applicable rate on Rs. 55 [Rs. 125 - Rs. 70 (deposit made in cash ledger in M1 and M2)] for
the period between due date of quarterly GSTR-3B and 30th April.
Interest payable, if any, shall be paid through form GSTR-3B - Para 8.3 of CBIC Circular No.
143/13/2020-GST dated 10-11-2020.
40.5-7b Interest where registered person is making payment under Fixed sum Method -For
registered person making payment of tax by opting Self-Assessment Method, interest
calculation is as follows, as per para 8.2 of CBIC Circular No. 143/13/2020-GST dated 10-11-
2020.
Interest amount would be payable as per the provision of Section 50 of the CGST Act for tax
or any part thereof (net of ITC) which remains unpaid/paid beyond the due date for the first
two months of the quarter - Para 8.2 of CBIC Circular No. 143/13/2020-GST dated 10-11-
2020.
Interest payable, if any, shall be paid through form GSTR-3B - Para 8.3 of CBIC Circular No.
143/13/2020-GST dated 10-11-2020.
40.5-8 Late Fee to those under QRMP scheme
Late fee is applicable for delay in furnishing of return/details of outward supply as per the
provision of Section 47 of the CGST Act. As per the Scheme, the requirement to furnish the
 823

return under the proviso to Section 39(1) of the CGST Act is quarterly. Accordingly, late fee
would be the applicable for delay in furnishing of the said quarterly return/details of
outward supply. No late fee is applicable for delay in payment of tax in first two months of
the quarter (of course, interest applies) - Para 9 of CBIC Circular No. 143/13/2020-GST dated
10-11-2020.
40.5-9 Refund can be only after filing GSTR-3B quarterly return
Any claim of refund in respect of the amount deposited for the first two months of a quarter
for payment of tax shall be permitted only after the return in form GSTR-3B for the quarter
has been furnished. Further, this deposit cannot be used by the taxpayer for any other
purpose till the filing of return for the quarter - Para 6.4 of CBIC Circular No. 143/13/2020-
GST dated 10-11-2020.
40.6 Simplified procedure for filing Nil return of GSTR-1 and GSTR-3B through SMS
As per Press release dated 8-6-2020, in a major move towards taxpayer facilitation, the
Government has allowed filing of NIL GST monthly return in form GSTR-3B through SMS
w.e.f. 8-6-2020. This would substantially improve ease of GST compliance for over 22 lakh
registered taxpayers who had to otherwise log into their account on the common portal and
then file their returns every month. Now, these taxpayers with Nil liability need not log on
to the GST Portal and may file their Nil returns through a SMS. Rule 67A of CGST Rules was
inserted for this purpose.
This scheme has been extended to GSTR-1 w.e.f. 1-7-2020 and to CMP-08 w.e.f. 15-10-2020
by amending rule 67A of CGST Rules. Provisions in respect of GSTR-1 and CMP-08 are
discussed separately.
Nil return through SMS if all entries in form GSTR-3B or GSTR-1 or CMP-08 are Nil i.e. inputs
as well as outputs are Nil -Notwithstanding anything contained in this Chapter, for a
registered person who is required to furnish a Nil return under section 39 in FORM GSTR-3B
or a Nil details of outward supplies under section 37 in FORM GSTR-1 or a Nil statement in
FORM GST CMP-08 for a tax period, any reference to electronic furnishing shall include
furnishing of the said return or the details of outward supplies or statement through a short
messaging service using the registered mobile number and the said return or the details of
outward supplies or statement shall be verified by a registered mobile number based One
Time Password facility. - - Explanation.-For the purpose of this rule (rule 67A), a Nil return or
Nil details of outward supplies or Nil statement shall mean a return under section 39 or
details of outward supplies under section 37 or statement under rule 62, for a tax period
that has nil or no entry in all the Tables in FORM GSTR-3B or FORM GSTR-1 or FORM GST
CMP-08, as the case may be - Rule 67A amended w.e.f. 15-10-2020.
Procedure for filing Nil GSTR-3B return - The procedure for filing GSTR-3B Nil return through
SMS has been specified in press release dated 8-6-2020 issued by GSTN, which is as follows.
Initiate filing - send SMS from registered mobile -NIL<space>3B<space>GSTIN<space>Tax
period - for example -. NIL 3B 09XXXXXXXXXXXZC 052020
You will receive a code on mobile (OTP). The Code is valid for 30 minutes. Assume you
receive Code as 123456.
Then you send Confirming SMS - CNF <space>3B<space>Code Filing e.g. CNF 3B 123456.
 824

You will get SMS - Your 09XXXXXXXXXXXZC GSTR-3B for 052020 is filed successfully and
acknowledged vide ARN is AA070219000384. Please use this ARN to track the status of your
return.
For Help - send SMS HELP<Space>3B e.g. HELP 3B. You will get above instructions by SMS.
You can track your return on the GST Portal by logging in to GSTIN account and navigating
to Services>Returns>Track Return Status.
When can Form GSTR-3B be filed as Nil? -Form GSTR-3B can be filed as a nil return if there
are no outward supplies as well as liability (including reverse charge liability) in the month,
for which the return is being filed for. This form can be filed nil, in both online mode and in
offline mode (by SMS).
Nil Form GSTR-3B for a tax period can be filed through SMS, if you: have not made any
Outward Supply (including Nil rated, exempt and non GST supply), do not have any reverse
charge liability, do not intend to take any Input tax credit or reverse ITC and do not have any
interest, tax, late fee or any other liability for that particular or earlier Tax Periods.
Filing of Form GSTR-3B as Nil return mandatory, even if no liability - Filing of Form GSTR-
3B is mandatory for all normal and casual taxpayers, even if there is no business activity in
any particular tax period. So, for such tax period(s), the return can be filed as NIL (if all
conditions for filing Nil return is satisfied).
Time period for filing Nil Form GSTR-3B through SMS - A taxpayer may file Nil Form GSTR-
3B through SMS, anytime on or after the 1st of the subsequent month for which the return
is being filed for. For example, for the month of April 2020, nil return can be filed only on or
after 1st May 2020.
Taxpayer who is eligible to file Nil Form GSTR-3B through SMS - Any taxpayer who fulfils
the below conditions, are eligible to file Nil Form GSTR-3B, through SMS - (a) Taxpayer must
be registered as Normal taxpayer/Casual taxpayer/SEZ Unit/SEZ Developer and must have a
valid GSTIN. (b) Authorized signatory and his/her phone number must be registered on the
GST Portal (c) There is no pending liability of previous period tax, interest or late fee while
filing Nil Form GSTR-3B. (d) All GSTR-3B return of previous tax periods must be filed. (e) There
must not be any data in saved stage, in online version of Form GSTR-3B, on the GST Portal.
In such case, you can continue filing GSTR-3B through GST portal.
Person authorized to file Nil Form GSTR-3B through SMS, on behalf of the taxpayer - All the
authorized representatives, for a particular GSTIN, are allowed to file Nil Form GSTR-3B
through SMS. If more than one Authorized Signatories/Representatives have the same
mobile number registered on the GST Portal, such Authorized Signatories cannot file Nil
Form GSTR-3B through SMS. In such case, Authorized Signatory first need to update their
mobile number on the GST Portal, through non-core amendment process, by giving unique
mobile number for every authorized signatory for that requested GSTIN. Other Authorized
Signatories/Representatives with unique mobile number registered on the GST Portal, can
file Nil Form GSTR-3B through SMS.
Person can be Authorized Signatory for more than one GSTIN with same mobile number -
A person can file Nil Form GSTR-3B, through SMS for all GSTINs, for whom he is an Authorized
Signatory, from the same mobile number.
 825

Thus, one person can file return for more than one GSTIN.
Repeated SMS in wrong format - If repeated (three times) SMS in incorrect format is sent
from same mobile number, then mobile number gets blocked for 24 hours. You can continue
to file your return on www.gst.gov.in.
If Authorized Signatories have been reset by the Tax Official - In case, Authorized
Signatories have been reset by the Tax Official, you need to first reactivate your User ID by
navigating to GST Portal >Login >here link. Click here to know more about it. After
reactivating your User ID, you can file Nil Form GSTR-3B through SMS.
Where to send SMS for filing Nil GSTR-3B - SMS is to be sent on 14409. GST Portal will check
validation and then send six digit code (OTP). Verification Code is usable only once and will
expire within 30 minutes.
If Code not received within five minutes - Code generation will take around 5 minutes. Even
after waiting, if you have not received code, then you can request for regeneration of Code.
Incorrect Code provided by taxpayer three times - In case, incorrect Verification Code is
provided, more than three times during a day, the GSTIN and Mobile number combination
for that particular day, will be blocked for filing of Nil Form GSTR-3B through SMS only. It is
blocked for 24 hours. You can try filing Nil Form GSTR-3B, through SMS, after 24 hours.
However, you can login to the GST Portal to continue filing of Nil Form GSTR-3B, through
online mode.
Once Nil Form GSTR-3B through SMS is filed, it is not necessary to file Nil return on GST
Portal - Once you have filed Nil Form GSTR-3B through SMS, you do not need to login to the
GST Portal again to file Nil Form GSTR-3B. After successful filing of Nil Form GSTR-3B, through
SMS, the status of Form GSTR-3B is changed to Filed on GST Portal.
Nil return filed through SMS cannot be revised - Filed Nil Form GSTR-3B, for the requested
tax period, cannot be revised after filing it through SMS.
Tracking the status of my filed Form GSTR-3B return - Navigate to Services > Returns > Track
Return Status option to track the status of your filed Form GSTR-3B return on the GST Portal.
Error Messages, Description and Solution - The requirements for filing Nil return are
explained above. If any of these is not fulfilled, system gives error messages. List of error
messages and its solution is given in FAQs [Not reproduced here for sake of brevity].
Other issues relating to GSTR-3B return by SMS- (a) Return cannot be filed if GST
Registration was cancelled (b) Return cannot be filed for return prior to GST Registration (c)
If user ID is not activated/re-activated on GST portal, return cannot be filed.
40.7 Furnishing Details of outward supplies in form GSTR-1
Details of outward supplies are to be filed in form GSTR-1. Nil return is mandatory even if
there are no transactions in a month/quarter.
Every registered taxable person, other than (a) an input service distributor (b) a non-resident
taxable person and (c) a person paying tax under the provisions of section 10 (composition
scheme), (d) section 51 (TDS) or (e) section 52 (TCS by e-commerce operator), shall furnish,
electronically, in such form and manner as may be prescribed, the details of outward
supplies of goods or services or both effected, during a tax period on or before the tenth day
 826

of the month succeeding the said tax period and such details shall be communicated to the
recipient of the said supplies within the time and in the manner as may be prescribed -
section 37(1) of CGST Act. [Now, date extended to 11 and 13 of the month].
"Details of outward supplies" shall include details of invoices, debit notes, credit notes and
revised invoices issued in relation to outward supplies during any tax period - Explanation to
section 37 of CGST Act.
Input service distributor, non-resident taxable person, a person paying tax under the
provisions of section 10 (composition scheme) or section 51 (TDS) or section 52 (TCS) is not
required to furnish such details.
Due date of filing GSTR-1 w.e.f. 1-1-2021 - Monthly within 11 days from end of month. For
those who opt to file GSTR-3B return on quarterly basis, the GSTR-1 return should be filed
by 13th of following month - Notification No. 83/2020 - CT dated 10-11-2020. This is w.e.f.
1-1-2021.
40.7-1 Form and manner of furnishing details of outward supplies
Registered persons who are filing monthly return are required to file GSTR-1 on monthly
basis. Registered persons who have opted for filing GSTR-3B return on quarterly basis (QRMP
scheme) are required to file GSTR-1 on quarterly basis.
Supplier of OIDAR service is not required to file GSTR-1 return.
Every registered person, other than a person referred to in section 14 of IGST Act, 2017
(OIDAR services where tax is payable by supplier in non-taxable territory) required to furnish
the details of outward supplies of goods or services or both under section 37 of CGST Act,
shall furnish such details in form GSTR-1 for the month or the quarter, as the case may be,
electronically through the common portal, either directly or through a Facilitation Centre as
may be notified by the Commissioner - Rule 59(1) of CGST Rules, w.e.f. 1-1-2021.
40.7-2 IFF (Invoice Furnishing Facility) where GSTR-1 is filed on quarterly basis
The details of tax invoices, credit notes and debit notes are uploaed by supplier in his GSTR-
1. These detailed are auto-populated in GSTR-2A and GSTR-2B of recipient of goods or
services or both, enabling the recipient to avail Input Tax Credit (ITC).
In case of suppliers of goods or services or both filing GSTR-1 on quarterly basis, the recipient
of goods and services will get details of tax invoices uploaded by supplier in his GSTR-2A and
GSTR-2B only at end of quarter. This will delay his eligibility of input tax credit. To avoid this,
Invoice Furnishing Facility (IFF) has been provided to suppliers of goods or services of both,
so that they can upload details of their tax invoices and credit/debit notes on monthly basis.
They can upload these details during 1st to 13th of succeeding month in first two months of
the quarter. While uploading GSTR-1 for the quarter, they can upload tax invoices of third
month and remaining tax invoices of first two months.
To reduce misuse, it has been provided that details of tax invoices uploaded in first two
months shall not exceed Rs 50 lakhs per month. IFF can be used only to upload details of
supplies made to registered persons.
IFF is not mandatory. All tax invoices need not be uploaded on monthly basis. There is no
late fee if invoices of a particular month are not uploaded using IFF.
 827

All invoices of month are not required to be uploaded at one time. Invoices can be uploaded
on continuous basis.
IFF facility is not mandatory and is only an optional facility made available to the registered
persons under the QRMP Scheme - Para 5.2 of CBIC Circular No. 143/13/2020-GST dated 10-
11-2020.
Statutory provisions are as follows.
The registered persons required to furnish return for every quarter under proviso to section
39(1) of CGST Act (quarterly return) may furnish the details of such outward supplies of
goods or services or both to a registered person, as he may consider necessary, for the first
and second months of a quarter, up to a cumulative value of fifty lakh rupees in each of the
months, using invoice furnishing facility ("IFF") electronically on the common portal, duly
authenticated in the manner prescribed under rule 26, from the 1st day of the month
succeeding such month till the 13th day of the said month - Rule 59(2) of CGST Rules, w.e.f.
1-1-2021.
The details of outward supplies of goods or services or both furnished using the IFF shall
include the - (a) invoice wise details of inter-State and intra-State supplies made to the
registered persons (b) debit and credit notes, if any, issued during the month for such
invoices issued previously- Rule 59(5) of CGST Rules, w.e.f. 1-1-2021.
Details of invoices uploaded in first two months are not required to be uploaded again
while filing quarterly GSTR-1 - The details of outward supplies furnished using the IFF, for
the first and second months of a quarter, shall not be furnished in form GSTR-1 for the said
quarter - Rule 59(3) of CGST Rules, w.e.f. 1-1-2021.
The details of invoices furnished using the IFF facility in the first two months are not required
to be furnished again in form GSTR-1. Accordingly, the details of outward supplies made by
such a registered person during a quarter shall consist of details of invoices furnished using
IFF for each of the first two months and the details of invoices furnished in form GSTR-1 for
the quarter. At his option, a registered person may choose to furnish the details of outward
supplies made during a quarter in form GSTR-1 only, without using the IFF - Para 5.3 of CBIC
Circular No. 143/13/2020-GST dated 10-11-2020.
Departmental clarifications in respect of IFF Facility - The registered persons opting for the
QRMP Scheme would be required to furnish the details of outward supply in form GSTR-1
quarterly as per the rule 59 of the CGST Rule - Para 5.1 of CBIC Circular No. 143/13/2020-
GST dated 10-11-2020.
For each of the first and second months of a quarter, such a registered person will have the
facility (Invoice Furnishing Facility- IFF) to furnish the details of such outward supplies to a
registered person, as he may consider necessary, between the 1st day of the succeeding
month till the 13th day of the succeeding month. The said details of outward supplies shall,
however, not exceed the value of fifty lakh rupees in each month. It may be noted that after
13th of the month, this facility for furnishing IFF for previous month would not be available.
As a facilitation measure, continuous upload of invoices would also be provided for the
registered persons wherein they can save the invoices in IFF from the 1st day of the month
till 13th day of the succeeding month. The facility of furnishing details of invoices in IFF has
 828

been provided so as to allow details of such supplies to be duly reflected in the form GSTR-
2A and form GSTR-2B of the concerned recipient.
For example, a registered person who has availed the Scheme wants to declare two invoices
out of the total ten invoices issued in the first month of quarter since the recipient of supplies
covered by those two invoices desires to avail ITC in that month itself. Details of these two
invoices may be furnished using IFF. The details of the remaining 8 invoices shall be furnished
in form GSTR-1 of the said quarter. The two invoices furnished in IFF shall be reflected in
form GSTR-2B of the concerned recipient of the first month of the quarter and remaining
eight invoices furnished in form GSTR-1 shall be reflected in form GSTR-2B of the concerned
recipient of the last month of the quarter. The said facility would however be available, say
for the month of July, from 1st August till 13th August. Similarly, for the month of August,
the IFF facility will be available from 1st September till 13th September.
40.7-3 Contents of GSTR-1
As per Rule 59(4) of CGST Rules, w.e.f. 1-1-2021, the details of outward supplies of goods or
services or both furnished in form GSTR-1 shall include the following -
(a) invoice wise details of all -(i) inter-State and intra-State supplies made to the
registered persons; and (ii) inter-State supplies with invoice value more than two and
a half lakh rupees made to the unregistered persons;
(b) consolidated details of all -(i) intra-State supplies made to unregistered persons for
each rate of tax; and (ii) State wise inter-State supplies with invoice value upto two
and a half lakh rupees made to unregistered persons for each rate of tax
(c) debit and credit notes, if any, issued during the month for invoices issued previously.

Consolidated details in some cases - In case of inter-State and intra-State supplies to

registered person, invoice-wise details should be furnished (B2B transactions)
In case of inter-State supplies to unregistered person where invoice value is more than Rs
2.50 lakhs, invoice-wise details shall be submitted. Where value is less than Rs 2.50 lakhs,
consolidated State-wise details shall be submitted, with State codes (B2C inter-state
transactions)
In case of intra-State supplies to unregistered persons, only consolidated details shall be
submitted (irrespective of value of each invoice) [B2C intra-State transactions].
40.7-4 Extension of time limit for submitting GSTR-1 return
Commissioner in Board can extend the time limit for furnishing such details by issuing
notification - second proviso to section 37(1) of CGST Act.
To ensure uniformity all over India, such notification shall be issued by Commissioner or Joint
Secretary in Board - section 168(2) of CGST Act.
Any extension granted by Commissioner of State Tax or Commissioner of Union Territory
Tax shall be deemed to be notified by Commissioner in Board - third proviso to section 37(1)
of CGST Act.
Thus, extension by Commissioner of State GST/UTGST is sufficient.
40.7-5 Late fee if GSTR-1 return not filed in time
 829

Fee for late filing of return is Rs 25 per day of CGST and SGST/UTGST each [total Rs 50 per
day]. In case of Nil return, the late fee is Rs 10 per day of CGST and SGST/UTGST each [total
Rs 20 per day] - Notification No. 4/2018-CT dated 23-1-2018.
However, the upper ceiling of Rs 10,000 per return is not changed. Thus, maximum late fee
continues to be Rs 10,000 per return. Really, for small taxpayers, the upper limit should be
reduced to Rs 1,000 at the most.
40.7-6 Rectification of errors or omissions in return under GSTR-1
Any registered person, who has furnished the details under section 37(1) for any tax period
and which have remained unmatched under section 42 or section 43 of CGST Act, shall, upon
discovery of any error or omission therein, rectify such error or omission in such manner as
may be prescribed, and shall pay tax and interest, if any, in case there is short payment of
tax on account of such error or omission, in return to be furnished for such tax period -
section 37(3) of CGST Act.
No rectification of error or omission in respect of the details furnished under section 37(1)
of CGST Act shall be allowed after furnishing of the return under section 39 for the month of
September following the end of the financial year to which such details pertain, or furnishing
of the relevant annual return, whichever is earlier - first proviso to section 37(3) of CGST Act.
40.7-7 Bar in filing GSTR-1 in case of certain contraventions
As per rule 59(6) of CGST and SGST Rules, 2017 inserted w.e.f. 1-1-2021, a registered person
will not be allowed file GSTR-1 return in following situations.
(a) a registered person shall not be allowed to furnish the details of outward supplies of
goods or services or both under section 37 in form GSTR-1, if he has not furnished
the return in form GSTR-3B for preceding two months.
(b) a registered person, required to furnish return for every quarter under the proviso
to section 39(1), shall not be allowed to furnish the details of outward supplies of
goods or services or both under section 37 in form GSTR-1 or using the invoice
furnishing facility, if he has not furnished the return in form GSTR-3B for preceding
tax period.
(c) a registered person, who is restricted from using the amount available in electronic
credit ledger to discharge his liability towards tax in excess of 99% of such tax liability
under rule 86B, shall not be allowed to furnish the details of outward supplies of
goods or services or both under section 37 in form GSTR-1 or using the invoice
furnishing facility, if he has not furnished the return in form GSTR-3B for preceding
tax period.

40.7-8 System computed values of GSTR-1 Statement in Form GSTR-3B as PDF statement
on GST Portal
A pdf statement has been made available to taxpayers, filing monthly GSTR-1 statement,
with system computed values of Table 3 of Form GSTR-3B. This PDF will be prepared on the
basis of the values reported by them in their GSTR-1 statement, for the said tax period. This
PDF will be available on their GSTR-3B dashboard, from tax period of August 2020 onwards,
 830

containing the information of GSTR-1 filed by them on or after 4th September, 2020. This
will make filing of their Form GSTR-3B easier for them. This facility is provided to all taxpayers
registered as a Normal taxpayer, SEZ Developer, SEZ unit and casual taxpayer.
Following Tables of Form GSTR-3B will be auto drafted, on basis of values reported in GSTR-
1 statement, for the said period: (1) 3.1(a) - Outward taxable supplies (other than zero rated,
nil rated and exempted) (2). 3.1(b) - Outward taxable supplies (zero rated) (3) 3.1(c) - Other
outward supplies (Nil rated, exempted) (4) 3.1(e) - Non-GST outward supplies (5) 3.2 -
Supplies made to un-registered persons (6) 3.2 - Supplies made to composition taxable
persons (7) 3.2 - Supplies made to UIN holders.
In case, any of the above values is negative as per GSTR-1 statement, those figures would be
mentioned as Zero in the auto-drafted PDF and will not be carried forward to next period.
Turnover & tax are computed after taking into account credit notes, debit notes,
amendments and advances, if any. Only filed GSTR-1 statements are considered for auto-
population of the values in Form GSTR-3B. 6.
This PDF is only for assistance of taxpayers to get the auto drafted values of Table 3 of their
Form GSTR-3B (as per their filed GSTR 1 statement). Taxpayers, however, are required to
verify and file their Form GSTR-3B, with correct values.
40.8 Simplified procedure for filing Nil return of GSTR-1, GSTR-3B and CMP-08 through
SMS
In a major move towards taxpayer facilitation, the Government has allowed filing of NIL GST
monthly return through SMS in form GSTR-3B w.e.f. 8-6-2020 and GSTR-1 w.e.f. 1-7-2020.
This would substantially improve ease of GST compliance for over 22 lakh registered
taxpayers who had to otherwise log into their account on the common portal and then file
their returns every month. Now, these taxpayers with Nil liability need not log on to the GST
Portal and may file their Nil returns through a SMS. The facility has been extended to CMP-
08 statement also (which is to be filed quarterly by taxable persons paying tax under
composition scheme.
Rule 67A of CGST Rules was inserted for this purpose w.e.f. 8-6-2020.
Nil return through SMS if all entries in form GSTR-3B or GSTR-1 or CMP-08 are Nil i.e. inputs
as well as outputs are Nil -Notwithstanding anything contained in this Chapter, for a
registered person who is required to furnish a Nil return under section 39 in form GSTR-3B
or a Nil details of outward supplies under section 37 in form GSTR-1 or a Nil statement in
FORM GST CMP-08 for a tax period, any reference to electronic furnishing shall include
furnishing of the said return or the details of outward supplies or statement through a short
messaging service using the registered mobile number and the said return or the details of
outward supplies or statement shall be verified by a registered mobile number based One
Time Password facility. - - Explanation.-For the purpose of this rule (rule 67A), a Nil return or
Nil details of outward supplies or Nil statement shall mean a return under section 39 or
details of outward supplies under section 37 or statement under rule 62, for a tax period
that has nil or no entry in all the Tables in FORM GSTR-3B or FORM GSTR-1 or FORM GST
CMP-08, as the case may be - Rule 67A amended w.e.f. 15-10-2020.
 831

FAQs on Filing Nil Form GSTR-1 through SMS released by GSTN on 1-7-2020 - GSTN has
released FAQs on 1-7-2020, in respect of Nil GSTR-1 return through SMS. The highlights of
FAQs are given below.
40.8-1 Procedure for filing Nil GSTR-1 return through SMS
The procedure for filing GSTR-1 Nil return through SMS has been specified in FAQ dated 1-
7-2020 released by GSTN, which is as follows.
Initiate filing - send SMS on 14409 from registered mobile -
NIL<space>R1<space>GSTIN<space>Tax period - for example -. NIL R1 09XXXXXXXXXXXZC
052020. In case of quarterly return, mention last month e.g. NIL R1 09XXXXXXXXXXXZC
062020.
You will receive a code on mobile (OTP). The Code is valid for 30 minutes. Assume you
receive Code as 123456.
Then you send Confirming SMS on 14409- CNF <space>R1<space>Code for Filing e.g. CNF R1
123456.
You will get SMS - Your 09XXXXXXXXXXXZC GSTR-1 for 052020 is filed successfully and
acknowledged vide ARN is AA070219000384. Please use this ARN to track the status of your
return.
For Help - send SMS HELP<Space>R1 e.g. HELP R1. You will get above instructions by SMS.
You can track your return on the GST Portal by logging in to GSTIN account and navigating
to Services>Returns>Track Return Status.
When can Form GSTR-1 be filed as Nil -GSTR-1 can be filed as a nil return if there are no
outward supplies (including supplies on which tax is to be charged on reverse charge basis,
zero rated supplies and deemed exports) during the month or quarter, for which the return
is being filed for.
Who can file Nil GSTR-1 return - Nil GSTR-1 return for a tax period can be filed, if - (a) There
are no Outward Supplies (including supplies on which tax is to be charged on reverse charge
basis, zero rated supplies and deemed exports) during the month or quarter for which the
return is being filed for (b) No Amendments is to be made to any of the supplies declared in
an earlier return (c) No Credit or Debit Notes is to be declared/amended (d) No details of
advances received for services is to be declared or adjusted.
Who is eligible to file GSTR-1 through SMS - Any taxpayer who fulfils below conditions, are
eligible to file Nil Form GSTR-1, through SMS - (a) Taxpayer must be registered as Normal
taxpayer/Casual taxpayer/SEZ Unit/SEZ Developer and must have a valid GSTIN (b) Taxpayer
must have opted for the filing frequency as either monthly or quarterly on the GST Portal (c)
Authorized signatory and his/her phone number must be registered on the GST Portal (d)
There must not be any data in saved or submitted stage in online version of FGSTR-1, on the
GST Portal.
GSTR-1 through SMS not possible if saved data for that month is there - You cannot file Nil
Form GSTR-1 through SMS, for the tax period, for which you have saved data/summary on
the GST Portal. If you have some saved data in your Form GSTR-1 on GST Portal, you need
 832

to either file your Form GSTR-1 through online mode on GST Portal or delete the saved data
from the portal and then file Nil GSTR-1 through SMS.
Filing of GSTR-1 as Nil return mandatory, even if no liability - Filing of Form GSTR-1 is
mandatory for all normal (including SEZ Unit & SEZ developer) and casual taxpayers, even if
there is no business activity in any particular tax period. So, for such tax period(s), the return
can be filed as NIL (if all conditions for filing Nil return are satisfied).
Time period for filing Nil GSTR-1 through SMS - A taxpayer may file Nil Form GSTR-1 through
SMS, anytime on or after the 1st of the subsequent month for which the return is being filed
for. For example, for the calendar month of July 2020, nil return can be filed only on or after
1st August, 2020. Form GSTR-1 for the quarter of April to June can be filed from 1st July
onwards.
Person authorized to file Nil GSTR-1 through SMS, on behalf of the taxpayer - All the
authorized representatives, for a particular GSTIN, are allowed to file Nil Form GSTR-1
through SMS. - - If more than one Authorized Signatories/Representatives have the same
mobile number registered on the GST Portal, such Authorized Signatories cannot file Nil
Form GSTR-1 through SMS. In such scenario, Authorized Signatory first need to update their
mobile number on the GST Portal, through non-core amendment process, by giving unique
mobile number for every authorized signatory for that requested GSTIN. - - Any Authorized
Signatory/Representative with unique mobile number registered on the GST Portal, can file
Nil Form GSTR-1 through SMS.
Person can be Authorized Signatory for more than one GSTIN with same mobile number -
A person can file Nil Form GSTR-1, through SMS for all GSTINs, for whom he is an Authorized
Signatory, from the same mobile number.
Thus, one person can file return for more than one GSTIN.
Repeated SMS in wrong format - If repeated (three times) SMS in incorrect format is sent
from same mobile number, then mobile number gets blocked for 24 hours. You can continue
to file your return on www.gst.gov.in.
If Authorized Signatories have been reset by the Tax Official - In case, Authorized
Signatories have been reset by the Tax Official, you need to first reactivate your User ID by
navigating to GST Portal >Login >here link. Click here to know more about it. After
reactivating your User ID, you can file Nil Form GSTR-1 through SMS.
Where to send SMS for filing Nil GSTR-1 - SMS is to be sent on 14409. GST Portal will check
validation and then send six digit code (OTP). Verification Code is usable only once and will
expire within 30 minutes.
If Code not received within five minutes - Code generation will take around 5 minutes. Even
after waiting, if you have not received code, then you can request for regeneration of Code.
Incorrect Code provided by taxpayer three times - In case, incorrect Verification Code is
provided, more than three times during a day, the GSTIN and Mobile number combination
for that particular day, will be blocked for filing of Nil Form GSTR-1 through SMS only. It is
blocked for 24 hours. You can try filing Nil Form GSTR-1, through SMS, after 24 hours.
However, you can login to the GST Portal to continue filing of Nil Form GSTR-1, through
online mode.
 833

Once Nil Form GSTR-1 through SMS is filed, it is not necessary to file Nil return on GST
Portal - Once you have filed Nil Form GSTR-1 through SMS, you do not need to login to the
GST Portal again to file Nil Form GSTR-1. After successful filing of Nil Form GSTR-1, through
SMS, the status of Form GSTR-1 is changed to Filed on GST Portal.
Nil return filed through SMS cannot be revised - Filed Nil Form GSTR-1, for the requested
tax period, cannot be revised after filing it through SMS.
Tracking the status of my filed Form GSTR-1 return - Navigate to Services >Returns >Track
Return Status option to track the status of your filed Form GSTR-1 return on the GST Portal.
Error Messages, Description and Solution - The requirements for filing Nil return are
explained above. If any of these is not fulfilled, system gives error messages. List of error
messages and its solution is given in FAQs [Not reproduced here for sake of brevity].
Other issues relating to GSTR-1 return by SMS- (a) Return cannot be filed if GST Registration
was cancelled (b) Return cannot be filed for return prior to GST Registration (c) If user ID is
not activated/re-activated on GST portal, return cannot be filed.
40.9 Ascertaining details of inward supplies
The details of supplies uploaded by supplier in his GSTR-1 or using IFF appear in GSTR-2A of
recipient of the goods or services or both, to enable the recipient to avail Input Tax Credit.
Similarly, details of invoices of ISF, details of TDS, TCS are also made available to recipient,
as follows.
Details of outward supplies furnished by supplier in GSTR-1 or IFF - The details of outward
supplies furnished by the supplier in form GSTR-1 or using the IFF shall be made available
electronically to the concerned registered persons (recipients) in Part A of form GSTR-2A, in
form GSTR-4A and in form GSTR-6A through the common portal, as the case may be - Rule
60(1) of CGST Rules, w.e.f. 1-1-2021.
Details of invoices furnished by non-resident taxable person - The details of invoices
furnished by an non-resident taxable person in his return in form GSTR-5 under rule 63 shall
be made available to the recipient of credit in Part A of form GSTR-2A electronically through
the common portal - Rule 60(2) of CGST Rules, w.e.f. 1-1-2021.
Details of invoices furnished by Input Service Distributor - The details of invoices furnished
by an Input Service Distributor in his return in form GSTR-6 under rule 65 shall be made
available to the recipient of credit in Part B of form GSTR-2A electronically through the
common portal - Rule 60(3) of CGST Rules, w.e.f. 1-1-2021.
Details of TDS - The details of tax deducted at source furnished by the deductor under
section 39(3) in FORM GSTR-7 shall be made available to the deductee in Part C of FORM
GSTR-2A electronically through the common portal - Rule 60(4) of CGST Rules, w.e.f. 1-1-
2021.
Details of TCS - The details of tax collected at source furnished by an e-commerce operator
under section 52 in FORM GSTR-8 shall be made available to the concerned person in Part C
of FORM GSTR-2A electronically through the common portal - Rule 60(5) of CGST Rules,
w.e.f. 1-1-2021.
 834

Details of IGST paid by SEZ or IGST paid on imports - The details of the integrated tax paid
on the import of goods or goods brought in domestic Tariff Area from Special Economic Zone
unit or a Special Economic Zone developer on a bill of entry shall be made available in Part
D of FORM GSTR-2A electronically through the common portal - Rule 60(6) of CGST Rules,
w.e.f. 1-1-2021.
40.9-1 Auto-drafted statement of ITC in GSTR-2B
As per Rule 60(7) of CGST Rules, w.e.f. 1-1-2021, an auto-drafted statement containing the
details of input tax credit shall be made available to the registered person in FORM GSTR-
2B, for every month, electronically through the common portal. GSTR-2B JSON files can be
downloaded from GST portal.
The GSTR-2B, shall consist of following:
Details of outward supplied furnished by supplier in form GSTR-1 on monthly basis - the
details of outward supplies furnished by his supplier, other than a supplier required to
furnish return for every quarter under proviso to section 39(1), in form GSTR-1, between the
day immediately after the due date of furnishing of form GSTR-1 for the previous month to
the due date of furnishing of form GSTR-1 for the month.
Details of other invoices of supplier - the details of invoices furnished by a non-resident
taxable person in form GSTR-5 and details of invoices furnished by an Input Service
Distributor in his return in FORM GSTR-6.
Details of invoices uploaded by supplier using QRMP facility - the details of outward
supplies furnished by his supplier, required to furnish return for every quarter under proviso
to section 39(1), inform GSTR-1 or using the IFF, as the case may be, (a) for the first month
of the quarter, between the day immediately after the due date of furnishing of form GSTR-
1 for the preceding quarter to the due date of furnishing details using the IFF for the first
month of the quarter (b) for the second month of the quarter, between the day immediately
after the due date of furnishing details using the IFF for the first month of the quarter to the
due date of furnishing details using the IFF for the second month of the quarter (c) for the
third month of the quarter, between the day immediately after the due date of furnishing
of details using the IFF for the second month of the quarter to the due date of furnishing of
form GSTR-1 for the quarter.
Details of IGST on imports or supplied by SEZ - the details of the integrated tax paid on the
import of goods or goods brought in the domestic Tariff Area from Special Economic Zone
unit or a Special Economic Zone developer on a bill of entry in the month.
40.9-2 When GSTR-2B will be available to recipient
The Statement in form GSTR-2B for every month shall be made available to the registered
person, as follows -
(i) for the first and second month of a quarter, a day after the due date of furnishing of
details of outward supplies for the said month, in the IFF by a registered person
required to furnish return for every quarter under proviso to section 39(1), or in form
GSTR-1 by a registered person, other than those required to furnish return for every
quarter under proviso to section 39(1), whichever is later.
 835

(ii) in the third month of the quarter, a day after the due date of furnishing of details of
outward supplies for the said month, in form GSTR-1 by a registered person required
to furnish return for every quarter under proviso to section 39(1).- Rule 60(8) of CGST
Rules, w.e.f. 1-1-2021.

40.9-3 Offline tool for matching GSTR-2B with purchase register of recipient
GSTN has developed offline tool for viewing form GSTR-2B and matching auto drafted details
in form GSTR-2B with purchase register of recipient of goods and services. GSTR-2B JSON
files can be downloaded from GST portal and then matching can be done offline also.
Matching results can be seen in CSV format. FAQ and User Manual are available on GSTN -
GSTN press release dated 17-9-2020.
40.10 Annual return GSTR-4 by taxable person paying tax under composition scheme
A registered person paying tax under the provisions of section 10 of CGST Act [composition
scheme], shall, for each financial year or part thereof, furnish a return, electronically, of
turnover in the State or Union territory, inward supplies of goods or services or both, tax
payable, tax paid and such other particulars in such form and manner, and within such time,
as may be prescribed. - section 39(2) of CGST Act, 2017 as substituted w.e.f. 1-1-2021.
Nil return is required even if there is no transaction in a financial year.
Commissioner can extend date of filing return by issuing notification - section 39(6) of CGST
Act.
Registered persons availing composition scheme do not have to file monthly returns of
receipt and supplies of goods/services under sections 37 and 38 of CGST Act.
The taxable person paying GST under composition scheme was required to file quarterly
return, within 18 days after end of each quarter upto FY 2018-19 - section 39(2) of CGST Act.
40.10-1 Payment of taxes by registered person under composition scheme under form GST
CMP-08
Registered person under composition scheme is required to pay tax quarterly and file return
annually. While paying quarterly tax, a statement in form GST CMP-08 is required to be
submitted.
Every registered person furnishing return under section 39(2) of CGST Act [composition
scheme] shall pay to the Government, the tax due taking into account turnover in the State
or Union territory, inward supplies of goods or services or both, tax payable, and such other
particulars during a quarter, in such form and manner, and within such time, as may be
prescribed - second proviso to section 39(7) of CGST Act, 2017 as substituted w.e.f. 1-1-2021.
Every registered person paying tax under section 10 of CGST Act (composition scheme) shall
furnish a statement, every quarter or, as the case may be, part thereof, containing the details
of payment of self-assessed tax in form GST CMP-08, till the 18 day of the month succeeding
such quarter - Rule 62(1)(i) of CGST Rules, amended w.e.f. 1-1-2021.
Every registered person furnishing the statement under rule 62(1) shall discharge his liability
towards tax or interest payable under the Act or the provisions of this Chapter by debiting
the electronic cash ledger - Rule 62(2) of CGST Rules amended w.e.f. 1-1-2021.
Thus, tax is required to be paid in cash and not by utilisation of Input Tax Credit.
 836

GST CMP-08 can be filed through SMS - rule 67A amended w.e.f. 15-10-2020.
40.10-2 Annual Return GSTR-4 under Composition Scheme
Every registered person paying tax under section 10 of CGST Act (composition scheme) shall
furnish a return for every financial year or, as the case may be, part thereof in form GSTR-4,
till the thirtieth day of April following the end of such financial year, electronically through
the common portal, either directly or through a Facilitation Centre notified by the
Commissioner - Rule 62(1)(ii) of CGST Rules amended w.e.f. 1-1-2021.
The return furnished under rule 62(1) shall include the- (a) invoice-wise inter-State and intra-
State inward supplies received from registered and unregistered persons; and (b)
consolidated details of outward supplies made - Rule 62(3) of CGST Rules amended w.e.f. 1-
1-2021.
Details of inward supplies are not to be furnished in GSTR-4 - Taxable persons under
composition scheme are not required to furnish details of inward supplies in sr. No. 4A of
table 4 of form GSTR-4 - CBI&C press release No. 61/2018 dated 17-10-2018.
40.10-3 Registered person shifting from normal scheme to composition scheme at
beginning of financial year
A registered person who has opted to pay tax under section 10 of CGST Act (composition
scheme) from the beginning of a financial year shall, where required, furnish the details of
outward and inward supplies and return under rules 59, 60 and 61 relating to the period
during which the person was liable to furnish such details and returns till the due date of
furnishing the return for the month of September of the succeeding financial year or
furnishing of annual return of the preceding financial year, whichever is earlier - Rule 62(4)
of CGST Rules amended w.e.f. 1-1-2021.
For the purposes of rule 62(4), it is hereby declared that the person shall not be eligible to
avail input tax credit on receipt of invoices or debit notes from the supplier for the period
prior to his opting for the composition scheme - Explanation to Rule 62(1) of CGST Rules
amended w.e.f. 1-1-2021.
40.10-4 Switching from composition scheme to normal scheme
A registered person opting to withdraw from the composition scheme at his own motion or
where option is withdrawn at the instance of the proper officer shall, where required,
furnish a statement in form GST CMP-08 for the period for which he has paid tax under the
composition scheme till the 18th day of the month succeeding the quarter in which the date
of withdrawal falls and furnish a return in form GSTR-4 for the said period till the thirtieth
day of April following the end of the financial year during which such withdrawal falls - Rule
62(5) of CGST Rules amended w.e.f. 1-1-2021.
40.11 Final return GSTR-10 after cancellation of GST registration
Every registered taxable person who is required to file return under section 39(1) of CGST
Act and whose registration has been cancelled shall furnish a final return within three
months of the date of cancellation or date of cancellation order, whichever is later - section
45 of CGST Act.
In my view, really such return should be filed before cancellation of registration.
 837

An input service distributor, a non-resident taxable person and a person paying tax under
the provisions of section 10 (composition scheme), section 51 (TDS) or section 52 (TCS by e-
commerce operator) is not required to file return under section 39 of CGST Act. Hence, they
are not required to file final return after cancellation.
Procedure for filing final return - Every registered taxable person required to furnish a final
return under section 45, shall furnish such return electronically in Form GSTR-10 - Rule 81 of
CGST and SGST Rules, 2017.
In case of persons whose registration is cancelled before 30-9-2018, the GSTR-10 can be filed
before 31-12-2018 - Notification No. 58/2018-CT dated 26-10-2018.
Reduced late fee if GSTR-10 returned file late - Late fee is only Rs 500 if GSTR-10 return is
filed before 31-12-2020, even if filed late - Notification No. 68/2020-CT dated 21-9-2020.
40.12 Submission of return by non-resident taxable person in form GSTR-5
Every registered non-resident taxable person shall furnish a return in form GSTR-5
electronically through the Common Portal.
The return should include details of outward supplies and inward supplies. He shall pay the
tax, interest, penalty, fees or any other amount payable under the Act or these rules within
twenty days after the end of a tax period or within seven days after the last day of the validity
period of registration, whichever is earlier - Rule 63 of CGST and SGST Rules, 2017.
Late fee if GSTR-5 return not filed in time - Fee for late filing of return is Rs 25 per day of
CGST and SGST/UTGST each [total Rs 50 per day]. In case of Nil return, the late fee is Rs 10
per day of CGST and SGST/UTGST each [total Rs 20 per day] - Notification No. 5/2018-CT
dated 23-1-2018.
However, the upper ceiling of Rs 10,000 per return is not changed. [Rs 5,000 for CSGT and
Rs 5,000 for SGST/UTGST]. Thus, maximum late fee continues to be Rs 10,000 per return.
Really, for small taxpayers, the upper limit should be reduced to Rs 1,000 at the most.
40.13 Return in case of OIDAR services in form GSTR-5A
In case of OIDAR services, return will be in form GSTR-5A every month before twentieth day
of succeeding month - Rule 64 of CGST and SGST Rules, 2017.
Late fee if GSTR-5A return not filed in time - Fee for filing late return is Rs 100 per day for
CGST plus Rs 100 per day for SGST (total Rs 200).
The upper ceiling is Rs 10,000 per return [Rs 5,000 for CGST plus Rs 5,000 for SGST/UTGST].
Thus, maximum late fee will be Rs 10,000 per return.
Persons supplying OIDAR services from out of India to a person in India need not file GSTR-
9 and GSTR-9C - Persons supplying OIDAR services from out of India to a person in India,
other than a registered person need not file GSTR-9 (Annual Return) and GSTR-9C (Audit
Report i.e. reconciliation statement) - Notification No. 30/2019-CT dated 28-6-2019.
40.14 Return by Input Service Distributor in form GSTR-6
In case of Input Service Distributor, return will be in form GSTR-6 every month before
thirteenth day of succeeding month - section 39(4) of CGST Act and Rule 65 of CGST and
SGST Rules, 2017.
 838

Late fee if GSTR-6 return not filed in time - Fee for late filing of GSTR-6 return is Rs 25 per
day of CGST and SGST/UTGST each [total Rs 50 per day].- Notification No. 7/2018-CT dated
23-1-2018.
However, the upper ceiling of Rs 10,000 per return is not changed. Thus, maximum late fee
continues to be Rs 10,000 per return. Really, for small taxpayers, the upper limit should be
reduced to Rs 1,000 at the most.
40.15 Details of inward supplies of persons having Unique Identity Number (UIN)
UN Agencies, Embassies, Consulates etc. are entitled to get refund of GST paid by them on
goods and services received by them. However, they do not have to pay GST. They get UIN
(Unique Identity Number) for this purpose.
Every person, who has been issued a Unique Identity Number (UIN) and claims refund of the
taxes paid on his inward supplies, shall furnish the details of such supplies of taxable goods
or services or both in form GSTR-11 electronically along with application for refund claim -
Rule 82(1) of CGST and SGST Rules, 2017.
Every person, who has been issued a Unique Identity Number for purposes other than refund
of the taxes paid, shall furnish the details of inward supplies of taxable goods or services or
both as may be required by the proper officer in form GSTR-11 - Rule 82(2) of CGST and SGST
Rules, 2017.
Deputy/Assistant Commissioner of Central Tax has been designated as 'proper officer' for
the purpose of requiring details of inward supplies - CBI&C circular No. 3/3/2017-GST dated
5-7-2017 [State Government will prescribe 'proper officer' for purpose of SGST in the
respective State].
40.16 Annual Return and Annual Audit Report under GST
GST Act makes provisions for Annual Return. These reports are required to be filed for each
financial year (April-March) by 31st December after close of financial year.
Annual return with self-certified reconciliation statement will have to be submitted.
Commissioner in Board (not jurisdictional Commissioner) can exempt any class of registered
persons from filing annual return. Department of State Government or Central Government
or local authority whose accounts are subject to C&AG audit are not required to submit such
annual return - section 44 of CGST Act substituted vide Section 111 of Finance Act, 2021
w.e.f. date to be notified.
The statutory provisions are as follows -
Every registered person, other than an Input Service Distributor, a person paying tax under
section 51 [TDS] or section 52 [TCS], a casual taxable person and a non-resident taxable
person shall furnish an annual return which may include a self-certified reconciliation
statement, reconciling the value of supplies declared in the return furnished for the financial
year, with the audited annual financial statement for every financial year electronically,
within such time and in such form and in such manner as may be prescribed - section 44 of
CGST Act substituted vide section 111 of Finance Act, 2021 w.e.f. date to be notified.
The Commissioner may, on the recommendations of the Council, by notification, exempt
any class of registered persons from filing annual return under section 44 of CGST Act - first
 839

proviso to section 44 of CGST Act substituted vide section 111 of Finance Act, 2021 w.e.f.
date to be notified.
Nothing contained in section 44 shall apply to any department of the Central Government
or a State Government or a local authority, whose books of account are subject to audit by
the Comptroller and Auditor-General of India or an auditor appointed for auditing the
accounts of local authorities under any law for the time being in force - second proviso to
section 44 of CGST Act substituted vide section 111 of Finance Act, 2021 w.e.f. date to be
notified.
Every person is required to file monthly/quarterly return in form GSTR-3B.
Taxable person paying GST under composition scheme (under section 10 of CGST Act) is
required to file yearly return in form GSTR-4.
In addition to monthly/quarterly return, a taxable person has to file Annual Return in form
GSTR-9.
Annual return has to be filed by 31st December following the close of financial year under
section 44 of CGST Act.
The Annual Return (in form GSTR-9) is basically summary of the monthly/quarterly returns
filed by a taxable person. The Annual Return is to be accompanied by Annual Audit Report
in case of taxable persons having aggregate turnover exceeding Rs two crores in the financial
year [The monetary limit is Rs five crores for FY 2018-19]
Persons supplying OIDAR services from out of India to a person in India need not file GSTR-
9 and GSTR-9C - Persons supplying OIDAR services from out of India to a person in India,
other than a registered person need not file GSTR-9 (Annual Return) and GSTR-9C (Audit
Report i.e. reconciliation statement) - Notification No. 30/2019-CT dated 28-6-2019.
Late fee if annual return not filed in time - Late fee will be payable if annual return is filed
after the due date.
Extension of time limit for filing annual returns - For financial year 2019-20, the annual
return is to be filed before 28-2-2021 - Notification No. 95/2020-CT, dated 30-12-2020.
Relaxations/exemptions in respect of annual return for small taxable persons - A person
paying tax under section 10 of CGST Act (composition scheme) was required to file the
annual return in form GSTR-9A - proviso to rule 80(1) of CGST and SGST Rules, 2017.
However, this requirement has been waived for FYs 2017-18 and 2018-19.
Similarly, for taxable persons with aggregate turnover less than Rs 2 crores, filing of return
in form GSTR-9 is optional for FYs 2017-18, 2018-19 and 2019-20. Annual return shall be
deemed to have been furnished on due date - Notification No. 47/2019-CT dated 9-10-2019
amended on 15-10-2020.
Since the return is deemed to have been furnished on due date, the return will not be
accepted by common portal. If there is short payment of tax or ineligible availment of ITC,
the amount may be paid through form GST DRC-03 - CBI&C circular 124/43/2019-CT dated
18-11-2019.
Nil Annual Return required - Persons have to file Nil Annual return if they are not paying
GST, so long as they are registered under GST.
 840

40.16-1 Separate Annual return for each GSTIN

If a taxable person with same Income Tax PAN has multiple GSTIN, separate annual return
in GSTR-9 and separate annual audit report in form GSTR-9C is required for each GSTIN. Thus,
the Annual Financial Statement of a taxable has to be first split into separate statement for
each GSTIN.
40.16-2 Procedure for filing Annual Return in form GSTR-9
An annual return as specified under section 44(1) of CGST Act will be filed electronically in
form GSTR-9 through the Common Portal, by taxable persons other than those paying GST
under composition scheme.
A person paying tax under section 10 of CGST Act (composition scheme) was required to file
the annual return in form GSTR-9A - proviso to rule 80(1) of CGST and SGST Rules, 2017.
Now, such filing is optional for FYs 2017-18 and 2018-19.
Similarly, for taxable persons with aggregate turnover less than Rs 2 crores, filing of return
in form GSTR-9 is optional for FYs 2017-18, 2018-19 and 2019-20. Annual return shall be
deemed to have been furnished on due date - Notification No. 47/2019-CT dated 9-10-2019
amended on 15-10-2020.
40.16-3 Annual Return is not to be used to claim ITC
The Annual Return is broadly a summary of turnover, Input Tax Credit (ITC) availed, Tax
payable and tax paid. Annual Return cannot be used to claim ITC.
If turnover was not disclosed in these returns, it can be declared through form DRC-03. This
liability is to be paid through electronic cash ledger only. Electronic Credit Ledger cannot be
used for this purpose.
40.16-4 No provision in GSTR-9 or GSTR-9A to add comments or clarification
There is no provision in GSTR-9 or GSTR-9A Annual Return forms to add any comment,
explanation, declaration or clarification. Thus, if taxable person intends to add any comment,
explanation, declaration or clarification, the only alternative is to write separate letter to
jurisdictional tax authorities.
40.16-5 GSTR-9A Annual return by Composition Dealers
The GSTR-9A return is simpler compared to GSTR-9 return as details regarding Input Tax
Credit are not to be given.
The requirement of GSTR-9A return to be filed by composition dealers has been waived for
FYs 2017-18 and 2018-19.
Most probably, this return will be waived as composition dealers are required to file annual
return in form GSTR-4.
40.17 Reconciliation of Annual Return with Annual Financial Statement in form GSTR-9C
The form of annual return does not require reconciliation with Annual Financial Statement
(Balance Sheet and Profit and Loss Account) of taxable person. However, taxable persons
whose aggregate turnover exceeds Rs two crores in a financial year have to submit Audit
Report in form GSTR-9C. This form is basically reconciliation statement which is required to
be duly audited. The reconciliation is required with Annual Financial Statement of the
taxable person.
 841

This provision is being omitted vide sections 110 and 111 of Finance Act, 2021 from date to
be notified and hence may not apply for FY 2021-22 or even for 2020-21.
The monetary limit for getting the accounts audited and filing GSTR-9C audit report has been
increased to Rs five crores for financial years 2018-19 and 2019-20 - proviso to rule 80(3) of
CGST Rules inserted w.e.f. 23-3-2020 and amended on 15-10-2020.
40.17-1 Audit report in form GSTR-9C if aggregate turnover exceeds Rs two crores
This provision is being omitted vide sections 110 and 111 of Finance Act, 2021 from date to
be notified and hence may not apply for FY 2021-22 or even for 2020-21.
Every registered person who is required to get his accounts audited in accordance with the
provisions of section 35(5) of CGST Act shall furnish, electronically, the annual return under
section 44(1) along with a copy of the audited annual accounts and a reconciliation
statement, reconciling the value of supplies declared in the return furnished for the financial
year with the audited annual financial statement, and such other particulars as may be
prescribed - section 44(2) of CGST Act.
Every registered person, other than those referred to in the proviso to section 35(5) of CGST
Act, whose aggregate turnover during a financial year exceeds two crore rupees [The limit is
Rs five crores for FYs 2018-19 and 2019-20] shall get his accounts audited as specified under
section 35(5) of CGST Act and he shall furnish a copy of audited annual accounts and a
reconciliation statement, duly certified, in form GSTR-9C, electronically - Rule 80(3) of CGST
and SGST Rules, 2017 amended on 15-10-2020.
[The words in italics inserted w.e.f. 1-2-2019. The effect of the amendment is that the
audited reconciliation statement is not required to be submitted in case of Government
departments whose accounts are audited by C&AG].
The audit report is required to be filed along with annual return.
The audit of reconciliation statement can be conducted either by person who conducted the
audit of annual financial statement of the company or by any other practicing CA/CMA.
The reconciliation statement is to be filed for every GSTIN separately.
Government or local authority not required to submit audit report - Government or local
authority is not required to submit audit report, if their account are audited by C&AG -
proviso to section 35(5) of CGST Act as amended by GST (Amendment) Act, 2018 w.e.f. 1-2-
2019.
Note that PSU or Board is not 'Government' or 'local authority' and this relaxation is not
applicable to PSU or Board.
Foreign airlines company need not file statement in form GSTR-9C, but have to file
statement of receipts and payments - A foreign company which is an airlines company
covered under the notification issued under section 381(1) of the Companies Act, 2013 and
who have complied with the rule 4(2) of the Companies (Registration of Foreign Companies)
Rules, 2014, shall not be required to furnish reconciliation statement in form GSTR-9C.
However, they are required to submit that a statement of receipts and payments for the
financial year in respect of its Indian Business operations, duly authenticated by a practicing
Chartered Accountant in India or a firm or a Limited Liability Partnership of practicing
 842

Chartered Accountants in India, by the 30th September of the year succeeding the financial
year - Notification No. 9/2020-CT dated 16-3-2020.
40.17-2 If total turnover of person exceeds Rs two crores, Audit report required for each
branch/division
The definition of 'aggregate turnover' is clear that it includes turnover of a person having the
same Income Tax PAN, to be computed on all India basis.
Thus, if a taxable entity having multiple GSTIN has aggregate turnover as per its Annual
Financial Statement, separate reconciliation statement and Audit Report is required form
each branch/division/factory even if aggregate turnover of such branch/division/factory is
less than specified limit per annum.
40.18 Late fee for late filing of details and returns
Any registered taxable person who fails to furnish the details of outward or inward supplies
required under section 37 or 38 returns required under section 39 or section 45 by the due
date shall be liable to a late fee of rupees one hundred for every day during which such
failure continues subject to a maximum of amount of rupees five thousand - section 47(1)
of CGST Act.
Any registered taxable person who fails to furnish the return required under section 44
(annual return) by the due date shall be liable to a late fee of rupees one hundred for every
day during which such failure continues subject to a maximum of an amount calculated at a
quarter per cent of his turnover in the State or Union Territory [0.25% of turnover in State
or Union Territory- it can be huge amount] - section 47(2) of CGST Act.
Rationalisation of late fee payable in case of some returns - Late fee upto Rs 10,000 per
return [Rs 5,000 under CGST and Rs 5,000 under SGST/UTGST] with late fee of Rs 200 per
day [Rs 5,000 under CGST and Rs 5,000 under SGST/UTGST] is too high, at least for small
taxable persons.
Hence, it has been rationalized at Rs 50 per day of delay [Rs 25 CGST and Rs 25 SGST/UTGST]
for some returns.
These relaxations are only for GSTR-1, GSTR-3B, GSTR-4, GSTR-5 and GSTR-6 returns-
Notification Numbers 4/2018-CT to 7/2018-CT all dated 23-1-2018 and No. 73/2017-CT
dated 29-12-2017.
In case of Nil return, the late fee is Rs 20 per day of delay [Rs 10 CGST and Rs 10 SGST/UTGST].
This relaxation is for GSTR-1, GSTR-3B, GSTR-4 and GSTR-5 returns.
However, the upper ceiling of Rs 10,000 per return is not changed. Thus, maximum late fee
continues to be Rs 10,000 per return. Really, for small taxpayers, the upper limit should be
reduced to Rs 1,000 at the most.
40.19 Standard Operating Procedure to be followed in case of non-filers of returns
CBI&C has issued Circular No. 129/48/2019 - GST dated 24-12-2019 giving Standard
Operating Procedure to be followed in case of registered persons who has not filed returns
(termed as 'defaulter'. The procedure is as follows.
Statutory provisions - Section 46 of the CGST Act read with rule 68 of the Central Goods and
Services Tax Rules, 2017 requires issuance of a notice in form GSTR-3A to a registered person
 843

who fails to furnish return under section 39 or section 44 or section 45 of CGST Act
(hereinafter referred to as the "defaulter") requiring him to furnish such return within fifteen
days. Further section 62 of CGST Act provides for assessment of non-filers of return of
registered persons who fails to furnish return under section 39 or section 45 of CGST Act,
even after service of notice under section 46.
No separate notice for best judgment assessment - Form GSTR-3A contains notice for best
judgment assessment. Hence, no separate notice is required to be issued for best judgment
assessment under section 62 of CGST Act. In case of failure to file return within 15 days of
issuance of FORM GSTR-3A, the best judgment assessment in FORM ASMT-13 can be issued
without any further communication.
Reminder for filing return before due date - Preferably, a system generated message would
be sent to all the registered persons 3 days before the due date to nudge them about filing
of the return for the tax period by the due date.
System generated mail/message to defaulters after due date of return - Once the due date
for furnishing the return under section 39 of CGST Act is over, a system generated
mail/message would be sent to all the defaulters immediately after the due date to the
effect that the said registered person has not furnished his return for the said tax period;
the said mail/message is to be sent to the authorized signatory as well as the
proprietor/partner/director/karta etc.
Notice in GSTR-3A five days after due date of filing of return - Five days after the due date
of furnishing the return, a notice in FORM GSTR-3A shall be issued electronically to such
registered person who fails to furnish return under section 39 of CGST Act, requiring him to
furnish such return within fifteen days.
Best judgment assessment if return not filed within 15 days - In case the return is still not
filed by the defaulter within 15 days of the said notice, the proper officer may proceed to
assess the tax liability of the said person under section 62 of the CGST Act, to the best of his
judgment taking into account all the relevant material which is available or which he has
gathered and would issue order under rule 100 of the CGST Rules in FORM GST ASMT-13.
The proper officer would then be required to upload the summary thereof in FORM GST
DRC-07.
Factors to be considered while making best judgment assessment -For the purpose of
assessment of tax liability under section 62 of the CGST Act, the proper officer may take into
account the details of outward supplies available in the statement furnished under section
37 of CGST Act (FORM GSTR-1), details of supplies auto-populated in FORM GSTR-2A,
information available from e-way bills, or any other information available from any other
source, including from inspection under section 71 of CGST Act.
Best judgment abates if return filed within 30 days - In case the defaulter furnishes a valid
return (valid return means with tax paid) within thirty days of the service of assessment
order in FORM GST ASMT-13, the best judgment assessment order shall be deemed to have
been withdrawn as per section 62(2) of the CGST Act.
Recovery proceedings if return not filed within 30 days - If the return remains unfurnished
within the statutory period of 30 days from issuance of order in FORM ASMT-13, the proper
 844

officer may initiate proceedings under section 78 and recovery under section 79 of the CGST
Act.
Provisional attachment in deserving cases - In deserving cases, based on the facts of the
case, the Commissioner may resort to provisional attachment to protect revenue under
section 83 of the CGST Act before issuance of FORM GST ASMT-13.
Cancellation of GST Registration - The proper officer would initiate action under section
29(2) of the CGST Act for cancellation of registration in cases where the return has not been
furnished for the period specified in section 29 of CGST Act.
 845

Assessment and Audit

41.1 Meaning of 'assessment'
Assessment means determining the tax liability.
'Assess' in a taxing statute means the computation of the income of assessee, the
determination of tax payable by him, and the procedure for collecting or recovering the tax
- Bhopal Sugar Industries v. State of MP - AIR 1979 SC 537 = (1979) 3 SCC 792 - similar view
in J K Iron v. ITO AIR 1967 All 248 = 65 ITR 386 (All HC).
The word 'assessment' can comprehend the whole procedure for ascertaining and imposing
liability upon the taxpayer - Kalavati Devi v. CIT AIR 1968 SC 162 = 66 ITR 680 (SC).
"Assessment" means determination of tax liability under this Act and includes self-
assessment, re-assessment, provisional assessment, summary assessment and best
judgment assessment - section 2(11) of CGST Act.
41.1-1 Self-Assessment in GST
Every registered taxable person shall self assess the taxes payable under this Act and furnish
a return for each tax period as specified under section 39 of CGST Act- section 59 of CGST
Act.
41.2 Provisional Assessment
Where the taxable person is unable to determine the value of goods or services or both or
determine the rate of tax applicable thereto, he may request the proper officer in writing
giving reasons for payment of tax on a provisional basis and the proper officer shall pass an
order, within a period not later than ninety days from the date of receipt of such request,
allowing payment of tax on provisional basis at such rate or on such value as may be specified
by him - section 60(1) of CGST Act.
Authority empowered to order and finalise provisional assessment - Deputy/Assistant
Commissioner of Central Tax has been designated as 'proper officer' for the purpose of
ordering and finalising provisional assessment under section 60(1) of CGST Act, read with
rule 98 of CGST Rules- CBE&C circular No. 3/3/2017-GST dated 5-7-2017 [State Government
will prescribe 'proper officer' for purpose of SGST in the respective State].
Bond with security - The payment of tax on provisional basis may be allowed, if the taxable
person executes a bond in such form as may be prescribed, and with such surety or security
as the proper officer may deem fit, binding the taxable person for payment of the difference
between the amount of tax as may be finally assessed and the amount of tax provisionally
assessed - section 60(2) of CGST Act.
Final assessment within six months - The proper officer shall, within a period not exceeding
six months from the date of the communication of the order under section 60(1), pass the
final assessment order after taking into account such information as may be required for
finalizing the assessment.
The period specified in this sub-section may, on sufficient cause being shown and for reasons
to be recorded in writing, be extended by the Joint/Additional Commissioner for a further
period not exceeding six months and by the Commissioner for such further period not
exceeding four years - section 60(3) of CGST Act.
 846

Interest payable if tax payable after final assessment is more than tax earlier paid - The
registered person shall be liable to pay interest on any tax payable on the supply of goods
or services or both under provisional assessment but not paid on the due date specified
under section 39(7) of CGST Act or the rules made thereunder, at the rate specified under
section 50(1) of CGST Act, from the first day after the due date of payment of tax in respect
of the said supply of goods or services or both till the date of actual payment, whether such
amount is paid before or after the issuance of order for final assessment - section 60(4) of
CGST Act.
Refund if tax payable was less - Where the taxable person is entitled to a refund consequent
to the order for final assessment under section 60(3), interest shall be paid on such refund
as provided in section 60(5). Such refund is subject to doctrine of unjust enrichment [section
54(8)] - section 60(5) of CGST Act.
41.2-1 Procedure for Provisional Assessment
Application for provisional application shall be made inform GST ASMT-01, along with the
documents in support of his request, electronically through the Common Portal - Rule 98(1)
of CGST and SGST Rules, 2017.
The proper officer may, on receipt of the application for provisional assessment, issue a
notice inform GST ASMT-02 requiring the registered person to appear in person or furnish
additional information or documents in support of his request. The applicant shall file a reply
to the notice inform GST ASMT-03 - Rule 98(2) of CGST and SGST Rules, 2017.
41.2-2 Order accepting or rejecting application for provisional assessment
The proper officer shall issue an order in form GST ASMT-04, either rejecting the application,
stating the grounds for such rejection or allowing payment of tax on provisional basis
indicating the value or the rate or both on the basis of which the provisional assessment is
to be made and the amount for which the bond is to be executed and security to be
furnished not exceeding 25% of the amount covered under the bond - Rule 98(3) of CGST
and SGST Rules, 2017.
The term "amount" shall include the amount of integrated tax, central tax, State tax or Union
territory tax and cess payable in respect of such transaction - Explanation to Rule 98(4) of
CGST and SGST Rules, 2017.
41.2-3 Execution of bond for provisional assessment
The registered person shall execute a bond in accordance with the provisions of section 60(2)
of CGST Act inform GST ASMT-05 along with a security in the form of a bank guarantee for
an amount as determined by proper officer - Rule 98(4) of CGST and SGST Rules, 2017.
A bond furnished to the proper officer under the SGST Act or IGST Act shall be deemed to
be a bond furnished under the provisions of CGST Act and vice versa.
Deputy/Assistant Commissioner of Central Tax has been designated as 'proper officer' for
the purpose determining amount of bank guarantee and accepting bond- CBE&C circular No.
3/3/2017-GST dated 5-7-2017 [State Government will prescribe 'proper officer' for purpose
of SGST in the respective State].
41.2-4 Calling for information for finalization of provisional assessment
 847

The proper officer shall issue a notice inform GST ASMT-06, calling for information and
records required for finalization of assessment under section 60(3) of CGST Act and shall
issue a final assessment order, specifying the amount payable by the registered person or
the amount refundable, if any, inform GST ASMT-07 - Rule 98(5) of CGST and SGST Rules,
2017.
41.2-5 Application for release of security after finalization of provisional assessment
The applicant may file an application in form GST ASMT-08 for release of security furnished,
after issue of final assessment order - Rule 98(6) of CGST and SGST Rules, 2017.
The proper officer shall release the security after ensuring that the applicant has paid the
amount specified in final assessment. He shall issue an order inform GST ASMT-09 within a
period of seven working days from the date of receipt of the application for release of
security - Rule 98(7) of CGST and SGST Rules, 2017.
41.3 Scrutiny of returns
The proper officer may scrutinize the return and related particulars furnished by the
registered person to verify the correctness of the return and inform him of the discrepancies
noticed, if any, in such manner as may be prescribed and seek his explanation thereto -
section 61(1) of CGST Act.
In case the explanation is found acceptable, the taxable person shall be informed accordingly
and no further action shall be taken in this regard section 61(2) of CGST Act.
In case no satisfactory explanation is furnished within a period of thirty days of being
informed by the proper officer or such further period as may be permitted by him or where
the registered person, after accepting the discrepancies, fails to take the corrective measure
in his return for the month in which discrepancy is accepted, the proper officer may initiate
appropriate action including those under section 65, 66 or 67, or proceed to determine the
tax and other dues under section 73 or section 74 -- section 61(3) of CGST Act.
Superintendent of Central Tax has been designated as 'proper officer' for the purpose of
scrutiny under section 61 - CBE&C circular No. 3/3/2017-GST dated 5-7-2017 [State
Government will prescribe 'proper officer' for purpose of SGST in the respective State].
41.3-1 Procedure for Scrutiny of returns
If any return furnished by a registered person is selected for scrutiny, the proper officer shall
scrutinize the same in accordance with the provisions of section 61 of CGST Act, with
reference to the information available with him. In case of any discrepancy, he shall issue a
notice to the registered person inform GST ASMT-10. He will inform him of discrepancy and
seeking his explanation thereto within such time, not exceeding fifteen days from the date
of service of the notice, as may be specified in the notice. He will also quantify the amount
of tax, interest and any other amount payable in relation to such discrepancy - Rule 99(1) of
CGST and SGST Rules, 2017.
The registered person may accept the discrepancy mentioned in the notice and pay the tax,
interest and any other amount arising from such discrepancy and inform the same or furnish
an explanation for the discrepancy inform GST ASMT-11 to the proper officer - Rule 99(2) of
CGST and SGST Rules, 2017.
 848

If the explanation furnished by the taxable person or the information submitted is found to
be acceptable, the proper officer shall inform the registered person accordingly inform GST
ASMT-12 - Rule 99(3) of CGST and SGST Rules, 2017.
Superintendent of Central Tax has been designated as 'proper officer' for the purpose of
scrutiny of return - CBE&C circular No. 3/3/2017-GST dated 5-7-2017 [State Government will
prescribe 'proper officer' for purpose of SGST in the respective State].
41.4 Best Judgment Assessment of non-filers of returns
If a registered taxable person fails to furnish the return under section 39 or 45, even after
the service of a notice under section 46, the proper officer may proceed to assess the tax
liability of the said person to the best of his judgment taking into account all the relevant
material which is available or which he has gathered and issue an assessment order within
a period of five years from date specified under section 44 for furnishing of the annual return
for the financial year to which the tax not paid relates - section 62(1) of CGST Act.
Superintendent of Central Tax has been designated as 'proper officer' for the purpose of best
judgment assessment under section 62(1) - CBE&C circular No. 3/3/2017-GST dated 5-7-
2017 [State Government will prescribe 'proper officer' for purpose of SGST in the respective
State].
Where the taxable person furnishes a valid return within thirty days of the service of the
assessment order under section 62(1), the said assessment order shall be deemed to have
been withdrawn but the liability for payment of interest under section 50(1) or payment of
late fee under section 47 will continue - section 62(2) of CGST Act.
If valid return is not filed within 30 days, the assessment order cannot be set aside - Softouch
Health Care P Ltd. v. State Tax Officer (2021) 83 GST 88 = 121 taxmann.com 105 (Ker - HC) *
K U Niyas v. AC, SGST (2020) 82 GST 626 = 120 taxmann.com 175 (Ker - HC).
If valid return is filed within 30 days, the assessment order is required to be withdrawn - Joy
Mathew v. UOI (2020) 82 GST 621 = 120 taxmann.com 344 (Ker - HC).
Even if such best judgment assessment is made, payment of interest and late fee is still
payable.
These provisions are independent of section 73 or 74.
41.5 Best judgment Assessment of unregistered persons
Notwithstanding anything to the contrary contained in section 73 or section 74, where a
taxable person fails to obtain registration even though liable to do so or whose registration
has been cancelled under section 29(2) of CGST Act but who was liable to pay tax, the proper
officer may proceed to assess the tax liability of such taxable person to the best of his
judgment for the relevant tax periods and issue an assessment order within a period of five
years from the date specified under section 44 for furnishing of the annual return for the
financial year to which the tax not paid relates - section 63 of CGST Act.
No such assessment order shall be passed without giving a notice to show cause and without
giving the person a reasonable opportunity of being heard - proviso to section 63 of CGST
Act.
These provisions are independent of section 73 or 74.
 849

Deputy/Assistant Commissioner of Central Tax has been designated as 'proper officer' for
the purpose assessing tax liability with best judgment- CBE&C circular No. 3/3/2017-GST
dated 5-7-2017 [State Government will prescribe 'proper officer' for purpose of SGST in the
respective State].
41.5-1 Principles behind best judgment assessment
Best judgment assessment is one of the tools to harass taxable persons. Really, best
judgment assessment cannot be on basis of whims and fancies.
It has been held that though best judgment assessment is an estimate and involves guess
work, the estimate must relate to some evidence or material and it must be something more
than mere suspicion - Raghubar Mandal v. State of Bihar - (1957) 8 STC 770 (SC) = AIR 1957
SC 810.
Even a best judgment assessment must be made reasonably and not surmises - Kathyaini
Hotels v. ACCT (2004) 135 STC 77 (SC).
In State of Kerala v. C. Velukutty- (1966) 17 STC 465=60 ITR 239 (SC), it was held that 'best
of judgment' means it does not depend on arbitrary caprice. Though there is element of
guesswork, it shall have reasonable nexus to the available material and circumstances of the
case.
There is no doubt that authorities should try to make an honest and fair estimate of the
income even in best judgment assessment and should not act arbitrarily, there is always a
certain degree of guess work in best judgment assessment. If assessee did not maintain
proper books of account, he himself has to be blamed for such assessment - Kachwala Gems
v. JCIT (2007) 158 Taxman 71 (SC).
In CST v. H M Esufali - (1973) 90 ITR 271 = 1973 SCC (Tax) 484 = 32 STC 77 (SC), it was observed
- 'The distinction between 'best judgment assessment' and assessment based on accounts
submitted by an assessee must be borne in mind. Sometimes there may be innocent or trivial
mistakes in the accounts maintained by assessee. There may be even certain unintended or
unimportant omissions in those accounts; but yet the accounts may be accepted as genuine
and substantially correct. In such case, assessments are made on basis of accounts
maintained, even though the assessing officer may add back to the accounts price of items
that might have been omitted to be included in the accounts. In such case, the assessment
made is not a 'best judgment' assessment. It is primarily made on the basis of accounts
maintained by the assessee. - - - If the assessee is maintaining false accounts to evade taxes,
it is not possible for the Assessing Officer to find out precisely the turnover suppressed. He
can only make an estimate of the suppressed turnover on the basis of the material before
him. So long as the estimate made by him is not arbitrary and has nexus with facts
discovered, the same cannot be questioned. In the very nature of things, the estimate made
may be over-estimate or an under-estimate. But, that is no ground for interfering with his
'best judgment'. -. -. -. -. -. - If the estimate made by assessing authority is a bona fide
estimate and is based on a rational basis, the fact that there is no good proof in support of
that estimate is immaterial. Prima facie, the assessing authority is the best judge of the
situation. The 'best judgment' is of the Assessing Officer and of nobody else. -. -. - High Court
 850

cannot substitute its best judgment for that of Assessing Officer -. -. - Court will have to first
see whether accounts maintained by assessee were rightly rejected as unreliable'.
In Dhakeswari Cotton Mills v. CIT AIR 1955 SC 65 = (1954) 26 ITR 775 (SC 5 member), it was
held that technical rules of evidence and pleadings are not applicable in 'best judgment
assessment', but it cannot be pure guess. There must be something more than mere
suspicion to support assessment.
41.5-2 Summary assessment in certain exceptional situations
Summary assessment is permissible only to protect interest of revenue, if delay is likely to
adversely affect revenue. Summary assessment is exceptional power.
The proper officer may, on any evidence showing a tax liability of a person coming to his
notice, with the previous permission of Additional/Joint Commissioner, proceed to assess
the tax liability of such person to protect the interest of revenue. He will issue an assessment
order, if he has sufficient grounds to believe that any delay in doing so will adversely affect
the interest of revenue- section 64(1) of CGST Act.
Though section does not specifically say so, principles of natural justice like issue of show
cause notice, opportunity of hearing, order with reasons etc. have to be followed.
These provisions are independent of section 73 or 74.
Deputy/Assistant Commissioner of Central Tax has been designated as 'proper officer' for
the purpose assessing tax liability under summary assessment- CBE&C circular No. 3/3/2017-
GST dated 5-7-2017 [State Government will prescribe 'proper officer' for purpose of SGST in
the respective State].
Liability if owner of goods not ascertainable - If taxable person to whom that liability
pertains is not ascertainable and such liability pertains to supply of goods, the person in
charge of such goods shall be deemed to be the taxable person liable to be assessed and pay
tax and any other amount due under section 64- proviso to section 64(1) of CGST Act.
Withdrawal of order of summary assessment - On any application made by the taxable
person within thirty days from the date of receipt of order passed under section 66(1) or on
his own motion, if the Additional/Joint Commissioner considers that such order is erroneous,
he may withdraw such order and follow the procedure laid down in section 73 or 74 (of
regular SCN and demand) - section 64(2) of CGST Act.
41.6 Procedure for Best Judgment and Summary Assessment
The procedure is as follows.
Assessment of non-filers - The order of assessment of best judgment of non-filers made
under section 62(1) shall be issued in form GST ASMT-13 and a summary thereof shall be
uploaded electronically in form GST DRC-07. - Rule 100(1) of CGST and SGST Rules, 2017 [The
words in italics inserted w.e.f. 1-4-2019].
Assessment of unregistered persons - In case of best judgment assessment of unregistered
persons, the proper officer shall issue a notice to an unregistered taxable person in
accordance with the provisions of section 63 in form GST ASMT-14 containing the grounds
on which the assessment is proposed to be made on best judgment basis and shall also serve
a summary thereof electronically in form GST DRC-01, and after allowing a time of fifteen
 851

days to such person to furnish his reply, if any, pass an order in form GST ASMT- 15 and a
summary thereof shall be uploaded electronically in form GST DRC-07 - Rule 100(2) of CGST
and SGST Rules, 2017 [The words in italics inserted w.e.f. 1-4-2019].
Deputy/Assistant Commissioner of Central Tax has been designated as 'proper officer' for
the purpose of assessment of unregistered persons - CBE&C circular No. 3/3/2017-GST dated
5-7-2017 [State Government will prescribe 'proper officer' for purpose of SGST in the
respective State].
Summary assessment under section 64(1) - The order of summary assessment under
section 64(1) of CGST Act shall be issued in form GST ASMT-16 and a summary of the order
shall be uploaded electronically in form GST DRC-07 - Rule 100(3) of CGST and SGST Rules,
2017 [The words in italics inserted w.e.f. 1-4-2019].
The person referred to in section 64(2) (i.e. taxable person of whom summary assessment
has been made) may file an application for withdrawal of the summary assessment order
inform GST ASMT-17 - Rule 100(4) of CGST and SGST Rules, 2017.
The order of withdrawal or rejection of the application under section 64(2) shall be issued
inform GST ASMT-18 - Rule 100(5) of CGST and SGST Rules, 2017.
41.7 Assessment cannot to be invalid on minor grounds, errors can be rectified
Assessment or re-assessment cannot be invalidated on minor grounds. Notice cannot be
challenged if acted upon. Errors apparent from records can be rectified - see sections 160
and 161 of CGST Act.
41.8 Audit by tax authorities
"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 rules made thereunder - section 2(13) of CGST Act.
Section 71(2) of CGST Act makes provision for demanding and making available records for
audit.
There was a system of EA-2000 audit in excise and service tax. This may continue in modified
form in GST.
The Commissioner or any officer authorised by him, by way of a general or a specific order,
may undertake audit of any registered person for such period, at such frequency and in such
manner as may be prescribed - section 65(1) of CGST Act.
The tax authorities may conduct audit at the place of business of the taxable person and/or
in their office.
The registered person shall be informed, by way of a notice, sufficiently in advance, not less
than fifteen working days, prior to the conduct of audit in such manner as may be prescribed.
The audit under section 65(1) shall be completed within a period of three months from the
date of commencement of audit - section 65(4) of CGST Act.
'Commencement of audit' shall mean the date on which the records and other documents,
called for by the tax authorities, are made available by the registered person or the actual
 852

institution of audit at the place of business, whichever is later - Explanation to section 65(4)
of CGST Act.
Appointment of officers for audit - 48 Commissioner of Central Tax (Audit) have been
appointed vide notification No. 2/2017-CT dated 19-6-2017.
Officer empowered to exercise powers under section 71 - 'Proper Officer' to order access to
premises and audit of records under section 71, for the purpose of CGST is Additional
Commissioner/Joint Commissioner of Central Tax, vide CBE&C circular No. 3/3/2017-GST
dated 5-7-2017 [State Government will prescribe 'proper officer' for purpose of SGST in the
respective State].
Audit under section 65 and investigation under section 67 can be simultaneously done -
Audit under section 65 of CGST Act is independent of an investigation under section 67 of
CGST Act. Audit and investigation proceedings may be continued simultaneously - Suresh
Kumar P.P. v. Deputy Director, Directorate General of GST Intelligence (DGGI) [2020] 120
taxmann.com 173/82 GST 734 (Ker HC DB) - SLP against judgment dismissed - Suresh Kumar
P. P. v. Deputy Director, Directorate General Of GST Intelligence (DGGI) [2021] 125
taxmann.com 61 (SC - 3 member bench).
41.8-1 Procedure during departmental audit
During the course of audit, the authorised officer may require the taxable person - (i) to
afford him the necessary facility to verify the books of account or other documents as he
may require (ii) to furnish such information as he may require and render assistance for
timely completion of the audit - section 65(5) of CGST Act.
On conclusion of audit, the proper officer shall, within 30 days, inform the registered person,
whose records are audited, of the findings, his rights and obligations and the reasons for the
findings - section 65(6) of CGST Act.
Deputy/Assistant Commissioner of Central Tax has been designated as 'proper officer' for
the purpose of informing the findings to the registered person under section 65(6) - CBE&C
circular No. 3/3/2017-GST dated 5-7-2017 [State Government will prescribe 'proper officer'
for purpose of SGST in the respective State].
Where the audit conducted under section 65(1) results in detection of tax not paid or short
paid or erroneously refunded, or input tax credit erroneously availed or utilised, the proper
officer may initiate action under section 73 or 74 - section 65(7) of CGST Act.
Superintendent of Central Tax has been designated as 'proper officer' for the purpose of
raising demand under section 65(7) - CBE&C circular No. 3/3/2017-GST dated 5-7-2017
[State Government will prescribe 'proper officer' for purpose of SGST in the respective
State].
41.8-2 Procedure for conducting audit by tax authorities
Procedure for departmental audit is as follows.
Audit for Financial or for part of financial year - The period of audit to be conducted under
section 65(1) shall be a financial year or part thereof or multiples thereof - Rule 101(1) of
CGST and SGST Rules, 2017. [The words in italics inserted w.e.f. 31-12-2018].
 853

Powers to order and conduct audit - Deputy/Assistant Commissioner of Central Tax has
been designated as 'proper officer' to order and conduct audit under rule 101- CBE&C
circular No. 3/3/2017-GST dated 5-7-2017 [State Government will prescribe 'proper officer'
for purpose of SGST in the respective State].
Notice of audit to registered person - Where it is decided to undertake the audit of a
registered person in accordance with the provisions of section 65, the proper officer shall
issue a notice in form GST ADT-01 within the time specified in section 65(3) of CGST Act.
Verification of records by audit team and audit notes - The proper officer authorised to
conduct audit of the records and books of account of the registered person shall, with the
assistance of the team of officers and officials accompanying him, verify the documents on
the basis of which the books of account are maintained and the returns and statements
furnished under the Act and the rules made thereunder, to check the correctness of
following - (a) the turnover (b) exemptions and deductions claimed (c) the rate of tax applied
in respect of supply of goods or services or both (d) the input tax credit availed and utilized
(e) refund claimed. He will examine other relevant issues and record the observations in his
audit notes - Rule 101(3) of CGST and SGST Rules, 2017.
Inform discrepancies to registered person - The proper officer may inform the registered
person of the discrepancies, if any, noticed as observations of the audit and the said person
may file his reply and the proper officer shall finalise the findings of the audit after due
consideration of the reply furnished - Rule 101(4) of CGST and SGST Rules, 2017.
Inform audit findings to registered person on conclusion of audit - On conclusion of the
audit, the proper officer shall inform the findings of audit to the registered person in
accordance with the provisions of section 65(6) in form GST ADT-02 - Rule 101(5) of CGST
and SGST Rules, 2017.
41.9 Special audit by Chartered/Cost Accountant
If at any stage of scrutiny, enquiry, investigation or any other proceedings before him, any
officer not below the rank of Assistant Commissioner, having regard to the nature and
complexity of the case and the interest of revenue, is of the opinion that the value has not
been correctly declared or the credit availed is not within the normal limits, he may, with
the prior approval of the Commissioner, direct such registered person by a communication
in writing to get his records including books of account examined and audited by a chartered
accountant or a cost accountant as may be nominated by the Commissioner - section 66(1)
of CGST Act.
Section 71(2) of CGST Act makes provision for demanding and making available records for
audit.
In Karnataka State Chartered Accountants Association v. State of Karnataka (2016) 135 SCL
141 = 68 taxmann.com 19 (Kar HC), provision in Karnataka Cooperative Societies Act which
allowed auditing of accounts by Cost Accountant was held valid. The provision does not
result in encroachment on profession of Chartered Accountants.
Audit report within 90 days with further extension of 90 days - The chartered accountant
or cost accountant so nominated shall, within the period of ninety days, submit a report of
 854

such audit duly signed and certified by him to the said Assistant Commissioner mentioning
therein such other particulars as may be specified - section 66(2) of CGST Act.
The Assistant Commissioner may, on an application made to him in this behalf by the
registered person or the chartered accountant or cost accountant or for any material and
sufficient reason, extend the said period by another ninety days - proviso to section 66(2) of
CGST Act.
Special audit in addition to any other audit - The provision of special audit under section
66(1) shall have effect notwithstanding that the accounts of the registered person have been
audited under any other provision of this Act or any other law for the time being in force or
otherwise - section 66(3) of CGST Act.
Opportunity of hearing to taxable person - The registered person shall be given an
opportunity of being heard in respect of any material gathered on the basis of special audit
under section 66(1) which is proposed to be used in any proceedings under this Act or rules
made thereunder - section 66(4) of CGST Act.
Expenses of special audit - The expenses of the examination and audit of records under
section 66(1), including the remuneration of such chartered accountant or cost accountant,
shall be determined and paid by the Commissioner and such determination shall be final -
section 66(5) of CGST Act.
'Commissioner' means Jurisdictional Commissioner [amendment to section 168(2) of CGST
Act w.e.f. 30-6-2020]
Demand notice on basis of special audit report - Where the special audit conducted under
section 66(1) results in detection of tax not paid or short paid or erroneously refunded, or
input tax credit erroneously availed, or input tax credit wrongly availed or utilized, the
proper officer may initiate action under section 73 or section 74 - section 66(6) of CGST Act.
Superintendent of Central Tax has been designated as 'proper officer' for the purpose of
raising demand under section 66(6) - CBE&C circular No. 3/3/2017-GST dated 5-7-2017
[State Government will prescribe 'proper officer' for purpose of SGST in the respective
State].
41.9-1 Procedure of ordering special Audit and submission of special audit report
Where special audit is required to be conducted under section 66 of CGST and SGST Act, the
officer referred to in the said section shall issue a direction in form GST ADT-03 to the
registered person to get his records audited by the chartered accountant or cost accountant
specified in the said direction - Rule 102(1) of CGST and SGST Rules, 2017.
On conclusion of special audit, the registered person shall be informed of the findings of
special audit in form GST ADT-04 - Rule 102(2) of CGST and SGST Rules, 2017.
41.10 Power of CAG to call for information for audit
C&AG can conduct audit of taxable persons also, termed as CERA Audit.
C&AG is an authority appointed under Article 148 of Constitution of India. Article 151 of
Constitution specifies that reports of C&AG shall be submitted to President of India, who
causes these to be laid before each House of Parliament. CERA audits are conducted as a
part of audit of Government accounts. Thus, these audits are conducted under
 855

Constitutional authority and are in no way connected or related to internal audits carried
out by staff of excise department. Frequency of CERA Audits is as per the importance they
attach and availability of time to CERA audit parties.
Assessee is required to produce to audit parties (i) Records (ii) Cost audit report (iii) Income
Tax audit report.
Audit paras of C&AG report are sent to department. Instructions for handling these audit
paras and sending reports has been specified in MF(DR) Instruction F No. 307/10/2009-FTT
dated 23-3-2011 [270 ELT T21]
C&AG empowered to conduct audits of assessees - Under Article 149 of Constitution if India,
C&AG is empowered to conduct audits of Government and semi-Government undertakings.
The doubt is raised whether C&AG has powers to conduct audit of accounts of assessee.
In Association of Unified Tele Services Providers and Others v. UOI (2014) 6 SCC 110, it has
been held that as per sections 13, 16 and 18 of Comptroller and Auditor General's (duties,
Powers and Conditions of Service) Act, 1971, C&AG has powers to audit all transactions and
all receipts payable into Consolidated Funds of India. This power takes in not only accounts
of Union and the States but all transactions which has nexus with Consolidated Fund of India.
- - In this case, it was held that C&AG has powers to call for records from all private licensees
of telecom spectrum.
In Infinity Infotech Parks v. UOI (2015) 50 GST 622 = 55 taxmann.com 367 = 85 VST 465 (Cal
HC), it has been held that C&AG has no powers to audit accounts of a non-Government
company.
In SKP Securities v. Deputy Director (RA-IDT) (2013) 39 STT 327 = 31 taxmann.com 93 = 59
VST 19 = 291 ELT 33 (Cal HC), a view was held that C&AG do not have powers to audit
accounts of individual assessees. However, in view of contradictory view, the matter has
been referred to large bench.
However, in Kiran Gems (P.) Ltd. v. UOI [2021] 124 taxmann.com 4 (Bombay HC DB), it has
been held that provisions of section 16 of Comptroller and Auditor General's (Duties, Powers
and Conditions of Service) Act, 1971 pertaining to audit of all receipts which are payable into
Consolidated Fund of India and each State and of each Union Territory is required to be
construed with respect to accounts maintained in Government departments/Corporations
belonging to Government. Section 16 does not authorise CAG or any audit team under
control of CAG to audit accounts of a non-government company, that too, in absence of any
request either from President of India or Governor of State in which company is having its
operation.
In view of decision of Supreme Court in case of telecom service operators, in my view, C&AG
can be said to have powers to audit accounts of taxable persons, as the tax receipts are part
of Consolidated Fund of India.
 856

Demands and recovery

42.1 Demands for tax short paid or not paid or erroneously refunded
Since tax is payable on self assessment basis, it is possible that the taxable person may not
have correctly paid the tax or may not have paid the tax at all. It is also possible that the
taxable person might have claimed refund and got refund of tax or input tax credit.
In such case, department can issue show cause notice and adjudicate the demand.
In normal cases, such order is required to be passed within three years from the due date of
filing return. However, if the non-payment was on account of fraud, wilful mis-statement or
suppression of facts to evade tax, the order can be passed within five years from the due
date of filing return.
The provisions apply to recovery of interest also.
Authority empowered to issue show cause notice and confirm demand - CBI&C circular No.
3/3/2017-GST dated 5-7-2017 as amended by CBI&C circular No. 31/05/2018-GST dated 9-
2-2018 has stated as follows.
Superintendent of Central Tax has been designated as 'proper officer' for issue of show cause
notice and confirm demand under section 73 of CGST Act (where suppression of facts is not
alleged) and section 74 of CGST Act (where suppression of facts or fraud is alleged). As per
section 5(2) of CGST Act, an officer of central tax may exercise powers conferred on any
officer subordinate to him.
Hence, for optimum distribution of work, the following monetary limits have been fixed
based on amount of central tax (including GST Compensation Cess) or integrated tax
(including GST Compensation Cess) short paid or not paid or erroneously refunded or input
tax credit wrongly availed or utilised.
Officer authorised Monetary limit for issue of notice and demand
Superintendent of Central Tax (a) Rs 10 lakhs if only CGST and GST Compensation Cess
Invoiced (b) Rs 20 lakhs if only IGST and GST
Compensation Cess involved (c) Rs 20 lakhs if CGST, IGST
and GST Compensation Cess involved

Deputy or Assistant Commissioner of (a) Above Rs 10 lakhs but not exceeding Rs one crore if
Central Tax only CGST and GST Compensation Cess Invoiced (b)
Above Rs 20 lakhs but not exceeding Rs two crores if
only IGST and GST Compensation Cess involved (c) Above
Rs 20 lakhs but not exceeding Rs two crores if CGST, IGST
and GST Compensation Cess involved
Additional or Joint Commissioner of Central (a) Above Rs one crore if only CGST and GST
Tax Compensation Cess Invoiced (no upper limit) (b) Above
Rs two crores if only IGST and GST Compensation Cess
involved (no upper limit) (c) Above Rs two crores if CGST,
IGST and GST Compensation Cess involved (no upper
limit)
 857

Commissioner, Principal Commissioner of Legally, as per section 5(2) of CGST Act they can issue
Central Tax notice and demand without monetary limit, but it seems
these adjudication powers have not been vested in them

Central Tax Officers of Audit Commissionerate and Director General of Goods and Services
tax Intelligence (DGGSTI) can issue show cause notices but these will be adjudicated by
competent Central Tax Officer in Executive Commissionerate.
However, CBI&C may assign specific officer of rank of Additional Director or Additional
Commissioner in DGSTCI to adjudicate cases where amount involved exceeds Rs five crores.
If there are multiple show cause notices for one notice having business in multiple
Commissionerates, the show cause notice will be adjudicated by competent tax officer in
whose jurisdiction the principal place of business of notice from where the highest demand
of CGST or IGST including GST Compensation Cess has been made falls.
If multiple show cause notices have been issued in same Commissionerate and made
answerable to different levels of adjudicating authorities, these will be adjudicated by
adjudicating authority competent to decide the case involving the highest amount of tax.
[State Government will prescribe 'proper officer' for purpose of SGST in the respective
State].
42.1-1 Demand and Recovery of wrongly availed Cenvat Credit or Cenvat Credit wrongly
carried forward
Recovery of wrongly availed Cenvat in past will be under CGST Act as per section 142(6)(b)
of CGST Act, Similarly Recovery of Cenvat credit wrongly carried forward under section 140
of CGST Act of wrongly availed Cenvat in past will be under CGST Act, - CBI&C circular No.
42/16/2018-GST dated 13-4-2018.
Wrongly availed ITC under Excise Act or Service Tax law (existing law) and Cenvat Credit
wrongly carried forward as transitory credit in TRAN-1 will be as follows.
All such liabilities may be discharged by the taxpayers, either voluntarily in FORM GST DRC-
03 or may be recovered vide order uploaded in form GST DRC-07, and payment against the
said order shall be made in form GST DRC-03. The applicable interest and penalty shall apply
in respect of all such amounts, which shall also be paid in form GST DRC-03 - para 6 of CBI&C
circular No. 88/07/2019-GST dated 1-2-2019.
It is further clarified that the alternative method of reversing the wrongly availed CENVAT
credit under the existing law and inadmissible transitional credit through Table 4(B)(2) of
FORM GSTR-3B would no longer be available to taxpayers [This was allowed vide CBI&C
circular No. 58/32/2018-GST dated 4-9-2018].
42.2 Demand when no charge of fraud, wilful mis-statement or suppression of facts
Provisions in respect of raising show cause notice demanding tax, interest and penalty have
been made in section 73 of CGST Act in cases where there is no charge of suppression of
facts, wilful mis-statement or fraud.
Pre-notice communication may be made - Provision for pre-notice consultation has been
made in section 28(1) of Customs Act. Similar provision has been made in CGST also.
 858

The proper officer may, before issue of notice in form GST DRC-01 [under section 73(1) of
CGST Act], communicate details of tax, interest and penalty ascertained by tax officer in part
A of form GST DRC-01A. This is in respect of demands both under section 73(1) or section
74(1) of CGST Act - rule 142(1A) of CGST Rules inserted w.e.f. 9-10-2019 and amended on
15-10-2020 [earlier, the word 'may' was 'shall'].
The provision of pre-notice communication has been made to enable the taxable person to
make payment on own before receipt of proper SCN in form GST DRC-01.
The taxable person can make partial payment or make submissions against proposed
liability, he can make submission in part B of form GST DRC-01A - rule 142(2A) of CGST Rules
inserted w.e.f. 9-10-2019.
The matter can be settled by pre-notice communication, wherever possible. The idea is to
promote voluntary compliance.
However, the provision of pre-notice is optional w.e.f. 15-10-2020 and not mandatory and
hence is not likely to be used much by department.
Proper Show cause notice if pre-notice communication fails - Where it appears to the
proper officer that any tax has not been paid or short paid or erroneously refunded, or where
input tax credit has been wrongly availed or utilised for any reason, other than the reason
of fraud or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice
on the person chargeable with tax which has not been so paid or which has been so short
paid or to whom the refund has erroneously been made, or who has wrongly availed or
utilised input tax credit, requiring him to show cause why he should not pay the amount
specified in the notice along with interest payable thereon under section 50 and a penalty
leviable under the provisions of this Act or the rules made thereunder - section 73(1) of CGST
Act.
The provisions apply to recovery of interest also.
Superintendent of Central Tax has been designated as 'proper officer' for the purpose of
issuing show cause notice - CBI&C circular No. 3/3/2017-GST dated 5-7-2017 [State
Government will prescribe 'proper officer' for purpose of SGST in the respective State].
Form of Notice - The notice shall be in form GST DRC-01 - rule 142(1)(a) of CGST Rules, 2017.
Notice to be issued at least three months before time limit of issue of order - Notice should
be issued at least three months before time limit specified in section 73(10) - section 73(2)
of CGST Act.
Statement instead of detailed SCN if SCN on same grounds was issued for earlier period -
Once a SCN has been issued, repeat notices are required till matter is finally adjudicated.
Where a notice has been issued for any earlier period under section 73(1), the proper officer
may serve a statement, containing the details of tax not paid or short paid or erroneously
refunded or input tax credit wrongly availed or utilized for such periods other than those
covered under earlier SCN, on the person chargeable with tax - section 73(3) of CGST Act.
The service of such statement shall be deemed to be service of notice on such person, if the
grounds relied upon for such tax periods are the same as are mentioned in the earlier notice
- section 73(4) of CGST Act.
 859

The statement under section 73(3) shall be in form GST DRC-02 - rule 142(1)(b) of CGST
Rules, 2017.
This is only to save paper work at department, where show cause notice on same grounds
was issued for earlier period.
Taxable Person can pay tax on own before SCN, or after receiving pre-notice
communication - The person chargeable with tax may, before service of notice under section
73(1) or statement under section 73(3), pay the amount of tax along with interest payable
thereon under section 50 on the basis of his own ascertainment of such tax or the tax as
ascertained by the proper officer and inform the proper officer in writing of such payment -
section 73(5) of CGST Act.
This payment can be made on own or on basis of communication made by proper officer
under rule 142(1A) of CSGT Rules (pre-notice communication). The taxable person shall
inform department in form GST DRC 03. Proper Officer shall issue an acknowledgement,
accepting payment in form GST DRC-04 - rule 142(2) of CGST Rules as amended on 9-10-
2019.
The proper officer, on receipt of such information, shall not serve any show cause notice in
respect of the tax so paid or any penalty leviable under the provisions of this Act or the rules
made thereunder - section 73(6) of CGST Act.
Superintendent of Central Tax has been designated as 'proper officer' for the purpose of
accepting the intimation and issue an acknowledgement. He will then not issue notice -
CBI&C circular No. 3/3/2017-GST dated 5-7-2017 [State Government will prescribe 'proper
officer' for purpose of SGST in the respective State].
However, if the taxable person has not paid self assessed tax or any amount collected as tax
within 30 days from due date of payment, penalty of 10% of tax will be payable - section
73(11) of CGST Act.
This is to promote voluntary compliance and reduce litigation.
'Shall not serve show cause notice' means it is a mandatory provision. The issue has to be
closed. However, prosecution under section 132 of CGST Act can continue - Explanation (1)(i)
to section 73 of CGST Act.
Where the notice under the same proceedings is issued to the main person liable to pay tax
and some other persons, and such proceedings against the main person have been
concluded under section 73 (Determination of tax when no fraud or suppression) or section
74 (Determination of tax when there is fraud or suppression), the proceedings against all the
persons liable to pay penalty under sections 122 (penalty for certain offences) and 125
(general penalty) are deemed to be concluded - Explanation (1)(ii) to section 74 of CGST Act
as amended vide section 113 of Finance Act, 2021, from date to be notified.
Thus, once demand is confirmed under section 73 or 74 of CGST Act, further penalty under
sections 122 and 125 cannot be imposed. However, proceedings under section 129
(detention, seizure and release of goods and conveyances in transit) and section 130
(confiscation of goods or conveyances and levy of penalty) can continue.
Any notice even for penalty or late fee or co-noticees cannot be issued under sections 122
and 125 of CGST Act.
 860

The present wording is 'sections 122, 125, 129 and 130'. Reference to section 129 (detention,
seizure and release of goods and conveyances in transit) and section 130 (confiscation of
goods or conveyances and levy of penalty) are being omitted as these provisions are being
made as stand-alone and independent provisions, as per amendment made vide Finance
Act, 2021.
Show cause notice if amount short paid by taxable person - Where the proper officer is of
the opinion that the amount paid under section 73(5) falls short of the amount actually
payable, he shall proceed to issue the notice under section 73(1), in respect of such amount
which falls short of the amount actually payable - section 73(7) of CGST Act.
If SCN was not uploaded on website it is invalid - Ram Prasad Sharma v. Chief Commissioner
Ram Prasad Sharma v. Chief Commissioner [2021] 124 taxmann.com 280 (Madhya Pradesh
HC DB).
Even if physical copy of adjudication order is handed over to assessee, limitation period to
file appeal would start only when adjudication order is uploaded on GST portal - Gujarat
State Petronet Ltd. v. UOI [2021] 124 taxmann.com 98 (Gujarat HC DB).
No penalty if tax with interest paid within 30 days from issue of SCN - Where any person
chargeable with tax under section 73(1) or 73(3) pays the said tax along with interest payable
under section 50 within thirty days of issue of show cause notice, no penalty shall be payable
and all proceedings in respect of the said tax shall be deemed to be concluded - section 73(8)
of CGST Act.
'All proceedings in respect of the said tax shall be deemed to be concluded' means any
further notice even to co-noticee for penalty, late fee etc. cannot be issued. However,
prosecution under section 132 of CGST Act can continue.
Further, if the taxable person has not paid self assessed tax or any amount collected as tax
within 30 days from due date of payment, penalty of 10% of tax will be payable - section
73(11) of CGST Act.
The taxable person shall inform department in form GST DRC-03. Proper Officer shall issue
an order concluding the proceedings in form GST DRC-05 - rule 142(3) of CGST Rules, 2017.
Superintendent of Central Tax has been designated as 'proper officer' for the purpose of
issue of order concluding the proceedings - CBI&C circular No. 3/3/2017-GST dated 5-7-2017
[State Government will prescribe 'proper officer' for purpose of SGST in the respective
State].
Demand with maximum 10% penalty - If taxable person does not voluntarily pay the tax
and interest, the proper officer shall, after considering the representation, if any, made by
person chargeable with tax, determine the amount of tax, interest and a penalty equivalent
to ten per cent of tax or ten thousand rupees, whichever is higher, due from such person
and issue an order - section 73(9) of CGST Act.
Penalty equivalent to 10% means lower penalty cannot be imposed.
Procedure for making representation - The representation of taxable person shall be in
form GST DRC-06 - rule 142(4) of CGST Rules, 2017.
 861

Order passed to be uploaded in form GST-DRC-7 - After considering the representation and
after giving opportunity of personal hearing, summary of order passed under section 73(9)
or 74(9) or 76(3) or section 125 or section 129 or section 130 shall be uploaded electronically
in form GST DRC-7, specifying the amount of tax, interest and penalty payable - rule 142(5)
of CGST Rules, 2017 amended on 19-6-2018 and 10-9-2018.
[section 73(9) - Demand when no charge of suppression or fraud or wilful misstatement,
section 74(9) - Demand when there is charge of suppression or fraud or wilful misstatement,
section 76(3) - Demand when tax collected but not paid to Government, section 125 -
general penalty when separate penalty is not provided, section 129 - Detention and seizure
of goods and conveyances in transit, section 130 - Confiscation of goods or conveyances and
levy of penalty].
This order shall be treated as notice for recovery - rule 142(6) of CGST Rules, 2017.
Time limit for issue of order is three years - The proper officer shall issue the order under
section 73(9) within three years from the due date for furnishing annual return for the year
to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates
to or as the case may be, within three years from the date of erroneous refund-section
73(10) of CGST Act.
Note that the time limit is for issue of demand order and not only for issuing show cause
notice.
However, if the Show Cause Notice was issued but kept pending as department had filed
appeal against an order adverse to revenue in some other proceedings on same issue, and
appeal of department is pending before Appellate Tribunal, High Court or Supreme Court,
that time will not be counted for calculating three year/five year limit - section 75(11) of
CGST Act.
[In such cases, the SCN is transferred to 'call book' in customs department].
42.2-1 Demand when there is fraud, wilful mis-statement or suppression of facts
Provisions in respect of raising show cause notice demanding tax, interest and penalty have
been made in section 74 of CGST Act in cases where there is charge of suppression of facts,
wilful mis-statement or fraud.
Pre-notice communication may be made - Provision for pre-notice consultation has been
made in section 28(1) of Customs Act. Similar provision has been made in CGST also.
The proper officer may, before issue of notice in form GST DRC-01 [under section 73(1) of
CGST Act], communicate details of tax, interest and penalty ascertained by tax officer in part
A of form GST DRC-01A. This is in respect of demands both under section 73(1) or section
74(1) of CGST Act - rule 142(1A) of CGST Rules inserted w.e.f. 9-10-2019 and amended on
15-10-2020 [earlier, the word 'may' was 'shall'].
The provision of pre-notice communication has been made to enable the taxable person to
make payment on own before receipt of proper SCN in form GST DRC-01.
The taxable person can make partial payment or make submissions against proposed
liability, he can make submission in part B of form GST DRC-01A - rule 142(2A) of CGST Rules
inserted w.e.f. 9-10-2019.
 862

The matter can be settled by pre-notice communication, wherever possible. The idea is to
promote voluntary compliance.
However, the provision of pre-notice is optional w.e.f. 15-10-2020 and not mandatory and
hence is not likely to be used much by department.
Proper show cause notice if pre-notice communication fails - Where it appears to proper
officer that any tax has not been paid or short paid or erroneously refunded or where input
tax credit has been wrongly availed or utilized by reason of fraud, or any wilful-misstatement
or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax
which has not been so paid or which has been so short paid or to whom the refund has
erroneously been made, or who has wrongly availed or utilized input tax credit.
The notice should require him to show cause why he should not pay the amount specified
in the notice along with interest payable thereon under section 50 and a penalty equivalent
to the tax specified in the notice - section 74(1) of CGST Act.
The provisions apply to recovery of interest also.
Notice to be issued at least six months before time limit - Notice to be issued at least six
months before time limit specified in section 74(10) - section 74(2) of CGST Act.
Statement if SCN on same grounds was issued for earlier period - Once a SCN has been
issued, repeat notices are required till matter is finally adjudicated. Where a notice has been
issued for any earlier period, the proper officer may serve a statement, containing the details
of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or
utilized for such periods other than those covered under earlier SCN, on the person
chargeable with tax - section 74(3) of CGST Act.
The service of such statement under section 74(3) shall be deemed to be service of notice
on such person, subject to the condition that the grounds relied upon in the said statement,
except the ground of fraud, or any wilful-misstatement or suppression of facts to evade tax,
for periods other than those covered under section 74(1) are the same as are mentioned in
the earlier notice. - section 74(4) of CGST Act.
The specific provision has been as once show cause notice charging suppression or fraud or
wilful statement has been issued, such charge cannot be sustained for later period, even if
issue is same.
Taxable Person can pay tax with 15% of tax as penalty on own before SCN, or after
receiving pre-notice communication - - The person chargeable with tax may, before service
of notice under section 74(1), pay the amount of tax along with interest payable thereon
under section 50 and 15% of tax as penalty on the basis of his own ascertainment of such
tax or the tax as ascertained by the proper officer and inform the proper officer in writing of
such payment - section 74(5) of CGST Act.
This payment can be made on own or on basis of communication made by proper officer
under rule 142(1A) of CGST Rules pre-notice communication. The taxable person shall inform
department in form GST DRC 03. Proper Officer shall issue an acknowledgement, accepting
payment in form GST DRC-04 - rule 142(2) of CGST Rules as amended on 9-10-2019.
 863

The proper officer, on receipt of such information, shall not serve any show cause notice in
respect of the tax so paid or any penalty leviable under the provisions of this Act or the rules
made thereunder - section 74(6) of CGST Act.
The taxable person shall inform department in form GST DRC-03. Proper Officer shall issue
a acknowledgement, accepting payment in form GST DRC-04 - rule 142(2) of CGST Rules,
2017.
This is to promote voluntary compliance and reduce litigation.
'Shall not serve show cause notice' means it is a mandatory provision. The issue has to be
closed. However, prosecution under section 132 of CGST Act can continue - Explanation (1)(i)
to section 73 of CGST Act.
Show cause notice if amount short paid - Where the proper officer is of the opinion that the
amount paid under section 74(5) falls short of the amount actually payable, he shall proceed
to issue the notice as provided in section 74(1) in respect of such amount which falls short
of the amount actually payable - section 74(7) of CGST Act.
25% penalty if tax with interest paid within 30 days from issue of SCN - Where any person
chargeable with tax pays the said tax along with interest payable under section 50 and 25%
of tax as penalty within thirty days of issue of show cause notice, all proceedings in respect
of the said tax shall be deemed to be concluded - section 74(8) of CGST Act.
'All proceedings in respect of the said tax shall be deemed to be concluded' means any
further notice even to co-noticee for penalty, late fee etc. cannot be issued. However,
prosecution under section 132 of CGST Act can continue.
The taxable person shall inform department in form GST DRC-03. Proper Officer shall issue
an order concluding the proceedings in form GST DRC-05 - rule 142(3) of CGST Rules, 2017.
Demand with penalty equal to tax, in case of suppression, misstatement etc. - If taxable
person does not voluntarily pay the tax and interest, the proper officer shall, after
considering the representation, if any, made by person chargeable with tax, determine the
amount of tax, interest and penalty equal to tax, due from such person and issue an order -
section 74(9) of CGST Act.
There is no discretion to reduce penalty in case of fraud, suppression of facts and wilful mis-
statement. However, if the taxable person pays tax, interest and 50% penalty within 30 days
of communication of order, balance 50% penalty stands waived - section 74(11) of CGST Act.
Procedure for representation and order - The representation of taxable person shall be in
form GST DRC-06 - rule 142(4) of CGST Rules, 2017.
Order passed to be uploaded in form GST-DRC-7 - After considering the representation and
after giving opportunity of personal hearing, summary of order passed under section 73(9)
or 74(9) or 76(3) or 129 or 130 shall be uploaded electronically in form GST DRC-7, specifying
the amount of tax, interest and penalty payable - rule 142(5) of CGST Rules, 2017 amended
on 19-6-2018.
[section 73(9) - Demand when no charge of suppression or fraud or wilful misstatement,
section 74(9) - Demand when there is charge of suppression or fraud or wilful misstatement,
section 76(3) - Demand when tax collected but not paid to Government, section 129 -
 864

Detention and seizure of goods and conveyances in transit, section 130 - Confiscation of
goods or conveyances and levy of penalty].
This order shall be treated as notice for recovery - rule 142(6) of CGST Rules, 2017.
In Akas Garg v. State of Madhya Pradesh [2020] 121 taxmann.com 329 (MP HC DB), it was
held that demand is invalid if not uploaded electronically on website - same view in Ram
Prasad Sharma v. Chief Commissioner [2021] 124 taxmann.com 280 (Madhya Pradesh HC
DB).
Time limit for issue of order is five years in case of suppression, wilful misstatement - The
proper officer shall issue the order under section 74(9) within five years from the due date
for furnishing of annual return for the year to which the tax not paid or short paid or input
tax credit wrongly availed or utilized relates to or within five years from the date of
erroneous refund - section 74(10) of CGST Act.
Note that the time limit is for issue of demand order and not only for issuing show cause
notice.
However, an issue on which the Appellate Authority or the Appellate Tribunal or the High
Court has given its decision which is prejudicial to the interest of revenue in some other
proceedings and an appeal to the Appellate Tribunal or the High Court or the Supreme Court
against such decision of the Appellate Authority or the Appellate Tribunal or the High Court
is pending, the period spent between the date of the decision of the Appellate Authority and
that of the Appellate Tribunal or the date of decision of the Appellate Tribunal and that of
the High Court or the date of the decision of the High Court and that of the Supreme Court
shall be excluded in computing the period referred to in section 73(10) or section 74(10)
where proceedings are initiated by way of issue of a show cause notice under said sections
- section 75(11) of CGST Act.
Thus, if the Show Cause Notice was issued but kept pending as department had filed appeal
against an order adverse to revenue in some other proceedings on same issue, and appeal
of department is pending before Appellate Tribunal, High Court or Supreme Court, that time
will not be counted for calculating three year/five year limit.
[In such cases, the SCN is transferred to 'call book' in customs department. Possibly same
practice may be followed in GST].
42.3 Meaning of fraud or any wilful mis-statement or suppression of facts to evade tax
Time limit for raising demand and penalty amount increases if there is charge of fraud or any
wilful-misstatement or suppression of facts to evade tax. Hence, this issue becomes litigation
prone.
The expression "suppression" shall mean non-declaration of facts or information which a
taxable person is required to declare in the return, statement, report or any other document
furnished under this Act or the rules made thereunder, or failure to furnish any information
on being asked for, in writing, by the proper officer - Explanation 2 to section 74 of CGST Act.
There can be no suppression of facts if facts which are not required to be disclosed are not
disclosed - Smt. Shirisht Dhawan v. Shaw Brothers - 1992 (1) SCC 534 = 1992 AIR SCW 1649
= AIR 1992 SC 1555* CCE v. Ranka Wires (2015) 322 ELT 410 (SC).
 865

42.3-1 Suppression should be wilful

Supreme Court in Rainbow Industries v. CCE - 1994 (74) ELT 3 (SC) = 1994 (6) SCC 563 = AIR
1994 SC 2783 = 1994 AIR SCW 4465 have held that in order for the extended period to apply,
two ingredients must be present - wilful suppression, mis-declaration etc., and the intention
to evade duty - followed in ONGC v. CCE - 1995 (79) ELT 117 (CEGAT). Same view in Tamil
Nadu Housing Board v. CCE - 1995 Suppl. (1) SCC 50 = 74 ELT 9 (SC). In this case, it was held
that the powers to extend period from one year to 5 years are exceptional powers and hence
have to be construed strictly.
Intention to evade payment of duty is not mere failure to pay duty. It must be something
more, i.e. that assessee must be aware that duty was leviable and he must deliberately avoid
payment of duty. 'Evade' means defeating the provision of law of paying duty. It is made
more stringent by the use of word 'intent'. In other words, the assessee must deliberately
avoid payment of duty payable under the law. Where there was scope of doubt whether
duty was payable or not, it is not 'intention to evade duty'. - Tamilnadu Housing Board v. CCE
1995 Supp(1) SCC 50 = 1994 (74) ELT 9 (SC) = 55 ECR 7. In this case, it was held that the
powers to extend period from one year to 5 years are exceptional powers and hence have
to be construed strictly.
42.3-2 No suppression if all facts were disclosed
If all facts have been disclosed to department, extended period is not applicable - Nestler
Boilers (P.) Ltd. v. Collector - 1990 (50) ELT 613 (CEGAT) * National Rifles v. CCE 1999(112)
ELT 483 (CEGAT) * P R Rolling v. CCE (2010) 249 ELT 232 (CESTAT) * Alumeco India Extrusion
v. CCE (2010) 249 ELT 577 (CESTAT) * Delhi Public School Society v. CST (2014) 43 GST 421 =
41 taxmann.com 377 = 75 VST 350 (CESTAT) * CC v. A S Moloobhoy and Sons (2015) 51 GST
110 = 57 taxmann.com 297 (SC).
42.3-3 Mere inaction or mere non-disclosure is not Suppression of Facts
Suppression means not providing information which the person is legally required to state,
but is intentionally or deliberately not stated.
Hon. Supreme Court, in Collector v. Chemphar Drugs 40 ELT 276 = 1989 (2) SCC 127 = AIR
1989 SC 832, has held that mere inaction or failure on part of manufacturer will not amount
to suppression of facts. Conscious or deliberate withholding of information when the
manufacturer knew otherwise, is required to be established, before saddling the
manufacturer with liability for extended period [reiterated in Lubri-Chem Industries Ltd. v.
Collector - 1994 (73) ELT 257 (SC) = 1994(2) Supp SCC III 258 = 1994 AIR SCW 3672 = AIR 1994
SC 2604 = 1994(4) RLT 239 (SC)] - same view in M K Kotecha v. CCE AIR 2005 SC 1147 = 179
ELT 261 (SC 3 member bench) * Nestle India v. CCE (2009) 235 ELT 577 (SC).
In the case of Padmini Products v. CCE - 1989 (43) ELT 195 (SC) = (1989) 4 SCC 275 = AIR 1989
SC 2278 = 25 ECR 289 = (1990) 76 STC 411 (SC), it has been held by Apex Court that mere
non-declaration is not sufficient to invoke larger period but some more positive act is
required. It was held that mere failure or negligence on part of manufacturer to take licence
or pay duty in case where there was scope for doubt as to whether goods were dutiable or
not, could not attract the extended limitation. In this case, the assessee did not obtain excise
licence under belief that the goods are exempt from duty. There was scope of doubt
 866

regarding liability of duty. Hence, demand for period beyond period of one year (that time
six months) was set aside - followed in Jaiprakash Industries v. CCE 2002 AIR SCW 4840 =
(2003) 1 SCC 67 = 146 ELT 481 (SC 3 member bench) * Cadila Laboratories v. CCE 2003 AIR
SCW 1115 = 152 ELT 262 (SC) * Gopal Zarda Udyog v. CCE 2005 (188) ELT 251 (SC 3 member
bench) * Uniworth Textiles v. CCE (2013) 9 SCC 753 = 39 STT 58 = 31 taxmann.com 67 = 288
ELT 161 (SC) * Escorts Ltd. v. CCE (2015) 9 SCC 109 = 319 ELT 406 (SC).
Mere omission to give correct information did not constitute suppression unless that
omission was made wilfully in order to evade duty. Suppression would mean failure to
disclose full and true information with the intent to evade payment of duty - CCE v. Ballarpur
Industries Ltd. (2007) 11 STT 6 (SC) - same view in Continental Foundation Jt Venture v. CCE
(2007) 10 SCC 337 = 216 ELT 177 (SC) * Anand Nishikawa Co. Ltd. v. CCE 2005 (188) ELT 149
= 2 STT 226 = (2005) 7 SCC 749 (SC) - quoted with approval in CCE v. Damnet Chemicals
(2007) 216 ELT 3 (SC) * UOI v. Rajasthan Spinning & Weaving Mills (2009) 20 STT 481 = 180
Taxman 609 = 238 ELT 3 (SC)* Escorts Ltd. v. CCE (2015) 9 SCC 109 = 319 ELT 406 (SC).
A mere omission or negligence would not constitute a deliberate act of 'suppressioveri' or
'suggestiofalsi' - Dilip N Shroff v. Jt CIT (2007) 161 Taxman 218 = 291 ITR 519 (SC) - quoted in
CWT v. Smt. Shakuntala Devi Dalmia (2008) 172 Taxman 162 (All HC DB) * CIT v. Cafco
Syndicate Shipping Co. (2008) 174 Taxman 406 (Mad HC DB).
42.3-4 No suppression of facts if taxable person had a bona fide belief
If a party bona fide believes in a legal position (e.g. that no duty is payable or no licence is
required in his case) and if there is scope for such belief and doubt, penal provisions of
section 11A will not apply. - Padmini Products v. CCE - 1989 (43) ELT 195 (SC) = 1989(4) SCC
275 = 1989 (25) ECR 289 (SC). = AIR 1989 SC 2278 * CCE v. Surat Textile Mills 2004 (167) ELT
379 (SC 3 member bench) * Gopal Zarda Udyog v. CCE 2005 (188) ELT 251 (SC 3 member
bench) * CCE v. ITC Ltd. (2010) 257 ELT 514 (Karn HC DB).
42.3-5 No suppression if department aware of facts
Extended period of five years is not applicable for any omission on part of assessee, unless
it is a deliberate attempt to escape from payment of duty. When facts were known to the
department, extended period of five years is not applicable - Pushpam Pharmaceuticals Co.
v. CCE 1995 Supp 3 SCC 462 = 78 ELT 401 (SC) - quoted with approval in Sarabhai M Chemicals
v. CCE AIR 2005 SC 1126 = (2005) 2 SCC 168 = 179 ELT 3 (SC 3 member bench) * Anand
Nishikawa Co. Ltd. v. CCE 2005 (188) ELT 149 = 2 STT 226= (2005) 7 SCC 749 (SC).
42.3-6 Wilful Misstatement
A false statement becomes 'wilful' if it is deliberate or intentional. It is not wilful if the
statement is accidental or inadvertent. A statement will not be misstatement only because
full facts were not disclosed. 'Wilful' means 'with intent to evade duty' - Cosmic Dye Chemical
v. CCE 95 STC 604 = 75 ELT 721 = (1995) 6 SCC 117(SC 3 member bench) - quoted with
approval in UOI v. Rajasthan Spinning & Weaving Mills (2009) 238 ELT 3 (SC).
Misstatement must be wilful to invoke extended period of limitation - Continental
Foundation Jt Venture v. CCE (2007) 10 SCC 337 = 216 ELT 177 (SC) - quoted with approval in
UOI v. Rajasthan Spinning & Weaving Mills (2009) 20 STT 481 = 180 Taxman 609 = 238 ELT 3
(SC).
 867

42.3-7 Fraud
Basic element of fraud is deceit. Section 17 of Contract Act states that fraud means making
a suggestion, as a fact, which the person does not believe it to be true. Fraud also means
active concealment of fact. Generally, 'fraud' means deceit, trickery or misrepresentation.
Intention to evade duty is built into the words 'fraud' and 'collusion' -Cosmic Dye Chemical
v. CCE 95 STC 604 = (1995) 6 SCC 117 = 75 ELT 721 (SC 3 member bench). In Dr. Vimla v. Delhi
Administration AIR 1963 SC 1572 = 1963 Supp 2 SCR 585, it was observed that 'defraud'
includes an element of deceit.
In UOI v. Jain Shudh Vanaspati 1996(86) ELT 460 (SC), it was observed, 'Fraud, if established,
unravels all'.
No Court in this land will allow a person to keep an advantage which he has obtained by
fraud. No judgment of a Court, no order of a Minister, can be allowed to stand if it has been
obtained by fraud. Fraud unravels everything. The Court is careful not to find fraud unless it
is distinctly pleaded and proved; but once it is proved, it vitiates judgments, contracts and
all transactions whatsoever. - Lazarus Estate v. Berly (1956) 1 All ER 341 (CA) - quoted with
approval in Ram Preeti Yadav v. UP Board of High School and Intermediate Education 2003
AIR SCW 4912 = (2003) 8 SCC 311 = AIR 2003 SC 4268, where it was observed, 'In S P
Chengalvaraya Naidu v. Jagannath AIR 1994 SC 853 = (1994) 1 SCC 1 = 1994 AIR SCW 243,
this Court stated that fraud avoids all judicial acts, ecclesiastical or temporal' - same view in
CC v. Aafloat Textiles (2009) 235 ELT 587 (SC) * State of Uttar Pradesh v. Ravindra Kumar
Sharma (2016) 4 SCC 791.
Fraud is proved when it is shown that a false representation has been made (i) knowingly or
(ii) without belief in its truth or (iii) recklessly, careless whether it be true or false.
Suppression of a material document would also amount to a fraud on the Court - Ashok
Leyland Ltd. v. State of Tamil Nadu 2004 AIR SCW 1001 = 2004(3) SCC 1 (SC 3 member bench)
- same view in Derry v. Peek (1886-90) All ER 1 = (1889) 14 AC 337 (HL) * State of AP v. T
Suryachandra Rao (2005) 6 SCC 149 = AIR 2005 SC 3110 * State of Orissa v. Harapriya Bisoi
AIR 2009 SC 2991.
Suppression of a material document would also amount to fraud on Court - Gowrishankar v.
Joshi Amba Shankar Family Trust 1996(3) SCC 310 = 1996 AIR SCW 2684 = AIR 1996 SC 2202
Concealment of relevant and material facts, which should have been declared before
Arbitrator, is an act of fraud and is against public policy of India - - Fraud being of 'infinite
variety' may take many forms - - Fraud, in the contemplation of a civil court of justice, may
be said to include properly all acts, omissions, and concealments which involve a breach of
legal or equitable duty, trust or confidence, justly reposed, and are injurious to another, or
by which an undue or unconscientious advantage is taken of another - Venture Global
Engineering v. Satyam Computer Services (2010) 8 SCC 660.
Fraud is an act of deliberate deception with the design of securing something by taking unfair
advantage of another. It is a deception in order to gain by another's loss. It is cheating
intended to get an advantage - S P Chengalvaraya Naidu v. Jagannath AIR 1994 SC 853 =
(1994) 1 SCC 1 = 1994 AIR SCW 243.
 868

In CC v. Essar Oil Ltd. (2004) 172 ELT 433 (SC), all important case law on 'fraud' was discussed,
and it was observed, "By 'fraud' is meant an intention to deceive; whether it is from any
expectation of advantage to party itself or from the ill will towards other is immaterial.
'Fraud' involves two elements, deceit and injury to the person deceived. Injury will include
any harm whatever cause to any person in body, mind, reputation or such others [see Dr.
Vimla v. Delhi Administration AIR 1963 SC 1572 = 1963 Supp 2 SCR 585 and Indian Bank
Association v. Satyam Fibres 1996(5) SCC 550 = 1996 AIR SCW 3228 = AIR 1996 SC 2592].
Misrepresentation itself amounts to fraud - Devendra Kumar v. State of Uttaranchal (2009)
9 SCC 363.
Fraus et jus nunquam cohabitant - Fraud and justice never dwell together - Meghmala v. G
Narasimha Reddy (2010) 8 SCC 383
However, mere silence is not fraud, unless it is the duty of the person to speak or silence
itself is equivalent to speech.
42.4 General provisions relating to demand of tax
The following provisions apply to both types of demands i.e. with charge of fraud, wilful mis-
statement or suppression of facts to evade tax or without such charge.
Period of stay to be excluded for computing period of three/five years - Where the service
of notice or issuance of order is stayed by an order of a Court or Tribunal, the period of such
stay shall be excluded in computing the period of three years or five years - section 75(1) of
CGST Act.
The stay should be for service of notice or issuance of order. Mere stay of recovery is not
sufficient.
If charge of suppression, fraud not established - If Appellate Authority or Appellate Tribunal
or Court concludes that the charge of fraud or any wilful mis-statement or suppression of
facts to evade tax has not been established, the proper officer shall determine the tax
payable by such person for the period of three years, i.e. without charge of suppression etc.
- section 75(2) of CGST Act.
Time limit for issue of order on direction of Tribunal or Court - Where any order is required
to be issued in pursuance of the direction of the Appellate Authority or Appellate Tribunal
or a Court, such order shall be issued within two years from the date of communication of
the said direction - section 75(3) of CGST Act.
This happens when matter is remanded to lower authority with certain directions for
determining the issue.
Opportunity of personal hearing - An opportunity of personal hearing shall be granted
where a request is received in writing from the person chargeable with tax or penalty, or
where any adverse decision is contemplated against such person. - section 75(4) of CGST
Act.
Personal Hearing through video conferencing only - There will be no physical hearing.
Personal hearing will be through video conferencing only. The procedure has been
prescribed in Instruction F. NO. 390/MISC/3/2019-JC dated 21-8-2020.
 869

E-mail address should be informed. Vakalatnama or authorisation letter should be filed

through e-mail. Submissions will be reduced in writing as 'record of personal hearing'. Its
soft copy will be send in pdf format to appellant. The appellant can modify the record.
Scanned copies of documents can be submitted electronically within three days of virtual
hearing. In very rare cases, personal hearing may be done.
Adjournment of hearing - The proper officer shall, if sufficient cause is shown adjourn the
hearing for reasons to be recorded in writing. Maximum three adjournments can be given -
- section 75(5) of CGST Act.
Order with reasons - The proper officer, in his order, shall set out the relevant facts and the
basis of his decision- section 75(6) of CGST Act.
Demand cannot be more than specified in notice and cannot be confirmed on other ground
- The amount of tax, interest and penalty demanded in the order shall not be in excess of
the amount specified in the notice and no demand shall be confirmed on grounds other than
the grounds specified in the notice- section 75(7) of CGST Act.
Interest and penalty gets automatically modified, if tax amount increased or reduced -
Where the Appellate Authority or Appellate Tribunal or Court modifies the amount of tax
determined by the proper officer, the amount of interest and penalty shall stand modified
accordingly, taking into account the amount of tax so modified- section 75(8) of CGST Act.
Interest mandatory even if not specified in order - Interest on the tax short paid or not paid
shall be payable whether or not specified in the order determining the tax liability - - section
75(9) of CGST Act.
Adjudication concludes if order not issued within three/five years - The adjudication
proceedings shall be deemed to be concluded if the order is not issued within three/five
years- section 75(10) of CGST Act.
However, if the Show Cause Notice was issued but kept pending as department had filed
appeal against an order adverse to revenue in some other proceedings on same issue, that
period shall be excluded- section 75(11) of CGST Act.
[In such cases, the SCN is transferred to 'call book' in excise and service tax department].
No penalty under section 73(11) if return filed and tax paid - It has been clarified that
provisions of section 73(11) of CGST Act are invoked only when section 73 is invoked. In case
of delay in filing return in form GSTR-3B, section 73 cannot be invoked as tax is paid along
with return. In that case, penalty under section 73(11) of CGST Act cannot be imposed.
However, general penalty under section 125 of CGST Act for contravention of provisions of
CGST Act can be imposed after following due process of law (like SCN, hearing etc.) [The
maximum penalty is Rs 25,000 under CGST Act plus Rs 25,000 under SGST/UTGST Act] - para
2 CBI&C circular No. 76/50/2018-GST dated 31-12-2018.
[This is because GSTN system does not accept GSTR-3B return unless taxes with interest and
late fee are paid. Of course, this is clear high handedness of Government, as there is no
provision in law that return cannot be filed if tax is not paid].
No other penalty once penalty imposed under section 73 or 74 - Where any penalty is
imposed under section 73 or section 74, no penalty for the same act or omission shall be
 870

imposed on the same person under any other provision of this Act - section 75(12) of CGST
Act.
42.4-1 Burden of proof is on taxable person in respect of input tax credit
If any person claims that he is eligible for input tax credit, the burden of proving such claim
or claims shall lie on him - section 155 of CGST Act.
This is against the normal legal principle that burden of proof of any charge or allegation is
on the person making such charge or allegation.
Further, in case of other demands, burden of proof is on department [though practically they
do not prove anything and just confirm demand left and right]
42.4-2 Demand cannot be invalidated on minor ground, apparent mistake can be rectified
Demand cannot be invalidated on minor grounds. Show Cause Notice cannot be challenged
if acted upon. Errors apparent from records can be rectified - see sections 160 and 161 of
CGST Act.
Rectification of order should be in form GST DRC-08 - rule 142(7) of CGST Rules, 2017.
Superintendent of Central Tax has been designated as 'proper officer' for the purpose of
rectification of order - CBE&C circular No. 3/3/2017-GST dated 5-7-2017 [State Government
will prescribe 'proper officer' for purpose of SGST in the respective State].
42.4-3 Mode of service of notice
Any decision, order, summons, notice or other communication under the Act or the rules
made thereunder shall be served by any one of the following methods, as specified in section
169(1) of CGST Act:
(a) by giving or tendering it directly or by a messenger including a courier to the
addressee or the taxpayer or to his manager or authorised representative or an
advocate or a tax practitioner holding authority to appear in the proceeding on behalf
of the taxable person or to a person regularly employed by him in connection with
the business, or to any adult member of family residing with the taxable person, or
(b) by registered post or speed post or courier with acknowledgement due, to the person
for whom it is intended or his authorised representative, if any at his last known place
of business or residence, or
(c) by sending a communication to his e-mail address provided at the time of registration
or as amended from time to time, or
(d) by making it available on common portal, or
(e) by publication in a newspaper circulating in the locality in which the taxable person
or the person to whom it is issued is last known to have resided, carried on business
or personally worked for gain, or
(f) if none of the modes aforesaid is practicable, by affixing it in some conspicuous place
at his last known place of business or residence, and if such mode prescribed is also
not practicable for any reason, then by affixing a copy thereof on the notice board of
 871

the office of the concerned officer or authority who or which passed such decision or
order or issued such summons or notice.

Date of service of decision or notice - Every decision, order, summons, notice or any
communication shall be deemed to have been served on the date on which it is tendered or
published or a copy thereof is affixed in the manner provided in section 169(1) - section
169(2) of CGST Act.
Presumption of delivery when communication sent by registered post - When such
decision, order, summons, notice or any communication is sent by registered post or speed
post, it shall be deemed to have been received by the addressee at the expiry of the period
normally taken by a registered letter in transit unless the contrary is proved - section 169(3)
of CGST Act.
The only way by which non-delivery can be proved is by filing affidavit of non-delivery.
Notice served valid if acted upon or not challenged at earliest opportunity - The service of
any notice, order or communication shall not be called in question if the notice, order or
communication, as the case may be, has already been acted upon by the person to whom it
is issued or where such service has not been called in question at or in the earliest
proceedings commenced, continued or finalised pursuant to such notice, order or
communication - section 160(2) of CGST Act.
42.5 Tax collected but not deposited with Government
Every person who has collected from any other person any amount as representing the tax
under this Act, and has not paid the said amount to the Government, shall forthwith deposit
the said amount to the credit of the, regardless of whether the supplies in respect of which
such amount was collected are taxable or not - section 76(1) of CGST Act.
This is notwithstanding anything to the contrary contained in any order or direction of any
Appellate Authority or Appellate Tribunal or court or in any other provisions of this Act or
the rules made thereunder or any other law for the time being in force.
Thus, these provisions are overriding provisions.
Proper Officer can issue show cause notice to him and confirm demand after giving him
personal hearing.
The person shall be liable to pay interest as specified in section 50 from date of collection of
tax to date of payment of tax with Government- section 76(4) of CGST Act.
Penalty upto tax so collected can be imposed - section 76(1) of CGST Act.
The person who has borne the incidence of the amount may apply for the refund of the same
and for such refund provisions of unjust enrichment under section 54 will apply - section
76(11) of CGST Act.
Deputy/Assistant Commissioner of Central Tax has been designated as 'proper officer' for
purpose of section 76, i.e. to issue notice and demand where tax has been collected but the
person but has not deposited it with Government - CBE&C circular No. 3/3/2017-GST dated
5-7-2017 [State Government will prescribe 'proper officer' for purpose of SGST in the
respective State].
 872

Procedure for imposing penalty has been prescribed in rule 142 of CGST Rules, as inserted
w.e.f. 1-4-2019 [See details of procedure under 'Penalties'].
Procedure for representation and order - The representation of taxable person shall be in
form GST DRC-06 - rule 142(4) of CGST Rules, 2017.
Order passed to be uploaded in form GST-DRC-7 - After considering the representation and
after giving opportunity of personal hearing, summary of order passed under section 73(9)
or 74(9) or 76(3) or section 125 or section 129 or section 130 shall be uploaded electronically
in form GST DRC-7, specifying the amount of tax, interest and penalty payable - rule 142(5)
of CGST Rules, 2017 amended on 19-6-2018 and 10-9-2018.
[section 73(9) - Demand when no charge of suppression or fraud or wilful misstatement,
section 74(9) - Demand when there is charge of suppression or fraud or wilful misstatement,
section 76(3) - Demand when tax collected but not paid to Government, section 125 -
General penalty when separate penalty is not provided, section 129 - Detention and seizure
of goods and conveyances in transit, section 130 - Confiscation of goods or conveyances and
levy of penalty].
This order shall be treated as notice for recovery - rule 142(6) of CGST Rules, 2017.
42.6 CGST/SGST/UTGST paid when IGST was payable and vice versa
A taxable person who has paid CGST/SGST/UTGST (in SGST/UTGST Act) on a transaction
considered by him to be an intra-state supply, but which is subsequently held to be an inter-
state supply, shall, upon payment of IGST, be allowed to take the amount of
CGST/SGST/UTGST (in SGST/UTGST Act) so paid as refund subject to such conditions as may
be prescribed - section 77(1) of CGST Act.
Luckily interest will not be payable - section 77(2) of IGST Act.
Parallel provision is made in IGST, which reads as follows -
A taxable person who has paid IGST on a transaction considered by him to be an inter-state
supply, but which is subsequently held to be an intra-state supply, shall, upon payment of
CGST and SGST/UTGST in the appropriate State, be allowed to take the amount of IGST so
paid as refund subject to such conditions as may be prescribed - section 19(1) of IGST Act.
Luckily, interest will not be payable - section 19(2) of IGST Act.
Provision of unjust enrichment will not apply to such refund - section 54(7)(d) of CGST Act.
Unfair provision - Really there should be adjustment between Central Government and
State Government in such cases. That will be fair to taxable person. If the recipient has
availed input tax credit, refund will not be admissible. This will cause double jeopardy to the
taxable person.
At least IGST and IGST could be adjustable as both are with Central Government.
In Saji S. v. Commissioner, State GST Department Tax Tower, Thiruvananthapuram [2018] 99
taxmann.com 218 (Kerala), such adjustment was allowed. However, it is not possible to
approach High Court in each case.
42.6A Demand of tax if goods or services not accounted for or there is shortage
If the registered person fails to account for goods or services or both under section 35(1) of
CGST Act, the proper officer shall determine the tax payable on such goods or services as if
 873

such or services or both have been supplied. Provisions of sections 73 and 74 will apply
mutatis mutandis for recovery of such tax - section 35(6) of CGST Act.
Superintendent of Central Tax has been designated as 'proper officer' for the purpose of
raising demand - CBE&C circular No. 3/3/2017-GST dated 5-7-2017 [State Government will
prescribe 'proper officer' for purpose of SGST in the respective State].
42.6A-1 Meaning of 'Account for'
'Account for' does not mean 'making entry in books'. It only means 'explaining correct
position'.
In Pepsi Foods v. CCE 2002(139) ELT 658 (CEGAT), it was held that 'account for' means
explaining correct position of excisable goods as per law and not 'account' which would
relate to making of correct entries in account books. It was held that the sub-rule [Old rule
173Q(b)] relates to 'does not account for excisable goods' and not to cases involving 'does
not account excisable goods'. The distinction between expression 'writing accounts' and
'accounting for' is that the former relates to obligation to write accounts correctly and the
later relates to accounting for excisable goods manufactured, produced, stored etc. i.e.
explaining as to correct position of excisable goods manufactured by assessee. Thus, the
sub-rule [Old rule 173Q(b)] related to cases where assessee fails to explain that the goods
have been dealt with according to law, and not to cases where there had been failure to
make correct entries in account books.
Though the decision is under old rules, it will apply under new rule 25(1)(b) also, as the
wording is identical. Thus, so long as assessee is in a position to explain how goods have
been dealt with, penalty cannot be imposed merely because he failed to make proper entries
in Daily Stock Account [DSA].
In Dhanraj Enterprises v. CCE 2006 (199) ELT 518 (CESTAT SMB), it was held that 'account for'
means giving explanation and not 'entering in the books of account'. Thus, so long as
assessee explains about goods found in his possession, goods cannot be confiscated and
penalty cannot be imposed.
42.6A-2 Mere failure to make entry is not non-accountal
In Sugam Plast v. CCE 2005 (179) ELT 426 (CESTAT SMB), it was held that here is distinction
between 'an act of non-accountal' and a 'failure to make an entry'. Mere failure to make an
entry in stock register is not a case of 'non-accountal'. Hence, there is no warrant to
confiscate goods or impose penalty.
In D Oudh Sugar Mills Ltd. v. UOI - 1978(2) ELT J172 (SC), it was held that show cause notice
issued in absence of evidence of removal of goods without payment of duty, the findings are
without any tangible evidence and are based merely on inferences involving unwarranted
assumption are vitiated by an error of law.
Shortage of stock without evidence of clandestine removal cannot lead to inference of
evasion of duty. No penalty is imposable - CCE v. Minakshi Castings (2011) 274 ELT 180 (All
HC DB) - followed in CCE v. TST Pipes (2014) 309 ELT 560 (CESTAT SMB).
It is well settled that charge of clandestine removal cannot be based on mere shortages of
final products and charge has to be established by production of sufficient and positive
evidence - Prabhat Industries v. CCE 2006 (193) ELT 253 (CESTAT) * Neutral Glass v. CCE
 874

(2009) 235 ELT 337 (CESTAT SMB) * RHL Profiles v. CCE (2013) 290 ELT 247 (CESTAT SMB) *
CCE v. Trela Footwear (2014) 306 ELT 629 (CESTAT SMB) * H&R Johnson v. CCE (2014) 310
ELT 351 (CESTAT SMB).
Every shortage cannot be presumed to be case of clandestine removal in absence of other
corroborating evidence. However, charge of improper maintenance of accounts can be
sustained - J C Rolling Mills v. CCE (2012) 276 ELT 254 (CESTAT).
Mere shortage of final product and Cenvatted raw material is not clandestine removal in
absence of any evidence. Onus (burden) to establish clandestine removal lies on department
- Sun Pharmaceutical v. CCE (2009) 234 ELT 666 (CESTAT SMB) * Banco Products v. CCE (2008)
232 ELT 762 (CESTAT SMB).
Even if stock is found short, in absence of corroborative evidence, allegation of clandestine
removal is not sustainable. Assessee is only liable for non-Maintenance of statutory records
- Central Cables Ltd. v. CCE (2011) 272 ELT 735 (CESTAT).
42.6A-3 Burden of proof of clandestine removal is on department
Mere suspicion cannot take place of proof. Findings of revenue authorities based on pure
assumption and conjectures and on no evidence should be quashed - Gian Mahtani v. State
of Maharashtra - AIR 1971 SC 1898.
It is now well settled that strong suspicion, strange coincidences and grave doubts cannot
take place of legal proof - State of Kerala v. M M Mathew (1978) 42 STC 348 (SC).
Clandestine removal is a positive act and the burden to prove the same is on department.
Demand based on presumptions and conjectures has to be set aside - Icycold Commercial
Enterprise v. CCE 1994 (69) ELT 337 (CEGAT) * Trikoot Iron v. CCE (2015) 315 ELT 65 (CESTAT)
* Hingora Industries v. CCE (2015) 50 GST 111 = 54 taxmann.com 39 (CESTAT) * CCE v. Shakti
Zarda Factory (2015) 321 ELT 438 (Del HC DB) * Triveni Engineering v. CCE (2016) 54 GST 451
= 67 taxmann.com 151 = 334 ELT 595 (All HC DB).
Charge of clandestine removal is quasi-criminal and serious. It has to be proved by
production of positive and tangible evidences - Chandan Tobacco Co. v. CCE (2011) 270 ELT
87 (CESTAT) * Sulekhram Steels v. CCE (2011) 273 ELT 140 (CESTAT).
42.7 Recovery of tax
Once the demand is confirmed, the amount demanded should be paid within three months
from date of service of such order. If the amount is not paid, recovery proceedings shall be
initiated - section 78 of CGST and SGST Act.
The period of three months can be reduced by 'proper officer' for reasons to be recorded in
writing - proviso to section 78 of CGST and SGST Act.
Power to reduce the period of three months for the purpose of CGST is Principal
Commissioner/Commissioner of Central Tax, vide CBE&C circular No. 3/3/2017-GST dated 5-
7-2017 [State Government will prescribe 'proper officer' for purpose of SGST in the
respective State].
Recovery proceedings without issue of show cause notice if self assessed tax and interest
thereon not paid - Notwithstanding anything contained in section 73 or section 74, where
any amount of self-assessed tax in accordance with a return furnished under section 39
 875

remains unpaid, either wholly or partly, or any amount of interest payable on such tax
remains unpaid, the same shall be recovered under the provisions of section 79 of CGST Act
- - section 75(12) of CGST Act.
For the purposes of section 75(12), the expression "self-assessed tax" shall include the tax
payable in respect of details of outward supplies furnished under section 37 of CGST Act
[details of outward supplies in form GSTR-1], but not included in the return furnished under
section 39 of CGST Act [GSTR-3B] - explanation to section 75(12) of CGST Act substituted
vide Finance Act, 2021 w.e.f. date to be notified.
Sometimes, the supplier uploads details of tax invoices and debit notes in his GSTR-1 (so that
recipient can avail ITC) but does not include that turnover in his GSTR-3B return. Hence,
explanation to section 75(12) of CGST Act inserted vide Section 114 of Finance Act, 2021
w.e.f. date to be notified, provides that 'self-assessed tax' includes tax payable on details of
outward supply furnished in GSTR-1 but not included in GSTR-3B and recovery under section
79 of CGST Act can commence, without issuing notice under section 73 or 74 of CGST Act.
Thus, if outward invoices are uploaded by taxable person in his GSTR-1 but liability is not
shown in his GSTR-3B return, recovery of tax can be done without issuing demand notice.
Really, GSTR-1 is filed under section 37(1) of CGST Act. It only shows supplies made. It is not
declaration of tax payable. The tax payable is shown in GSTR-3B return filed under section
39(1) of CGST Act, which shows net tax liability after adjustment of Input Tax Credit. Tax
payable is assessed only when GSTR-3B is filed as it shows ITC available and net tax payable.
However, in view of explanation added, the tax shown as per GSTR-1 will be treated as tax
payable, after deducting ITC that might have been shown in GSTR-3B return.
In Kabeer Reality v. UOI (2020) 77 GST 518 = 112 taxmann.com 80 (MP HC DB), it was held
that recovery proceedings can commence on the basis of GSTR-1 filed, even if GSTR-3B
return is not filed. This judgment is now valid in view of the explanation added vide Finance
Act, 2021.
Penalty equal to 10% of tax is payable if self assessed tax is not paid within 30 days from due
date. This is notwithstanding any relaxation in penalty given under sections 73(6) and 73(8)
of CGST Act for voluntary payment of tax - section 73(11) of CGST Act.
Power of recovery to AC/DC - 'Proper Officer' to initiate and conduct recovery proceedings
for the purpose of CGST is Deputy Commissioner/Assistant Commissioner of Central Tax. All
powers of recovery under rules 143 to 156 of CGST Rules have been delegated to
Deputy/Assistant Commissioner of Central Tax, vide CBE&C circular No. 3/3/2017-GST dated
5-7-2017. [State Government will prescribe 'proper officer' for purpose of SGST in the
respective State].
Recovery of tax dues can be made from establishment with separate registration with
same PAN - A taxable person can have different GST Registrations in different States or even
in same State with same PAN. They are defined as 'distinct persons' under section 25(4) and
section 25(5) of CGST Act. However, recovery of dues can be made under section 79 of CGST
Act from such distinct persons also - explanation to section 79 of CGST Act inserted vide
CGST (Amendment) Act, 2018 w.e.f. 1-2-2019.
 876

Modes of recovery - As per section 79(1) of CGST Act, the proper officer (AC/DC) shall
proceed to recover the amount.
Recovery can be done by one or more of the modes mentioned below: -
Deduct from other amount payable - The proper officer may deduct or may require any
other specified officer to deduct the amount so payable from any money owing to such
person which may be under the control of the proper officer or such other specified officer
- section 79(1)(a) of CGST Act.
Such order should be issued I form GST DRC-09 - rule 143(1) of CGST Rules, 2017.
Detaining and selling goods under control of department - The proper officer may recover
or may require any other specified officer to recover the amount so payable by detaining
and selling any goods belonging to such person which are under the control of the proper
officer or such other specified officer - section 79(1)(b) of CGST Act.
Inventory and estimated market value shall be made. Goods should be sold by auction or e-
auction for which notice should be in form GST REG-10 - rule 144 of CGST Rules, 2017.
Notice of auction should be minimum 15 days, except in case of perishable goods - rule
144(3) of CGST Rules, 2017.
Pre-bid deposit should be obtained. Notice to successful bidder shall be in form GST DRC-11.
On payment of amount, certificate shall be issued to successful bidder I form GST DRC-12 -
rule 144(5) of CGST Rules, 2017. If bids are not received, re-auction can be made.
If defaulter pays the amount with expenses, process of auction should be cancelled - rule
144(6) of CGST Rules, 2017.
Garnishee proceedings - The proper officer may, by a notice in writing, require any other
person from whom money is due or may become due to such person or who holds or may
subsequently hold money for or on account of such person, to pay to the credit of the Central
or a State Government either forthwith upon the money becoming due or being held, or at
or within the time specified in the notice not being before the money becomes due or is
held, so much of the money as is sufficient to pay the amount due from such person or the
whole of the money when it is equal to or less than that amount- section 79(1)(c)(i) of CGST
Act.
The notice of such recovery shall be in form GST DRC-13. When third person pays the
amount, the certificate shall be in form GST DRC-14 - rule 145 of CGST Rules, 2017.
Every person to whom the notice is issued under this section shall be bound to comply with
such notice, and in particular, where any such notice is issued to a post office, banking
company or an insurer, it shall not be necessary to produce any pass book, deposit receipt,
policy or any other document for the purpose of any entry, endorsement or the like being
made before payment is made, notwithstanding any rule, practice or requirement to the
contrary- section 79(1)(c)(ii) of CGST Act.
In case the person to whom a notice under this section has been issued, fails to make the
payment in pursuance thereof to the Central or a State Government, he shall be deemed to
be a defaulter in respect of the amount specified in the notice and all the consequences of
this Act or the rules made thereunder shall follow- section 79(1)(c)(iii) of CGST Act.
 877

The officer issuing notice (garnishee notice) may, at any time or from time to time, amend
or revoke such notice or extend the time for making any payment in pursuance of the notice-
section 79(1)(c)(iv) of CGST Act.
Any person making any payment in compliance with a garnishee notice issued under section
79(1)(i) shall be deemed to have made the payment under the authority of the person in
default and such payment being credited to the appropriate Government shall be deemed
to constitute a good and sufficient discharge of the liability of such person to the person in
default to the extent of the amount specified in the receipt- section 79(1)(v) of CGST Act.
Any person discharging any liability to the person in default after service on him of the notice
issued under section 79(1)(i) shall be personally liable to the Central or a State Government
to the extent of the liability discharged or to the extent of the liability of the person in default
for tax, interest and penalty, whichever is less - section 79(1)(vi) of CGST Act.
Where a person on whom a notice is served under section 79(1)(i) proves to the satisfaction
of the officer issuing the notice that the money demanded or any part thereof was not due
to the person in default or that he did not hold any money for or on account of the person
in default, at the time the notice was served on him, nor is the money demanded or any part
thereof, likely to become due to the said person or be held for or on account of such person,
nothing contained in this section shall be deemed to require the person on whom the notice
has been served to pay to the credit of the appropriate Government any such money or part
thereof- section 79(1)(vii) of CGST Act.
Distrain and sale any property belonging to the person - The proper officer may, on an
authorisation by the competent authority and in accordance with the rules made in this
behalf, distrain any movable or immovable property belonging to or under the control of
such person, and detain the same until the amount payable is paid; and in case, any part of
the said amount payable or of the cost of the distress or keeping of the property, remains
unpaid for a period of thirty days next after any such distress, may cause the said property
to be sold and with the proceeds of such sale, may satisfy the amount payable and the costs
including cost of sale remaining unpaid and shall render the surplus amount, if any, to such
person- section 79(1)(d)of CGST Act.
Certification proceedings - Recovery as arrears of land revenue - The proper officer may
prepare a certificate signed by him specifying the amount due from such person and send it
to the Collector of the district in which such person owns any property or resides or carries
on his business or to any officer authorized by the Government and the said Collector or the
said officer, on receipt of such certificate, shall proceed to recover from such person the
amount specified thereunder as if it were an arrear of land revenue- section 79(1)(e) of CGST
Act.
The certificate shall be issued to Collector in form GST DRC-18 - rule 155 of CGST Rules, 2017.
Application to Magistrate to recover amount as fine - Notwithstanding anything contained
in the Code of Criminal Procedure, 1973, the proper officer may file an application to the
appropriate Magistrate and such Magistrate shall proceed to recover from such person the
amount specified thereunder as if it were a fine imposed by him- section 79(1)(f) of CGST
Act.
 878

Application to Magistrate shall be made in form GST DRC-19 - rule 156 of CGST Rules, 2017.
Application for enforcement of order of Court - If any amount is payable to defaulter in the
execution of decree of a civil court for payment of money or enforcement of mortgage,
request should be issued to Court in form GST DRC-05 and Court shall execute the decree -
rule 146 of CGST Rules, 2017.
Recovery by sale of movable ad immovable property of defaulter - Recovery can be made
by sale of movable and immovable property of defaulter. The detailed procedure has been
specified in rule 147 of CGST Rules.
No auction on holidays - Auction cannot be held on holidays - rule 149 of CGST Rules, 2017.
Assistance of police - Help of police can be taken for discharge of duties of proper officer-
rule 150 of CGST Rules, 2017.
Superintendent of Central Tax has been designated as 'proper officer' for the purpose for
asking help from police- CBE&C circular No. 3/3/2017-GST dated 5-7-2017 [State
Government will prescribe 'proper officer' for purpose of SGST in the respective State].
Attachment of debts and shares - A debt not secured by a negotiable instrument, a share
or movable property not in possession of defaulter can be attached by issuing order in form
GST DRC-06. Copy of such order shall be issued to debtors, the company and the person I
possession of movable property - rule 152 of CGST Rules, 2017.
Other modes of recovery - Attachment of property in custody of courts or public officer can
be made - rule 152 of CGST Rules, 2017.
Attachment of interest in partnership can be made - rule 152 of CGST Rules, 2017.
42.7-1 Recovery if bond was executed
Where the terms of any bond or other instrument executed under this Act or any rules or
regulations made thereunder provide that any amount due under such instrument may be
recovered in the manner laid down in section 79(1), the amount may, without prejudice to
any other mode of recovery, be recovered in accordance with the provisions of that sub-
section- section 79(2) of CGST Act.
42.7-2 Dues to Central Government can be recovered by State Government officer
Where any amount of tax, interest or penalty is payable by a person to the credit of the
Central Government under any of the provisions of this Act or the rules made thereunder
and which remains unpaid, the proper officer of SGST/UTGST, during the course of recovery
of SGST/UTGST arrears, may recover the amount from the said person as if it were an arrear
of SGST/UTGST and credit the amount so recovered to the account of the Central
Government- section 79(3) of CGST Act.
If amount recovered is less, it will be apportioned proportionately between Central
Government and State Government/Union Territory in proportion of amount due to each
Government/Union Territory- section 79(4) of CGST Act.
42.7-3 Department cannot take extra-legal steps like forcefully collecting cheque during
raid
In Chowhan Machinery Mart v. State of Orissa (2009) 19 VST 178 (Ori HC DB), following
observations of Supreme Court in Dabur India Ltd. v. State of Uttar Pradesh AIR 1990 SC
 879

1814 were quoted, 'Government, Central or State, cannot be permitted to play dirty games
with the citizens of this country to coerce them in making payments which the citizen were
not legally to make. If any money is due to Government, the Government should take
appropriate steps, but it should not take extra-legal steps or adopt the course of
maneuvering'.
Collection of cheques for recovery of dues is not permitted - Sonali Dyeing v. UOI (2009) 20
STT 441 (Guj HC DB) * Digipro Import v. UOI (2017) 350 ELT 145 = 353 ELT 3 (Del HC DB). *
Remark Flour Mills (P.) Ltd. v. State of Gujarat [2018] 92 taxmann.com 337 (Gujarat)
Often departmental authorities collect cheques from assessee by force by threatening at
time of preventive checks. In Abhishek Fashions v. UOI (2008) 15 STT 291 (Guj HC DB), it was
held that there is no provision to collect such cheques and department was asked to return
the cheques forthwith - similar order in Naresh Kumar and Co. v. UOI (2010) 28 STT 21 = 38
VST 332 (Cal HC DB) * Gullu's v. CTT (2016) 55 GST 264 = 67 taxmann.com 247 (Del HC DB).
* Remark Flour Mills v. State of Gujarat (2018) 67 GST 559 = 92 taxmann.com 337 (Guj HC
DB).
In Chitra Builders v. ACCE (2014) 44 GST 677 = 43 taxmann.com 453 (Mad HC DB), assessee
paid Rs two crores during search under coercion, without any assessment order. The amount
was ordered to be refunded.
42.7-4 Recovery under service tax, excise and Vat laws
Existing law means any law, notification, order, rule or regulation, relating to levy and
collection of duty or tax on goods or services or both passed or made before commencement
of CGST Act/SGST Act by Parliament or any authority or person having power to make such
law, notification, order, rule or regulation - section 2(48) of CGST Act and SGST Act.
Thus, 'existing law' means law relating to service tax, excise, State Vat etc.
Any demand under 'existing law' unless recovered under that law may be recovered under
GST Act. The demand may be uploaded in form GST DRC-07A electronically for recovery.
Demand of the order shall be posted in part II of Electronic Liability Register in form GST
PMT-01 - rule 142A(1) of CGST Rules, inserted w.e.f. 30-10-2018.
If the demand is modified or rectified or quashed in any proceedings, a summary thereof
shall be uploaded on common portal in form GST DRC-08A and part II of Electronic Liability
Register in form GST PMT-01 - rule 142A(2) of CGST Rules, inserted w.e.f. 30-10-2018.
42.8 No recovery if appeal is pending
If taxable person files appeal before Appellate Authority or Appellate Tribunal against a
demand, he is required to pre-deposit specified amount. Once such pre-deposit is made,
there will be no recovery proceeding for balance amount demanded.
42.9 Payment of tax and other amount in instalments
On an application filed by a taxable person, the Commissioner/Chief Commissioner may, for
reasons to be recorded in writing, extend the time for payment or allow payment of any
amount due under the Act, other than the amount due as per the liability self-assessed in
any return, by such person in monthly instalments not exceeding twenty four, subject to
 880

payment of interest under section 50 with such conditions and limitations as may be
prescribed- section 80 of CGST Act.
Application seeking extension in time or allowing payment in instalments, application shall
be made in form GST DRC-20. On receipt of report from jurisdictional officer, Commissioner
may issue order I form GST DRC-21 - rule 158(1) of CGST Rules, 2017.
This facility is not allowed if recovery if recovery process is on or amount is less than Rs
25,000 - rule 158(3) of CGST Rules, 2017.
However, where there is default in payment of any one instalment on its due date, the whole
outstanding balance payable on such date shall become due and payable forthwith and shall,
without any further notice being served on the person, be liable for recovery - proviso to
section 80 of CGST Act.
42.10 Transfer of property to be void in certain cases
Where a person, after any tax has become due from him, creates a charge on or parts with
the property belonging to him or in his possession by way of sale, mortgage, exchange, or
any other mode of transfer whatsoever of any of his properties in favour of any other person
with the intention of defrauding the Government revenue, such charge or transfer shall be
void as against any claim in respect of any tax or any other sum payable by the said person -
section 81 of CGST Act.
However, such charge or transfer shall not be void if it is made for adequate consideration
in good faith and without notice of the pendency of such proceeding under this Act or,
without notice of such tax or other sum payable by the said person, or with the previous
permission of the proper officer - proviso to section 81 of CGST Act.
Officer empowered to exercise powers under proviso to section 81 - 'Proper Officer' to
permit creation of charge, for the purpose of CGST is Additional Commissioner/Joint
Commissioner of Central Tax, vide CBE&C circular No. 3/3/2017-GST dated 5-7-2017 [State
Government will prescribe 'proper officer' for purpose of SGST in the respective State].
42.11 Tax to be first charge on property except under Insolvency Code
Notwithstanding anything to the contrary contained in any law for the time being in force,
save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, any amount
payable by a taxable person or any other person on account of tax, interest or penalty which
he is liable to pay to the Government shall be a first charge on the property of such taxable
person or such person - section 82 of CGST Act.
Insolvency Code overrides section 238 of CGST and SGST Act - Insolvency Code overrides
section 238 of CGST and SGST Act. Thus, if property was attached for recovery of GST dues,
the property is required to be detached and handed over to Resolution Professional - Ritesh
Prakash Adatiya v. Deputy Commissioner of State Tax (Enforcement) Division-8 Surat [2020]
115 taxmann.com 163 (NCLT).
42.12 Provisional attachment to protect revenue in certain cases
Scope of provisional attachment of property and bank accounts to protect interests of
Government revenue has been widened and some of decisions of High Courts have been
nullified by amendments made by Finance Act, 2021. The revised provision is as follows -
 881

Where, after the initiation of any proceeding under Chapter XII [Audit by tax authorities and
special audit - sections 65 and 66), Chapter XIV (Inspection, Search, Seizure and arrest -
sections 67 to 72) or Chapter XV (Demands and recovery - sections 73 to 84), the
Commissioner is of the opinion that for the purpose of protecting the interest of the
Government revenue it is necessary so to do, he may, by order in writing, attach
provisionally, any property, including bank account, belonging to the taxable person or any
person specified in section 122(1A) of CGST Act [person who is retaining benefit of specified
transaction and at whose instance the transaction is conducted - transactions relating to
bogus invoices and bogus ITC], in such manner as may be prescribed -section 83(1) of CGST
Act substituted vide Section 115 of Finance Act, 2021 w.e.f. date to be notified.
Thus, property of following can be provisionally attached - (a) person who is availing bogus
Input Tax Credit (b) Person to whom SCN has been issued under section 73 or 74, or recovery
proceedings under section 79 have been commenced (c) Audit, search, seizure or arrest is
under progress.
Such provisional attachment can continue upto one year from date of order - section 83(2)
of CGST Act.
In Cengres Tiles Ltd. v. State of Gujarat [2019] 75 GST 768 = 109 taxmann.com 110 (Gujarat
HC DB), it has been held that order of provisional attachment can be issued only after
proceedings under section 62 (or section 63, section 64 or section 67 or section 74)
commence.
Provisional attachment can be only when there is balance in bank account. An account with
debit balance (cash credit account) cannot be attached - Bindal Smelting P Ltd. v. ADG,
DGGSTI [2020] 80 GST 318 = 116 taxmann.com 28 (P&H HC DB) - following Kaneria Granito
Ltd. v. ACIT [2016] 71 taxmann.com 276 = 241 taxman 315 (Guj HC).
Powers of provisional attachment are drastic and should be exercises only if there is
sufficient material on record that assessee is about to dispose off his property with a view
to thwarting ultimate collection of demand. Provisional attachment should not be equated
with attachment of property in the course of recovery proceedings - Valerius Industries v.
UOI (2019) 109 taxmann.com 218 (Guj HC).
An order of provisional attachment cannot be as a matter of course. It is one of the drastic
measures which the authority may be compelled to take if the situation demands for the
purpose of protecting the interest of the Government Revenue. When there are plethora of
judgments explaining Section 83 in details, then why so much of litigation in the High Court.
The only reason that can be attributed is the mechanical exercise of power under section 83
of the Act. This should stop at the earliest - Vinodkumar Murlidhar Chechani v. State of
Gujarat [2021] 124 taxmann.com 272 = 45 GSTL 209 (Gujarat HC DB).
Procedure for provisional attachment and release of property - Order for provisional
attachment shall be in form GST DRC-22. If payment is made by defaulter, the property can
be released by issuing order in form GST DRC-23 - rule 159 of CGST Rules, 2017.
Departmental guidelines for provisional attachment - CBI&C, vide letter No. CBEC-
20/16/05/2021-GST/359 dated 23-2-2021, has issued guidelines for provisional attachment.
The guidelines are summarized below -
 882

The powers of provisional attachment are extraordinary and should be resorted to

with utmost circumspection and with maximum care and caution.
Collective evidence should indicate prima facie case against tax payer before going
ahead with provisional assessment.
If property attached is perishable/hazardous nature, it shall be released to taxable
person after payment of market price of such property or amount payable by taxable
person, whichever is lower.
Provisional attachment should not be resorted to in case of violations of technical
nature. These should be resorted mainly in cases of evasion of tax or availment of
wrongful Input Tax Credit. Like bogus invoices, frauds etc.
Normally, only immovable property should be attached. Movable property should be
attached only if immovable property is insufficient to protect interests of revenue.
Property attached should not be excessive. More than one property can be attached
and at different points of time.
Attachment should not hamper normal functioning of taxable person. Thus, raw
materials and inputs for production or finished goods should not be normally
attached.
Title deeds of immovable property should be checked
After provisional attachment, investigation and adjudication should be completed
fast so that tax, interest and penalty can be recovered and purpose of provisional
attachment is achieved.
Following property cannot be attached - (a) Property exempted from attachment by
Code of Civil Procedure, 1908 (b) Property for sale for execution of a decree of Civil
Court.

Present provision of provisional attachment - Where during the pendency of any

proceedings under section 62 (assessment of bob-filers of return), section 63 (Assessment
of Registered persons), section 64 (Summary Assessment) or section 67 (Inspection, search
and seizure) or section 74 (Determination of tax where suppression of facts, fraud or wilful
mis-statement is present), the Commissioner is of the opinion that for the purpose of
protecting the interest of the Government revenue, it is necessary so to do, he may, by order
in writing attach provisionally any property belonging to the taxable person in such a manner
as may be prescribed - section 83(1) of CGST Act [as existing upto notification of new section
83(1)]
Every such provisional attachment shall cease to have effect after the expiry of a period of
one year from the date of the order - section 83(2) of CGST Act.
42.13 Continuation and validation of certain recovery proceedings if amount
increased/reduced in appeal
 883

Where any notice of demand in respect of any tax, penalty, interest or any other amount
payable under this Act, (hereinafter in this section referred to as "Government dues"), is
served upon any taxable person and any appeal, revision application is filed or other
proceedings is initiated in respect of such Government dues, then, if Government dues are
enhanced in appeal, revision or other proceedings, the proceedings shall continue. Fresh
proceedings are not required - section 84(a) of CGST Act.
If Government dues are reduced in appeal, revision or other proceedings, fresh demand
notice is not required. Only reduced Government dues will be recovered.
Recovery proceedings initiated on the basis of the demand served upon him prior to the
disposal of such appeal, revision application or other proceeding may be continued in
relation to the amount so reduced from the stage at which such proceedings stood
immediately before such disposal - section 84 of CGST Act.
Order for reduction or enhancement of any demand under section 84 shall be in form GST
DRC-25 - rule 161 of CGST Rules, 2017.
42.14 Liability in some specified cases
GST Law has made specific provisions relating to liability in various situations and cases.
These are summarised below.
42.14-1 Liability in case of transfer of business
Where a taxable person, liable to pay tax under this Act, transfers his business in whole or
in part, by sale, gift, lease, leave and license, hire or in any other manner whatsoever, the
taxable person and the person to whom the business is so transferred shall jointly and
severally be liable wholly or, as the case may be, to the extent of such transfer, to pay the
tax, interest or any penalty due from the taxable person up to the time of such transfer,
whether such tax, interest or penalty has been determined before such transfer, but has
remained unpaid or is determined thereafter - section 85(1) of CGST Act.
Where the transferee or the lessee of a business referred to in section 86(1) carries on such
business either in his own name or in some other name, he shall be liable to pay tax on the
supply of goods or services or both effected by him with effect from the date of such transfer
and shall, if he is an existing taxable person, apply within the prescribed time for amendment
of his certificate of registration - section 85(2) of CGST Act.
42.14-2 Liability of agent and principal
Where an agent supplies or receives any taxable goods on behalf of his principal, such agent
and his principal shall be jointly and severally liable to pay the tax payable on such goods
under the Act - section 86 of CGST Act.
42.14-3 Liability in case of company in liquidation
When any company is being wound up whether under the orders of a court or Tribunal or
otherwise, every person appointed as receiver of any assets of a company (hereinafter
referred to as the "liquidator"), shall, within thirty days after his appointment, give
intimation of his appointment to the Commissioner- section 88(1) of CGST Act.
The Commissioner shall, after making such inquiry or calling for such information as he may
deem fit, notify the liquidator within three months from the date on which he receives
 884

intimation of the appointment of the liquidator, the amount which in the opinion of the
Commissioner would be sufficient to provide for any tax, interest or penalty which is then,
or is likely thereafter to become, payable by the company - section 88(2) of CGST Act.
Notice to liquidator shall be issued by Commissioner in form GST DRC-24.
Liability under tax laws continues even after dissolution - Even if name of company is struck
off or is dissolved, the tax liability exists and proceedings under tax law can continue - CIT v.
Gopal Shri Scripts P Ltd. (2019) 262 Taxman 356 = 104 taxmann.com 192 (SC) [decision under
income tax law but principle applies to other tax laws also].
42.14-4 Liability of directors in case of company under winding up
When any company is wound up and any tax, interest or penalty determined under this Act
on the company for any period, whether before or in the course of or after its liquidation,
cannot be recovered, then every person who was a director of such company at any time
during the period for which the tax was due, shall jointly and severally be liable for the
payment of such tax, interest or penalty, unless he proves to the satisfaction of the
Commissioner that such non-recovery is not attributed to any gross neglect, misfeasance or
breach of duty on his part in relation to the affairs of the company - section 88(3) of CGST
Act.
42.14-5 Liability of directors of private company
Notwithstanding anything contained in the Companies Act, 2013, where any tax, interest or
penalty due from a private company in respect of any supply of goods or services for any
period or from any other company in respect of any supply of any period during which such
other company was a private company cannot be recovered, then, every person who was a
director of the private company during such period, shall, jointly and severally be liable for
the payment of such tax, interest and penalty unless he proves that the non-recovery cannot
be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to
the affairs of the company - section 89(1) of CGST Act.
There is similar provision in Income-tax Act.
42.14-6 Liability when private company was converted into public company
Where a private company is converted into a public company and the tax assessed in respect
of any supply of goods or services for any period during which such company was a private
company cannot be recovered, then, nothing contained in section 89(1) shall apply to any
person who was a director of such private company in relation to any tax, interest or penalty
due in respect of any supply of such private company - section 89(2) of CGST Act.
However, personal penalty imposed on director can be recovered - proviso to section 89(2)
of CGST Act.
42.14-7 Liability of partners and LLP of firm to pay tax
LLP (Limited Liability Partnership) shall be considered as firm for purposes of Chapter XVI of
CGST Act [Liability in certain cases] - Explanation to section 94 of CGST Act.
Notwithstanding any contract to the contrary, where any firm is liable to pay any tax, interest
or penalty under this Act, the firm and each of the partners of the firm shall jointly and
severally be liable for such payment - section 90 of CGST Act.
 885

Liability of partner who has retired - Where any partner retires from the firm, he or the
firm, shall intimate the date of retirement of the said partner to the Commissioner by a
notice in that behalf in writing and such partner shall be liable to pay tax, interest or penalty
due up to the date of his retirement whether determined or not, on that date - first proviso
to section 90 of CGST Act.
If no such intimation is given within one month from the date of retirement, the liability of
such partner under the first proviso shall continue until the date on which such intimation is
received by the Commissioner - second proviso to section 90 of CGST Act.
Liability even if business discontinued or change in constitution or dissolved - Liability of
firms and each of partners will continue even if business discontinued or there is change in
constitution or firm is dissolved - section 94 of CGST Act.
42.14-8 Liability if partnership firm or LLP is dissolved
Save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, where a taxable
person, liable to pay tax, interest or penalty under this Act, is a firm, and the firm is dissolved,
then, every person who was a partner shall, jointly and severally, be liable to pay the tax,
interest or penalty due from the firm under this Act up to the time of dissolution whether
such tax, interest or penalty has been determined before the dissolution, but has remained
unpaid or is determined after dissolution - section 93(3) of CGST Act.
LLP (Limited Liability Partnership) shall be considered as firm for purposes of Chapter XVI of
CGST Act [Liability in certain cases] - explanation to section 94 of CGST Act.
42.14-9 Liability of guardians, trustees etc.
Where the business in respect of which any tax, is payable under this Act is carried on by any
guardian, trustee or agent of a minor or other incapacitated person on behalf of and for the
benefit of such minor or other incapacitated person, the tax, interest or penalty shall be
levied upon and recoverable from such guardian, trustee or agent, as the case may be, in
like manner and to the same extent as it would be determined and recoverable from any
such minor or other incapacitated person, as if he were a major or capacitated person and
as if he were conducting the business himself, and all the provisions of this Act shall, so far
as may be, apply accordingly - section 91 of CGST Act.
42.14-10 Liability of Court of Wards etc.
Where the estate or any portion of the estate of a taxable person owning a business in
respect of which any tax, interest or penalty is payable under this Act is under the control of
the Court of Wards, the Administrator General, the Official Trustee or any receiver or
manager (including any person, whatever be his designation, who in fact manages the
business) appointed by or under any order of a court, the tax, interest or penalty shall be
levied upon and be recoverable from such Court of Wards, Administrator General, Official
Trustee, receiver or manager, as the case may be, in like manner and to the same extent as
it would be determined and be recoverable from the taxable person as if he were conducting
the business himself, and all the provisions of this Act shall, so far as may be, apply
accordingly - section 92 of CGST Act.
42.14-11 Liability if a person dies
 886

Save as otherwise provided in Insolvency and Bankruptcy Code, where a person, liable to
pay tax under this Act, dies, then-
(a) if a business carried on by the person is continued after his death by his legal
representative or any other person, such legal representative or other person, shall
be liable to pay tax, interest or penalty due from such person under this Act, and
(b) if the business carried on by the person is discontinued, whether before or after his
death, his legal representative shall be liable to pay out of the estate of the deceased,
to the extent to which the estate is capable of meeting the charge, the tax, penalty
or interest due from such person under this Act,

whether such tax interest or penalty has been determined before his death but has
remained unpaid or is determined after his death - section 93(1) of CGST Act.
Death of person liable to render an account of property received by him does not affect
liability of his estate - Girijanandini Devi v. Bijendra Choudhary AIR 1967 SC 1124.
However, notice cannot be issued to a dead person - Bharti Harendra Modi v. ITO (2019) 266
Taxman 314 = 109 taxmann.com 389 (Guj HC DB) - relying on Chandreshbhai Jyantibhai Patel
v. ITO (2019) 101 taxmann.com 362/261 Taxman 137 (Guj HC).
42.14-12 Liability in case of partition of HUF or AOP
Save as otherwise provided in Insolvency and Bankruptcy Code, where a taxable person,
liable to pay tax under this Act, is a Hindu Undivided Family or an association of persons and
the property of the Hindu Undivided Family or the association of persons, as the case may
be, is partitioned amongst the various members or groups of members then each member
or group of members shall jointly and severally be liable to pay the tax, interest or penalty
due from the taxable person under this Act upto the time of the partition whether such tax,
penalty or interest has been determined before partition but has remained unpaid or is
determined after the partition - section 93(2) of CGST Act.
Liability even if business discontinued or change in constitution or dissolved - Liability of
HUF or AOP and each of its members will continue even if business discontinued or there is
change in constitution or HUF or AOP is dissolved - section 94 of CGST Act.
42.14-13 Liability when guardianship or trusteeship is terminated
Save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, where a taxable
person liable to pay tax, interest or penalty under this Act,--(a) is the guardian of a ward on
whose behalf the business is carried on by the guardian; or (b) is a trustee who carries on
the business under a trust for a beneficiary, then, if the guardianship or trust is terminated,
the ward or the beneficiary shall be liable to pay the tax, interest or penalty due from the
taxable person upto the time of the termination of the guardianship or trust, whether such
tax, interest or penalty has been determined before the termination of guardianship or trust
but has remained unpaid or is determined thereafter - section 93(4) of CGST Act.
42.15 Summary of provisions relating to demands for tax, input tax credit and penalty
 887

Description No suppression of facts to There is suppression of facts

evade tax, wilful statement or to evade tax, wilful statement
fraud or fraud

Reason for demand Tax not paid or short paid, Tax not paid or short paid,
erroneous refund or wrong erroneous refund or wrong
availment/utilisation of input tax availment/utilisation of input
credit. tax credit.
Time limit for issue of demand Two years and nine months Four years and six months
from due date for furnishing [section 73(2)] [section 74(2)]
annual return for the financial
year

Time limit for issue of order Three years [section 73(10)] Five years [section 74(10)]
confirming demand from due
date for furnishing annual return
for the financial year
Issue of statement instead of Permissible - section 73(3) and Can be issued but not alleging
detailed show cause notice if for 73(4)] fraud, suppression or wilful
notice was issued for earlier misstatement [as department
period on same grounds was already aware of facts]
[section 74(3) and 74(4)]

Tax and interest payable under No penalty payable. Penalty of 15% of tax due
section 50 paid on own After such payment, show payable with tax due and
ascertainment or on basis of tax cause notice shall not be served interest.
ascertained by proper officer in respect of the tax paid or After such payment, show
before Show Cause Notice (SCN) penalty payable under any cause notice shall not be served
and inform proper officer [such provision of Act Thus, obviously, in respect of the tax paid or
self-ascertainment can be during matter stands concluded, even penalty payable under any
investigation, audit, raid or against co-noticees [section provision of Act. Thus,
verification also] 73(5) and 73(6)]. obviously, matter stands
concluded, even against co-
noticees [section 74(5) and
74(6)].
Tax and interest paid within No penalty payable. Penalty of 25% of tax due
thirty days of date of issue of After such payment, all payable with tax due and
show cause notice (but before proceedings in respect of notice interest.
issue of adjudication order) shall stand concluded.Thus, After such payment, all
obviously, matter stands proceedings in respect of
concluded, even against co- notice stand concluded. Thus,
noticees [section 73(8)]. obviously, matter stands
 888

concluded, even against co-

noticees [section 74(8)]
Tax, interest and reduced penalty Penalty of 10% of tax or Rs Penalty of 100% of tax plus tax
paid after adjudication order 10,000 whichever is higher plus and interest payable [section
tax and interest payable 74(1)]
[section 73(9)] Penalty 50% if tax, interest and
50% of penalty paid within 30
days from communication of
order [section 74(11)]
After such payment, all
proceedings in respect of
notice shall stand concluded.
Recovery proceedings of tax and Recovery proceeding under No question of suppression or
interest without show cause section 79 can commence. wilful misstatement or fraud,
notice [show cause notice not Penalty of 10% payable if self- as tax payable has been
required as per section 75(12)]. assessed tax not paid within 30 indicated in the return.
days - section 73(11)]
 889

Refund in GST
43.1 Refund of tax and interest
Normally, refund provisions apply only in case of (a) zero rated supplies (exports and supplies
to SEZ) and (b) Inverted duty structure i.e. input credit more than tax payable on output
supply (but not in case of exempted supply or supply with Nil rate of tax).
Taxable person can also claim refund if he has paid excess tax by mistake.
The refund of input tax credit and refund of IGST paid on export of services is handled by
GST department while refund of IGST on goods exported is handled by customs.
General experience is that getting refund of IGST paid on exported goods is much easier and
simpler than getting refund of ITC.
No provision for payment of tax under protest - There is no provision for payment of tax
under protest - FAQ on GST Chapter 14 Q No. 55 issued by CBI&C on 15-12-2018. Thus, the
time limit for filing refund claim is mandatory and does not get extended by paying GST
under protest [In my view, 'payment under protest' is only a way to reserve right of refund,
appeal etc. In any case, refund application must be filed in time].
Processing of refund claim of IGST paid on exported goods by customs department, other
refund claims by GST department - If an exporter pays IGST on goods exported by him or
goods supplied to SEZ Unit or SEZ Developer, the refund claim will be processed by customs
department. These issues are discussed in chapter on 'exports'.
All other refund claims (like refund of Input Tax Credit in case of export of goods or services,
refund of IGST paid on export of services, refund due to inverted duty structure, refund of
tax paid my mistake, refund for any other reason) will be processed by Central or State
Government authorities as per their jurisdiction over the taxable person.
These issues are discussed in this chapter which is on 'refunds'.
No refund of IGST paid during 1-7-2017 to 30-9-2017 if exporter had claimed higher rate of
duty drawback - During 1-7-2017 to 30-9-2017, exporters were eligible to claim higher rate
of duty drawback with condition that they will not claim refund of IGST paid on exported
goods. They claimed higher rate of duty drawback and submitted necessary declaration
(they did not realise that amount of refund of IGST is much higher than the duty drawback
available). Hence, now, they cannot claim refund of IGST - MF(DR) circular No. 37/2018-Cus
dated 9-10-2018.
Refund claim cannot be denied merely because it was claimed under wrong provision -
Refund claim cannot be denied merely because it was claimed under wrong provision during
transition period. There being lack of clarity with respect to refund of IGST, petitioners
having inadvertently claimed benefit under a wrong provision during transitional period,
could not have been denied substantive benefit of IGST paid by them on exports - TMA
International (P.) Ltd. v. Union of India [2020] 113 taxmann.com 22 (Delhi HC DB).
Refund in electronic credit ledger if excess tax was paid through electronic credit ledger -
Where a registered person has claimed refund of any amount paid as tax wrongly paid or
paid in excess for which debit has been made from the electronic credit ledger, the said
amount, if found admissible, shall be re-credited to the electronic credit ledger by the proper
 890

officer by an order made in form GST PMT-03 - rule 86(4A) of CGST Rules, inserted w.e.f. 23-
3-2020 - clarified in CBI&C Circular No.135/05/2020 - GST dated 31-3-2020.
[Obviously, such refund shall be subject to provisions of unjust enrichment].
In CBI&C Circular No.135/05/2020 - GST dated 31-3-2020, it has been clarified that this
provision applies in following cases -
1. Refund of excess payment of tax.
2. Refund of tax paid on intra-State supply which is subsequently held to be inter-State
supply and vice versa.
3. Refund on account of assessment/provisional assessment/appeal/any other order.
4. Refund on account of "any other" ground or reason.
43.1-1 Refund claim to be filed within two years from 'relevant date'
Any person claiming refund of any tax and interest, if any, paid on such tax or any other
amount paid by him, may make an application in that regard to the proper officer of
IGST/CGST/SGST/UTGST before the expiry of two years from the relevant date in prescribe
form and manner - section 54(1) of CGST Act.
Time limit for filing refund claim was one year in excise and service tax.
As per Explanation 2 to section 54 of CGST Act, "relevant date" means -
(a) in the case of goods exported out of India where a refund of tax paid is available in
respect of the goods themselves or, as the case may be, the inputs or input services
used in such goods, - (i) if the goods are exported by sea or air, the date on which the
ship or the aircraft in which such goods are loaded, leaves India, or (ii) if the goods
are exported by land, the date on which such goods pass the frontier, or (iii) if the
goods are exported by post, the date of despatch of goods by Post Office concerned
to a place outside India.
(b) in the case of supply of goods regarded as deemed exports where a refund of tax paid
is available in respect of the goods, the date on which the return relating to such
deemed exports is filed.
(c) in the case of services exported out of India where a refund of tax paid is available in
respect of services themselves or, as the case may be, the inputs or input services
used in such services, the date of - (i) receipt of payment in convertible foreign
exchange or in Indian rupees wherever permitted by RBI, where the supply of service
had been completed prior to the receipt of such payment or (ii) issue of invoice,
where payment for the service had been received in advance prior to the date of
issue of the invoice. The words in italics inserted w.e.f. 1-2-2019.
(d) in case where the tax becomes refundable as a consequence of judgment, decree,
order or direction of Appellate Authority, Appellate Tribunal or any Court, the date
of communication of such judgment, decree, order or direction.
(e) in the case of refund of unutilised input tax credit under clause(ii) of the first proviso
to section 54(5), the due date for furnishing of return under section 39 for the period
in which such claim for refund arises [The words in italics substituted vide CGST
 891

(Amendment) Act, 2018 w.e.f. 1-2-2019. The earlier words were as follows - in the
case of refund of unutilized input tax credit under section 54(3) of CGST Act, the end
of the financial year in which such claim for refund arises.
(f) in the case where tax is paid provisionally under CGST Act or the rules made
thereunder, the date of adjustment of tax after the final assessment thereof.
(g) in the case of a person, other than the supplier, the date of receipt of goods or
services by such person, and
(h) in any other case, the date of payment of tax.

43.1-2 Manual processing of refund applications upto 26-9-2019

The CGST Rules provide for processing of refund application through GSTN portal. However,
since the GSTN portal was not in position to accept refund claim, provision of application of
refund manually was made. It was provided that all processes or procedures specified in
Rules include manual filing of application, intimation, reply, declaration, statement or
issuance of any notice, order or certificate in prescribed form- Rule 97A of CGST Rules,
inserted w.e.f. 15-11-2017.
Though GST was introduced w.e.f. 1-7-2017, electronic refund module on the common
portal was not ready. Hence, a temporary mechanism was devised and implemented
wherein applicants were required to file the refund application in FORM GST RFD-01A on
the common portal, take a print out of the same and submit it physically to the jurisdictional
tax office along with all supporting documents. Further processing of these refunds was
done manually.
Till 26-9-2019, refund applications were filed online but processed manually by GST
department. Now, the refunds will be processed online. However, all refund claims filed
prior to 26-9-2019 will be processed offline by department as per earlier instructions.
Application for refund (manual) was required in following cases - (a) Refund of IGST paid on
export of services (b) Refund of unutilized input tax credit due to accumulation of credit of
tax paid on inputs or input services used in making zero rated supplies of goods or services
or both (c) Inverted duty structure (d) Refund of IGST paid on supplies to SEZ unit or SEZ
developer (e) refund of balance in electronic cash ledger (f) Refund for any other reason
The refund application was required in form GST-RFD 01A.
In the department, a 'Refund Register' was maintained. Entry was made for receipt of refund
application. If application is complete, acknowledgement was issued manually in form GST
RFD-02 within fifteen days. Initially provisional refund was sanctioned and then final order
was issued after due verification. Pre-audit is not required but post-audit of orders should
be carried out.
Various circulars were issued from time to time, as follows - Circular No. 17/17/2017-GST
dated 15.11.2017, 24/24/2017-GST dated 21.12.2017, 37/11/2018-GST dated 15.03.2018,
45/19/2018-GST dated 30.05.2018 (including corrigendum dated 18.07.2019), 59/33/2018-
GST dated 04.09.2018, 70/44/2018-GST dated 26.10.2018, 79/53/2018-GST dated
31.12.2018 and 94/13/2019-GST dated 28.03.2019.
 892

Now, electronic refund system has been introduced w.e.f. 26-9-2019. Hence, the aforesaid
circulars have been withdrawn and fresh instructions have been given vide CBI&C Circular
No. 125/44/2019 - GST dated 18-11-2019. However, refunds filed earlier will be processed
on the basis of aforesaid circulars only.
43.1-3 Fully electronic refund process through FORM GST RFD-01 and single disbursement
w.e.f. 26-9-2019
The applications for the following types of refunds shall be filed in form GST RFD 01 on the
common portal w.e.f. 26-9-2019 and the same shall be processed electronically [para 3 of
CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019].
(a) Refund of unutilized input tax credit (ITC) on account of exports without payment of
tax.
(b) Refund of tax paid on export of services with payment of tax.
(c) Refund of unutilized ITC on account of supplies made to SEZ Unit/SEZ Developer
without payment of tax.
(d) Refund of tax paid on supplies made to SEZ Unit/SEZ Developer with payment of tax.
(e) Refund of unutilized ITC on account of accumulation due to inverted tax structure.
(f) Refund to supplier of tax paid on deemed export supplies.
(g) Refund to recipient of tax paid on deemed export supplies.
(h) Refund of excess balance in the electronic cash ledger.
(i) Refund of excess payment of tax.
(j) Refund of tax paid on intra-State supply which is subsequently held to be inter-State
supply and vice versa.
(k) Refund on account of assessment/provisional assessment/appeal/any other order.
(l) Refund on account of "any other" ground or reason.

43.2 Authority to allow and disburse refund

Deputy/Assistant Commissioner of Central Tax is designated as 'proper officer' for the
purpose of granting refund. He is 'proper officer' for purpose of section 54 of CGST Act and
rules 90 to 97 of CGST Rules - CBI&C circular No. 3/3/2017-GST dated 5-7-2017 [State
Government has prescribed 'proper officer' for purpose of SGST in the respective State].
Powers to Central Government to refund State Tax and vice versa - Presently, if taxable
person is under jurisdiction of Central Government, if Central Government sanctions refund,
the taxable person has to go to State/Union Territory GST authorities to get refund of
SGST/UTGST. Now, it is provided that Central Tax Authorities may refund SGST/UTGST also,
in such manner and within such time as may be prescribed - section 54(8A) of CGST Act
inserted vide Finance (No. 2) Act, 2019 w.e.f. 1-9-2019. Similar provision will be made in
SGST Acts also, empowering State Government officers to refund CGST.
 893

This provision has been implemented w.e.f. 24-9-2019.

Delegation of powers to grant refund of CGST and IGST to State Authorities - State Tax
Officers have been granted powers to grant refunds under section 20 of CGST Act, read with
sections 54 and 55 of CGST Act and rules thereunder, except sub-rules (1) to (8) and sub-rule
(10) of Rule 96 of CGST Rules in respect of registered person in their territorial jurisdiction, if
they are 'proper officers' for that registered person in that State - Notification No. 39/2017-
CT and 11/2017-IT both dated 13-10-2017 [The words in italics inserted w.e.f. 23-1-2018].
Rule 96 of CGST Rules is in respect of refunds in case of exports. Rule 96(9) of CGST Rules is
in respect of refund in case of export of services.
Thus, in case of export of goods, refund will be handled by customs officer, while in case of
export of services, refund can be sanctioned by state tax officer, if he is 'proper officer'.
Parallel notifications are expected to be issued by State Governments under SGST Act to
authorize Central Tax Officers to grant refunds under SGST Act in respect of registered
person in their territorial jurisdiction.
Reassignment of application to correct jurisdictional officer if transmitted to wrong officer
- If a refund application is electronically transmitted to the wrong jurisdictional officer,
he/she shall reassign it to the correct jurisdictional officer electronically as soon as possible,
but not later than three working days, from the date of generation of the ARN. Deficiency
memos shall not be issued in such cases merely on the ground that the applications were
received electronically in the wrong jurisdiction. Facility to reassign such refund applications
is already available with the Commissioner or the officer(s) authorized by him.
Processing of refund application by jurisdictional officer if taxpayer has not been assigned
to officer - The refund application in FORM GST RFD-01 filed by all taxpayers, who have
already been assigned to the Centre or the State tax authorities, shall be automatically
forwarded by the common portal to the concerned authority. At the same time, there might
be some migrated taxpayers, who have remained unassigned so far. The refund application
in FORM GST RFD-01 filed by such unassigned taxpayers shall be forwarded, for processing,
by the common portal to the jurisdictional proper officer of the tax authority from which the
taxpayer has originally migrated.
Such officers will continue to process these applications up to the stage of issuance of final
order in FORM GST RFD-06 and the related payment order in FORM GST RFD-05 even if the
applicant is assigned to the counterpart tax authority while the refund claim is under
processing. However, if such an applicant gets assigned to one of the tax authorities after
generation of the ARN and a deficiency memo gets issued for the refund application
submitted by him, then the re-submitted refund application, after correction of deficiencies,
shall be treated as a fresh refund application and shall be forwarded to the jurisdictional
proper officer of the tax authority to which the taxpayer has now been assigned, irrespective
of which authority handled the initial refund claim and issued the deficiency memo - para 5
of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
Integrated refund system with disbursal by single authority - Subsequent to insertion of
section 54(8A) of CGST Act, a system of integrated refund has been introduced w.e.f. 24-9-
 894

2019. Thus, officer of CGST/SGST/UTGST will sanction and disburse both CGST and
SGST/UTGST.
Disbursal of refunds of all taxes by jurisdictional officer only - For a refund application
assigned to a Central tax officer, both the sanction order (FORM GST RFD-04/06) and the
corresponding payment order (FORM GST RFD-05) for the sanctioned refund amount, under
all tax heads, shall be issued by the Central tax officer only. Similarly, for refund applications
assigned to a State/UT tax officer, both the sanction order (FORM GST RFD-04/06) and the
corresponding payment order (FORM GST RFD-05) for the sanctioned refund amount, under
all tax heads, shall be issued by the State/UT tax officer only - para 27 of CBI&C Circular No.
125/44/2019 - GST dated 18-11-2019.
43.3 Statutory provisions for refund under GST Law
The application for refund shall be accompanied by -
(a) Such documentary evidence as may be prescribed to establish that a refund is due to
the applicant, and
(b) Evidence that incidence of duty has not been passed on by him to any other person.
However, where the amount claimed as refund is less than two lakh rupees, self
declaration based on documents available with him is sufficient - section 54(4) of
CGST Act.

Scrutiny of refund claim and passing of order - If, on receipt of any such application, the
proper officer is satisfied that the whole or part of the amount claimed as refund is
refundable, he may make an order accordingly and the amount so determined shall be
credited to the 'Consumer Welfare Fund', except where taxable person proves that he has
not passed on burden of tax to another person.
Time limit for deciding refund claim - The proper officer shall issue the order refusing or
accepting refund claim within sixty days from the date of receipt of application complete in
all respects - section 54(5) of CGST Act.
[Thus, department can surely find some excuse for not deciding refund claim within 60 days].
Extension of time limit for passing order during lockdown period - In view of the spread of
pandemic COVID-19 across many countries of the world including India, the Government,
on the recommendations of the Council, hereby notifies that in cases where a notice has
been issued for rejection of refund claim, in full or in part and where the time limit for
issuance of order in terms of the provisions of section 54(5), read with section 54(7) of the
CGST Act falls during the period from the 29-3-2020 to 30-8-2020, in such cases the time
limit for issuance of the said order shall be extended to fifteen days after the receipt of reply
to the notice from the registered person or the 31-8-2020, whichever is later - Notification
No. 46/2020-CT dated 9-6-2020 as amended on 27-6-2020.
No refund if amount less than Rs. 1,000 - No refund shall be paid to an applicant if the
amount is less than rupees one thousand - section 54(14) of CGST Act.
If refund amount is less than Rs. 1,000 (for each tax separately), the refund claim will not be
admitted in GST portal. Acknowledgement Reference Number will not be generated. The
limit does not apply to refund of balance in electronic cash ledger - CBI&C Instruction F No.
 895

349/54/2017-GST dated 8-5-2018 as amended by CBI&C Instruction F No. 349/54/2017-GST

dated 1-6-2018.
It is clarified that the limit of rupees one thousand shall be applied for each tax head
separately and not cumulatively - para 60 CBI&C Circular No. 125/44/2019 - GST dated 18-
11-2019.
43.3-1 Application for refund of tax, interest, penalty, fees or any other amount
Any person, except the persons covered by notification issued under section 55 (UN
Agencies, Embassies), claiming refund of any tax, interest, penalty, fees or any other amount
paid by him, may file an application in form GST RFD-01 electronically - Rule 89(1) of CGST
and SGST Rules, 2017.
Refund of balance in Electronic Cash Ledger - Any claim for refund relating to balance in
the electronic cash ledger in accordance with the provisions of section 49(6) may also be
made through the return furnished for the relevant tax period in form GSTR-3, form GSTR-4
or form GSTR-7, as the case may be: - first proviso to Rule 89(1) of CGST and SGST Rules,
2017.
Refund application in case of supply of goods to SEZ - In respect of supplies of goods to a
Special Economic Zone unit or a Special Economic Zone developer, the application for refund
shall be filed by the supplier of goods after such goods have been admitted in full in the
Special Economic Zone for authorized operations, as endorsed by the specified officer of the
Zone - second proviso (a) to Rule 89(1) of CGST and SGST Rules, 2017.
SEZ unit itself cannot claim refund - Adani Power Ltd. v. Commissioner of Central Tax [2019]
111 taxmann.com 142 (CESTAT) * Vaachi International P Ltd. In re (2020) 121 taxmann.com
191 (Appellate Authority (GST) - AP).
Refund application in case of supply of services to SEZ - In respect of supplies of services to
a Special Economic Zone unit or a Special Economic Zone developer, the application for
refund shall be filed by the supplier of services along with such evidence regarding receipt
of services for authorized operations as endorsed by the specified officer of the Zone -
second proviso (b) to Rule 89(1) of CGST and SGST Rules, 2017.
Refund claim in case of deemed export either by recipient or supplier - In respect of supplies
regarded as deemed exports, the application may be filed by - (a) the recipient of deemed
export supplies; or (b) the supplier of deemed export supplies in cases where the recipient
does not avail of input tax credit on such supplies and furnishes an undertaking to the effect
that the supplier may claim the refund -- third proviso to Rule 89(1) of CGST and SGST Rules,
2017 as amended w.e.f. 18-10-2017.
Refund of advance tax by casual or non-resident taxable person - Refund of any amount,
after adjusting the tax payable by the applicant out of the advance tax deposited by him
under section 27 (casual taxable person or non-resident taxable person) at the time of
registration, shall be claimed either in the last return required to be furnished by him or only
after furnishing of the said last return - fourth proviso to rule 89(1) of CGST and SGST Rules,
2017.
Refund of IGST paid on services exported - Refund of IGST paid on services exported shall
be filed in form GST RFD-01 and shall be dealt with in accordance with provisions of rule 89
 896

of CGST Rules - Rule 96(9) of CGST and SGST Rules, 2017 amended with retrospective effect
from 23-10-2017.
43.3-2 Debit to Electronic Cash Ledger if refund claimed from electronic cash ledger
Where a person has claimed refund of any amount from the electronic cash ledger, the said
amount shall be debited to the electronic cash ledger - Rule 87(10) of CGST and SGST Rules,
2017.
This debit is required as the refund will be credited to bank account of the person.
Refund from balance in electronic cash register can be made (without time limit) - proviso
to section 54(1) of CGST Act. Money is electronic Cash Register is only deposit. Hence,
principle of unjust enrichment does not arise.
If the refund so claimed is rejected, either fully or partly, the amount debited under rule
87(10), to the extent of rejection, shall be credited to the electronic cash ledger by the
proper officer by an order made in form GST PMT-03 - Rule 87(11) of CGST and SGST Rules,
2017.
A refund shall be deemed to be rejected if the appeal is finally rejected or if the claimant
gives an undertaking to the proper officer that he shall not file an appeal - Explanation to
Rule 87 of CGST and SGST Rules, 2017.
Deputy/Assistant Commissioner of Central Tax has been designated as 'proper officer' for
the purpose of re-crediting the amount if refund claim is finally rejected- CBI&C circular No.
3/3/2017-GST dated 5-7-2017 [State Government will prescribe 'proper officer' for purpose
of SGST in the respective State].
43.3-3 Debit to Electronic Credit Ledger if refund of input tax credit claimed under section
54
If a registered person has claimed refund of any unutilized amount from the electronic credit
ledger in accordance with the provisions of section 54 of CGST Act (refund in case of zero
rated supply or inverted tax structure), the amount to the extent of the claim shall be
debited in the said ledger - Rule 86(3) of CGST and SGST Rules, 2017.
Such claim is for refund of ITC in case of export of goods or services or supplies to SEZ. The
amount is required to be debited at the time of filing refund claim.
This debit is required as the amount will be refunded to the person by crediting his bank
account.
43.4 Procedure for filing of all refund applications
The following modalities shall be followed for all refund applications filed in FORM GST RFD-
01 on the common portal [para 4 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-
2019]
Uploading of form GST RFD-01 with supporting documents - FORM GST RFD-01 shall be
filled on the common portal by an applicant seeking refund under any of the categories
mentioned above. This shall entail filing of statements/declarations/undertakings which are
part of FORM GST RFD-01 itself, and also uploading of other documents/invoices which shall
be required to be provided by the applicant for processing of the refund claim. A
comprehensive list of such documents is provided at Annexure-A of CBI&C Circular No.
 897

125/44/2019 - GST dated 18-11-2019. It is clarified that no other document needs to be

provided by the applicant at the stage of filing of the refund application.
The facility of uploading these other documents/invoices shall be available on the common
portal where four documents, each of maximum 5MB, may be uploaded along with the
refund application. Neither the refund application in FORM GST RFD-01 nor any of the
supporting documents shall be required to be physically submitted to the office of the
jurisdictional proper officer.
Generation of ARN - The Application Reference Number (ARN) will be generated only after
the applicant has completed the process of filing the refund application in FORM GST RFD-
01, and has completed uploading of all the supporting
documents/undertaking/statements/invoices and, where required, the amount has been
debited from the electronic credit/cash ledger.
Transfer of refund application to jurisdictional officer - As soon as the ARN is generated,
the refund application along with all the supporting documents shall be transferred
electronically to the jurisdictional proper officer who shall be able to view it on the system.
The application shall be deemed to have been filed under rule 90(2) of the CGST Rules on
the date of generation of the said ARN. The time limit of 15 days to issue an
acknowledgement or a deficiency memo, as the case may be, shall be counted from the said
date.
The acknowledgement for the complete application (FORM GST RFD-02) or deficiency memo
(FORM GST RFD-03), as the case may be, would be issued electronically by the jurisdictional
tax officer based on the documents so received from the common portal.
43.4-1 Refund claim to be filed only after filing GSTR-1 and GSTR-3B returns or other return
like GSTR-4, 5 or 6
Any refund claim for a tax period may be filed only after furnishing all the returns in FORM
GSTR-1 and FORM GSTR-3B which were due to be furnished on or before the date on which
the refund application is being filed. However, in case of a claim for refund filed by a
composition taxpayer, a non-resident taxable person, or an Input Service Distributor (ISD)
furnishing of returns in FORM GSTR-1 and FORM GSTR-3B is not required. Instead, the
applicant should have furnished returns in FORM GSTR-4 (along with FORM GST CMP-08),
FORM GSTR-5 or FORM GSTR-6, as the case may be, which were due to be furnished on or
before the date on which the refund application is being filed - para 6 of CBI&C Circular No.
125/44/2019 - GST dated 18-11-2019.
43.4-2 Refund claim by combining many tax periods
The applicant, at his option, may file a refund claim for a tax period or by clubbing successive
tax periods. The period for which refund claim has been filed, however, cannot spread across
different financial years. Registered persons having aggregate turnover of up to Rs. 1.5 crore
in the preceding financial year or the current financial year opting to file FORM GSTR-1 on
quarterly basis, can only apply for refund on a quarterly basis or clubbing successive quarters
as aforesaid.
However, refund claims under categories listed at (a), (c) and (e) above must be filed by the
applicant chronologically. This means that an applicant, after submitting a refund application
 898

under any of these categories for a certain period, shall not be subsequently allowed to file
a refund claim under the same category for any previous period. This principle/limitation,
however, shall not apply in cases where a fresh application is being filed pursuant to a
deficiency memo having been issued earlier - para 8 of CBI&C Circular No. 125/44/2019 -
GST dated 18-11-2019.
The aforesaid circular dated 18-11-2019 stated that the refund claim cannot spread across
different financial years. These instructions have been omitted vide CBI&C Circular
No.135/05/2020 - GST dated 31-3-2020. Thus, now, refund claim can cover period across
different financial years also.
Though the amendment was made on 31-3-2020, till 28-8-2020, the GSTN system was not
allowing filing of refund claim across two financial years. Now, the system is allowing filing
of such refund claim spread across different financial years.
43.5 Documents to be filed with refund claim
The application for refund under rule 89(1) shall be accompanied by any of the following
documentary evidences, as applicable, to establish that a refund is due to the applicant [Rule
89(2) of CGST and SGST Rules, 2017]
(a) the reference number of the order and a copy of the order passed by the proper
officer or an appellate authority or Appellate Tribunal or court resulting in such
refund or reference number of the payment of the amount specified in section 107(6)
and section 112(8) claimed as refund.
(b) a statement containing the number and date of shipping bills or bills of export and
the number and date of relevant export invoices, in a case where the refund is on
account of export of goods.
(c) a statement containing the number and date of invoices and the relevant Bank
Realization Certificates or Foreign Inward Remittance Certificates, as the case may
be, in a case where the refund is on account of export of services. It has been clarified
vide CBI&C circular No. 37/11/2018-GST dated 15-3-2018. That BRC (Bank
Remittance Certificate) or FIRC (Foreign Exchange Remittance Certificate) is required
only in case of export of services and not in case of export of goods.
(d) a statement containing the number and date of invoices as prescribed in rule 46,
along with the evidence regarding endorsement specified in the third proviso to rule
89(1) in case of supply of goods made to a Special Economic Zone unit or a Special
Economic Zone developer;
(e) a statement containing the number and date of invoices, the evidence regarding
endorsement specified in the fourth proviso to rule 89(1) and the details of payment,
along with proof thereof, made by the recipient to the supplier for authorized
operations as defined under the SEZ Act, 2005, in a case where the refund is on
account of supply of services made to a Special Economic Zone unit or a Special
Economic Zone developer.
 899

(f) a declaration to the effect that tax has not been collected from the Special Economic
Zone (SEZ) unit or the Special Economic Zone (SEZ) developer, in a case where the
refund is on account of supply of goods or services or both made to a Special Economic
Zone unit or a Special Economic Zone developer [The words in italics substituted w.e.f.
1-2-2019. Till 1-2-2019, a declaration was required that SEZ unit or SEZ developer has
not availed Input Tax Credit of tax paid by supplier of goods or services, if refund
application is on account of supply to SEZ Unit or SEZ developer. This declaration was
redundant as really no tax is required to be charge for supplies made to SEZ unit or
SEZ].
(g) a statement containing the number and date of invoices along with such other
evidence as may be notified in this behalf, in a case where the refund is on account
of deemed exports.
(h) a statement containing the number and date of invoices received and issued during
a tax period in a case where the claim pertains to refund of any unutilized input tax
credit under section 54(3) where the credit has accumulated on account of rate of
tax on inputs being higher than the rate of tax on output supplies, other than nil-
rated or fully exempt supplies;
(i) the reference number of the final assessment order and a .copy of the said order in
a case where the refund arises on account of finalisation of provisional assessment.
(j) a statement showing details of transactions considered as intra-state supply
subsequently held as inter-state supply.
(k) a statement showing the details of the amount of claim on account of excess
payment of tax.
(l) a declaration to the effect that the incidence of tax, interest or any other amount
claimed as refund has not been passed on to any other person, in a case where the
amount of refund claimed does not exceed two lakh rupees. However, a declaration
is not required to be furnished in respect of cases covered under section 54(8)(a),
54(8)(b), 54(8)(c) or 54(8)(d) of CGST Act.
(m) a Certificate in Annex 2 of form GST RFD-01 issued by a chartered accountant or a
cost accountant to the effect that the incidence of tax, interest or any other amount
claimed as refund has not been passed on to any other person, in a case where the
amount of refund claimed exceeds two lakh rupees:

However, a declaration is not required to be furnished in respect of cases covered under

section 54(8)(a), 54(8)(b), 54(8)(c) or 54(8)(d) of CGST Act.
Meaning of invoice where service not provided - For purpose of section 54(8)(c) of CGST
Act, "invoice" means invoice conforming to the provisions contained in section 31 [This
covers cases where service has not been provided and invoice either not issued or refund
voucher issued. This covers cases where advance was received but service was not
provided].- Explanation (i) to rule 89(2) of CGST and SGST Rules, 2017.
 900

If tax was recovered, it means duty incidence has been passed on - If the amount of tax has
been recovered from the recipient, it shall be deemed that the incidence of tax has been
passed on to the ultimate consumer [indeed obvious] - Explanation (ii) to rule 89(2) of CGST
and SGST Rules, 2017.
43.5-1 List of documents to be submitted with refund application
List of all statements/declarations/undertakings/certificates and other supporting
documents to be provided along with the refund application is given below [see Annexure A
to CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019].
Sl. Type of Refund Declaration/Statement/Undert Supporting documents to be
No. aking/Certificates to be filled additionally uploaded
online

1 Refund of unutilized ITC on Declaration under second and Copy of GSTR-2A of the relevant
account of exports without third proviso to section 54(3) period
payment of tax
Undertaking in relation to Statement of invoices
section 16(2)(c) and section (Annexure-B)
42(2)
Statement 3 under rule 89(2)(b) Self-certified copies of invoices
and rule 89(2)(c) entered in Annexure-B whose
details are not found in GSTR-2A
of the relevant period
Statement 3A under rule 89(4) BRC/FIRC in case of export of
services and shipping bill (only in
case of exports made through
non-EDI ports) in case of goods
2 Refund of tax paid on Declaration under second and BRC/FIRC/any other document
export of services made third proviso to section 54(3) indicating the receipt of sale
with payment of tax proceeds of services
Undertaking in relation to Copy of GSTR-2A of the relevant
sections 16(2)(c) and section period
42(2)
Statement 2 under rule 89(2)(c) Statement of invoices
(Annexure-B)
Self-certified copies of invoices
entered in Annexure-A whose
details are not found in GSTR-2A
of the relevant period
Self-declaration regarding non-
prosecution under sub-rule (1)
 901

of rule 91 of the CGST Rules for

availing provisional refund
3 Refund of unutilized ITC on Declaration under third proviso Copy of GSTR-2A of the relevant
account of Supplies made to section 54(3) period
to SEZ units/developer
Statement 5 under rule 89(2)(d) Statement of invoices
without payment of tax
and rule 89(2)(e) (Annexure-B)
Statement 5A under rule 89(4) Self-certified copies of invoices
entered in Annexure-B whose
details are not found in GSTR-2A
of the relevant period
Declaration under rule 89(2)(f) Endorsement(s) from the
specified officer of the SEZ
regarding receipt of
goods/services for authorized
operations under second proviso
to rule 89(1)

Undertaking in relation to
section 16(2)(c) and section
42(2)
Self-declaration under rule
89(2)(l) if amount claimed does
not exceed two lakh rupees,
certification under rule
89(2)(m) otherwise
4 Refund of tax paid on Declaration under second and Endorsement(s) from the
supplies made to SEZ third proviso to section 54(3) specified officer of the SEZ
units/developer with regarding receipt of
payment of tax goods/services for authorized
operations under second proviso
to rule 89(1)

Declaration under rule 89(2)(f) Self-certified copies of invoices

entered in Annexure-A whose
details are not found in GSTR-2A
of the relevant period
Statement 4 under rule 89(2)(d) Self-declaration regarding non-
and rule 89(2)(e) prosecution under sub-rule (1)
of rule 91 of the CGST Rules for
availing provisional refund
 902

Undertaking in relation to
section 16(2)(c) and section
42(2)
Self-declaration under rule
89(2)(l) if amount claimed does
not exceed two lakh rupees,
certification under rule
89(2)(m) otherwise

5 Refund of ITC unutilized on Declaration under second and Copy of GSTR-2A of the relevant
account of accumulation third proviso to section 54(3) period
due to inverted tax
Declaration under section Statement of invoices
structure
54(3)(ii) (Annexure-B)
Undertaking in relation to Self-certified copies of invoices
section 16(2)(c) and section entered in Annexure-B whose
42(2) details are not found in GSTR-2A
of the relevant period

Statement 1 under rule 89(5)

Statement 1A under rule
89(2)(h)
Self-declaration under rule
89(2)(l) if amount claimed does
not exceed two lakh rupees,
certification under rule
89(2)(m) otherwise
6 Refund to supplier of tax Statement 5(B) under rule Documents required under
paid on deemed export 89(2)(g) Notification No. 49/2017-
supplies Central Tax dated 18.10.2017
and Circular No. 14/14/2017-
GST dated 06.11.2017
Declaration under rule 89(2)(g)
Undertaking in relation to
section 16(2)(c) and section
42(2)
Self-declaration under rule
89(2)(l) if amount claimed does
not exceed two lakh rupees,
certification under rule
89(2)(m) otherwise
 903

7 Refund to recipient of tax Statement 5(B) under rule Documents required under
paid on deemed export 89(2)(g) Circular No. 14/14/2017-GST
supplies dated 06.11.2017
Declaration under rule 89(2)(g)
Undertaking in relation to
section 16(2)(c) and section
42(2)
Self-declaration under rule
89(2)(l) if amount claimed does
not exceed two lakh rupees,
certification under rule
89(2)(m) otherwise
8 Refund of excess payment Statement 7 under rule 89(2)(k)
of tax
Undertaking in relation to
section 16(2)(c) and section
42(2)
Self-declaration under rule
89(2)(l) if amount claimed does
not exceed two lakh rupees,
certification under rule
89(2)(m) otherwise

9 Refund of tax paid on intra- Statement 6 under rule 89(2)(j)

state supply which is
Undertaking in relation to
subsequently held to be an
sections 16(2)(c) and section
inter-state supply and vice
42(2)
versa
10 Refund on account of Undertaking in relation to Reference number of the order
assessment/provisional sections 16(2)(c) and section and a copy of the
assessment/appeal/any 42(2) Assessment/Provisional
other order Assessment/Appeal/Any Other
Order
Self-declaration under rule Reference number/proof of
89(2)(l) if amount claimed does payment of pre-deposit made
not exceed two lakh rupees, earlier for which refund is being
certification under rule claimed
89(2)(m) otherwise
 904

11 Refund on account of any Undertaking in relation to Documents in support of the

other ground or reason section 16(2)(c) and section claim
42(2)
Self-declaration under rule
89(2)(l) if amount claimed does
not exceed two lakh rupees,
certification under rule
89(2)(m) otherwise

43.5-2 Statement of invoices to be submitted with application for refund of unutilized ITC
The form as given in Annexure B to CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019
is as follows, as amended vide CBI&C Circular No.135/05/2020-GST dated 31-3-2020 [earlier,
the details of HSN/SAC code was not mentioned in the form].
43.6 Procedure after submitting refund application
If the application relates to a claim for refund from the electronic cash ledger, an
acknowledgement in form GST RFD-02 shall be made available to the applicant through the
Common Portal electronically, clearly indicating the date of filing of the claim. Time specified
in section 54(7) of CGST Act shall be calculated from this date of filing - Rule 90(1) of CGST
and SGST Rules, 2017.
The application for refund, other than claim for refund from electronic cash ledger, shall be
forwarded to the proper officer who shall, within fifteen days of filing of the said application,
scrutinize the application for its completeness and where the application is found to be
complete in terms of rule 89(2), 89(3) or 89(4), an acknowledgement in form GST RFD-02
shall be made available to the applicant through the Common Portal electronically, clearly
indicating the date of filing of the claim for refund. Time specified in section 54(7) of CGST
Act shall be calculated from this date of filing - Rule 90(2) of CGST and SGST Rules, 2017.
If any deficiencies are noticed, the proper officer shall communicate the deficiencies to the
applicant in form GST RFD-03 through the Common Portal electronically, requiring him to
file a refund application after rectification of such deficiencies - Rule 90(3) of CGST and SGST
Rules, 2017.
In Jian International v. Commissioner of Delhi Goods & Services Tax [2020] 117 taxmann.com
968 (Delhi HC DB), it was held that if refund application had not been processed within time
line of fifteen days, department loses right to point out any deficiency in refund application
and accordingly, refund application would be presumed to be complete in all respects [It
means fifteen days time limit is mandatory. Seems a very extreme view, since normally, such
time limits are held as directory, when consequences of non-compliance of time limit have
not been specified].
Deputy/Assistant Commissioner of Central Tax has been designated as 'proper officer' for
the purpose of processing refund claim - CBI&C circular No. 3/3/2017-GST dated 5-7-2017
[State Government will prescribe 'proper officer' for purpose of SGST in the respective
State].
 905

Intimation under SGST also means intimation under CGST and vice versa - Where
deficiencies have been communicated in form GST RFD-03 under the SGST Rules, the same
shall also deemed to have been communicated under CGST Rules along with deficiencies
communicated under rule 90(3) - Rule 90(4) of CGST and SGST Rules, 2017 [and vice versa]
43.6-1 ARN or Deficiency Memos
If the application for refund is complete in terms of sub-rules (2), (3) and (4) of rule 89 of the
CGST Rules, an acknowledgement in form GST RFD-02 should be issued within 15 days of the
filing of the refund application. The date of generation of ARN for form GST RFD-01 is to be
considered as the date of filing of the refund application. Sub-rule (3) of rule 90 of the CGST
Rules provides for communication of deficiencies in form GST RFD-03 where deficiencies are
noticed within the aforesaid period of 15 days. It is clarified that either an acknowledgement
or a deficiency memo should be issued within the aforesaid period of 15 days starting from
the date of generation of ARN. Once an acknowledgement has been issued in relation to a
refund application, no deficiency memo, on any grounds, may be subsequently issued for
the said application - para 9 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
43.6-2 Fresh application once deficiency memo is issued
After a deficiency memo has been issued, the refund application would not be further
processed and a fresh application would have to be filed. Any amount of input tax
credit/cash debited from electronic credit/cash ledger would be re-credited automatically
once the deficiency memo has been issued. It may be noted that the re-credit would take
place automatically and no order in FORM GST PMT-03 is required to be issued. The
applicant is required to rectify the deficiencies highlighted in deficiency memo and file fresh
refund application electronically in FORM GST RFD-01 again for the same period and this
application would have a new and distinct ARN - para 10 of CBI&C Circular No. 125/44/2019
- GST dated 18-11-2019.
43.6-3 No further deficiency memo pointing out fresh deficiencies
It is further clarified that once an application has been submitted afresh, pursuant to a
deficiency memo, the proper officer will not serve another deficiency memo with respect to
the application for the same period, unless the deficiencies pointed out in the original
deficiency memo remain un-rectified, either wholly or partly, or any other substantive
deficiency is noticed subsequently - para 11 of CBI&C Circular No. 125/44/2019 - GST dated
18-11-2019.
43.6-4 Even fresh refund application should be within time limit of two years
It is also clarified that since a refund application filed after correction of deficiency is treated
as a fresh refund application, such a rectified refund application, submitted after correction
of deficiencies, shall also have to be submitted within 2 years of the relevant date, as defined
in the explanation after section 54(14) of the CGST Act - para 12 of CBI&C Circular No.
125/44/2019 - GST dated 18-11-2019. [This provision is unfair and may be held so by Court].
43.7 Adjudication of SCN by proper officer sanctioning refund
The proper officer for adjudicating the above case shall be the same as the proper officer for
sanctioning refund under section 54 of the CGST Act. The above notice shall be adjudicated
following the principles of natural justice and an order shall be issued, in FORM GST RFD-06,
 906

under section 54 of the CGST Act, read with section 73 or section 74 of the CGST Act, as the
case may be. If the adjudicating authority decides against the applicant in respect of both
points (a) and (b) above, then an amount of Rs. 70/- will have to be sanctioned in FORM GST
RFD-06, and an amount of Rs. 20/-, along with interest and penalty, if any, shall be entered
by the officer in the electronic liability register of the applicant through issuance of FORM
GST DRC-07.
If the application pertains to refund of unutilized/accumulated ITC, then Rs. 30/-, i.e. the
amount rejected, shall have to be re-credited to the electronic credit ledger of the applicant
through FORM GST PMT-03. However, this re-credit shall be done only after the receipt of
an undertaking from the applicant to the effect that he shall not file an appeal or in case he
files an appeal, the same has been finally decided against the applicant.
In such cases, it may be noted that FORM GST RFD-08 and FORM GST RFD-06, are to be
considered as show cause notice and adjudication order respectively, under both section 54
(for rejection of refund) and section 73/74 of the CGST Act as the case may be (for recovery
of erroneous refund) - para 16 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
43.7-1 Scrutiny of Application of refund
In case of refund claim on account of export of goods without payment of tax, the Shipping
bill details shall be checked by the proper officer through ICEGATE SITE (www.icegate.gov.in)
wherein the officer would be able to check details of EGM and shipping bill by keying in port
name, Shipping bill number and date. It is advised that while processing refund claims,
information contained in Table 9 of FORM GSTR-1 of the relevant tax period as well as that
of the subsequent tax periods should also be taken into cognizance, wherever applicable.
In this regard, Circular No. 26/26/2017-GST dated 29.12.2017 may be referred, wherein the
procedure for rectification of errors made while filing the returns in FORM GSTR-3B has been
provided. Therefore, in case of discrepancies between the data furnished by the taxpayer in
FORM GSTR-3B and FORM GSTR-1, the proper officer shall refer to the said Circular and
process the refund application accordingly - para 18 of CBI&C Circular No. 125/44/2019 -
GST dated 18-11-2019.
Detailed guidelines laid down in subsequent paragraphs of this Circular covering various
types of refund claims may also be followed while scrutinizing refund claims for
completeness and eligibility - para 19 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-
2019.
43.7-2 Procedure for rejection of refund claim and Re-crediting of electronic credit ledger
on account of rejection of refund claim
In case of rejection of refund claim of unutilized/accumulated ITC due to ineligibility of the
input tax credit under any provisions of the CGST Act and rules made thereunder, the proper
officer shall have to issue a show cause notice in FORM GST RFD-08, under section 54 of the
CGST Act, read with section 73 or 74 of the CGST Act, requiring the applicant to show cause
as to why - (a) the refund amount corresponding to the ineligible ITC should not be rejected
as per the relevant provisions of the law; and (b) the amount of ineligible ITC should not be
recovered as wrongly availed ITC under section 73 or section 74 of the CGST Act, as the case
 907

may be, along with interest and penalty, if any - para 20 of CBI&C Circular No. 125/44/2019
- GST dated 18-11-2019.
43.7-3 Adjudication of SCN and order in form GST RFD-06
The above notice shall be adjudicated following the principles of natural justice and an order
shall be issued, in FORM GST RFD-06, under section 54 of the CGST Act, read with section 73
or section 74 of the CGST Act, as the case may be. If the adjudicating authority decides
against the applicant in respect of both points (a) and (b) above, then FORM GST RFD-06
shall have to be issued accordingly, and the amount of ineligible ITC, along with interest and
penalty, if any, shall be entered by the officer in the electronic liability register of the
applicant through issuance of FORM GST DRC-07.
Alternatively, the applicant can voluntarily pay this amount, along with interest and penalty,
as applicable, before service of the demand notice, and intimate the same to the proper
officer in FORM GST DRC-03 in accordance with section 73(5) or section 74(5) of the CGST
Act, as the case may be, read with sub-rule (2) of rule 142(2) of the CGST Rules. In such cases,
the need for serving a demand notice for recovery of ineligible ITC will be obviated.
In any case, the proper officer shall order for the rejected amount to be re-credited to the
electronic credit ledger of the applicant using FORM GST PMT-03, only after the receipt of
an undertaking from the applicant to the effect that he shall not file an appeal or in case he
files an appeal, the same is finally decided against the applicant - para 21 of CBI&C Circular
No. 125/44/2019 - GST dated 18-11-2019.
43.7-4 Rejection of refund for other than ineligible ITC
In case of rejection of a claim for refund, on account of any reason other than the ineligibility
of credit, the process described in paras 20 and 21 above shall be followed with the only
difference that there shall be no proceedings for recovery of ineligible ITC under section 73
or section 74, as the case may be - para 22 of CBI&C Circular No. 125/44/2019 - GST dated
18-11-2019.
Illustration of rejection of refund and re-credit of amount - Consider an example where
against a refund claim of unutilized/accumulated ITC of Rs. 100/-, only Rs. 80/- is sanctioned
(Rs.15/- is rejected on account of ineligible ITC and Rs. 5/- is rejected on account of any other
reason). As stated above, a show cause notice, in FORM GST RFD-08 shall have to be issued
to the applicant, requiring him to show cause as to why the refund claim amounting to
Rs.20/-should not be rejected under the relevant provisions of the law and why the ineligible
ITC of Rs. 15/- should not be recovered under section 73 or section 74, as the case may be,
with interest and penalty, if any. If the said notice is decided against the applicant, Rs. 15/-,
along with interest and penalty, if any, shall be entered by the officer in the electronic
liability register of the applicant through issuance of FORM GST DRC-07. Further, Rs. 20/-
would be re-credited through FORM GST PMT-03 only after the receipt of an undertaking
from the applicant to the effect that he shall not file an appeal or in case he files an appeal,
the same is finally decided against the applicant - para 23 of CBI&C Circular No. 125/44/2019
- GST dated 18-11-2019.
In the same example, further assume that the applicant files an appeal against this order and
the appellate authority decides wholly in the applicant's favour. In such a case the petitioner
 908

would file a fresh refund claim for the said amount of Rs. 20/- under the option of claiming
refund "On Account of Assessment/Provisional Assessment/Appeal/Any other order" - para
24 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
43.8 Grant of provisional refund of ITC in case of exports
Provisions for granting provisional refund of ITC upto 90% of total amount claimed has been
made in section 54(6) of CGST Act in respect of zero rated supply.
The provisional refund of ITC under section 54(6) of CGST Act shall be granted subject to the
condition that the person claiming refund has, during any period of five years immediately
preceding the tax period to which the claim for refund relates, not been prosecuted for any
offence under the Act or under an existing law where the amount of tax evaded exceeds two
hundred and fifty lakh rupees - Rule 91(1) of CGST and SGST Rules, 2017.
Procedure for granting provisional refund - The proper officer, after scrutiny of the claim
and the evidence submitted in support thereof and on being prima facie satisfied that the
amount claimed as refund under rule 91(1) is due to the applicant in accordance with the
provisions of section 54(6) of CGST Act, shall make an order in form GST RFD-04, sanctioning
the amount of refund due to the said applicant on a provisional basis within a period not
exceeding seven days from the date of acknowledgement under rule 90(1) or rule 90(2) of
CGST Rules - Rule 91(2) of CGST and SGST Rules, 2017.
The order issued in form GST RFD-04 shall not be required to be revalidated by the proper
officer - proviso to rule 91(2) of CGST and SGST Rules inserted w.e.f. 1-2-2019.
The proper officer shall issue a payment order (it was termed as 'payment advise' upto 24-
9-2019) in form GST RFD-05 for the amount sanctioned under rule 91(2) and the same shall
be electronically credited to any of the bank accounts of the applicant mentioned in his
registration particulars and as specified in the application for refund on the basis of
consolidated payment advise - Rule 91(3) of CGST and SGST Rules, 2017 amended w.e.f. 24-
9-2019. The words in italics inserted w.e.f. 24-9-2019.
The payment order (it was termed as 'payment advise' upto 24-9-2019) in form GST RFD-05
shall be required to be revalidated where the refund has not been disbursed within the same
financial year in which the said payment order (it was termed as 'payment advise' upto 24-
9-2019) was issued - proviso to rule 91(3) of CGST and SGST Rules inserted w.e.f. 1-2-2019
and amended w.e.f. 24-9-2019.
The Central Government shall disburse the refund based on consolidated payment advise
issued under rule 91(3) of CGST Rules - rule 91(4) of CGST Rules, inserted w.e.f. 9-10-2019
[corresponding provision in SGST Act where State Government Officer is empowered to
disburse refund of CGST also]
Provisional refund without verifying ITC on basis of undertaking - Since the functionality of
furnishing of FORM GSTR-2 and FORM GSTR-3 remains unimplemented, it has been decided
by the GST Council to sanction refund of provisionally accepted input tax credit. However,
the applicants applying for refund must give an undertaking to the effect that the amount
of refund sanctioned would be paid back to the Government with interest in case it is found
subsequently that the requirements of section 16(2)(c) read with section 42(2) of the CGST
Act have not been complied with in respect of the amount refunded. This undertaking should
 909

be submitted electronically along with the refund claim - para 7 of CBI&C Circular No.
125/44/2019 - GST dated 18-11-2019.
Provisional Refund of 90% of admissible portion of refund if there is doubt about
irregularities - Doubts get raised as to whether provisional refund would be given even in
those cases where the proper officer prima facie has sufficient reasons to believe that there
are irregularities in the refund application which would result in rejection of whole or part
of the refund amount so claimed. It is clarified that in such cases, the proper officer shall
refund on a provisional basis 90% of the refundable amount of the claim (amount of refund
claim less the inadmissible portion of refund so found) in accordance with the provisions of
rule 91 of the CGST Rules. Final sanction of refund shall be made in accordance with the
provisions of rule 92 of the CGST Rules - para 13 of CBI&C Circular No. 125/44/2019 - GST
dated 18-11-2019.
Entire refund can be granted if irregularity not found - There is no prohibition under the
law preventing a proper officer from sanctioning the entire amount within 7 days of the
issuance of acknowledgement through issuance of FORM GST RFD-06, instead of grant of
provisional refund of 90% of the amount claimed through FORM GST RFD-04. If the proper
officer is fully satisfied about the eligibility of a refund claim on account of zero-rated
supplies, and is of the opinion that no further scrutiny is required, the proper officer may
issue final order in FORM GST RFD-06 within 7 days of the issuance of acknowledgement. In
such cases, the issuance of a provisional refund order in FORM GST RFD-04 will not be
necessary - para 14 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
43.8-1 No provisional sanction if refund was withheld for non-filing of return or refund
Stayed by Commissioner
No adjustment or withholding of refund, as provided under section 54(10) or 54(11) of the
CGST Act, shall be allowed in respect of the amount of refund which has been provisionally
sanctioned. In cases where there is an outstanding recoverable amount due from the
applicant, the proper officer, instead of granting refund on provisional basis, may process
and sanction refund on final basis at the earliest and recover the amount from the amount
so sanctioned - para 17 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
43.8-2 Show cause notice if provisional refund sanctioned was more than refund eligible
Where the final refund amount to be sanctioned in FORM GST RFD-06 is less than the
amount of refund sanctioned provisionally through FORM GST RFD-04, SCN should be
issued. For example, consider a situation where an applicant files a refund claim of Rs.100
on account of zero-rated supplies. The proper officer, after prima facie examination of the
application, sanctions Rs. 90 as provisional refund through FORM GST RFD-04 and the same
is electronically credited to his bank account. However, on detailed examination, it appears
to the proper officer that only an amount of Rs. 70 is admissible as refund to the applicant.
In such cases, the proper officer shall have to issue a show cause notice to the applicant, in
FORM GST RFD-08, under section 54 of the CGST Act, read with section 73 or section 74 of
the CGST Act, requiring the applicant to show cause as to why - (a) the amount claimed of
Rs. 30 should not be rejected as per the relevant provisions of the law; and (b) the amount
of Rs. 20 erroneously refunded should not be recovered under section 73 or section 74 of
 910

the CGST Act, as the case may be, along with interest and penalty, if any - para 1f of CBI&C
Circular No. 125/44/2019 - GST dated 18-11-2019.
43.9 Order sanctioning final refund
If, upon examination of the application, the proper officer is satisfied that a refund under
section 54(3) is due and payable to the applicant, he shall make an order in form GST RFD-
06, sanctioning the amount of refund to which the applicant is entitled, mentioning therein
the amount, if any, refunded to him on a provisional basis under section 54(6) of CGST Act,
amount adjusted against any outstanding demand under CGST and SGST Act or under any
earlier law (Excise, Vat or service tax) and the balance amount refundable - Rule 92(1) of
CGST and SGST Rules, 2017.
In cases where the amount of refund is completely adjusted against any outstanding demand
under the Act or under any existing law, an order giving details of the adjustment may be
issued in form GST RFD-07 - proviso to Rule 92(1) of CGST and SGST Rules, 2017.
Refund in electronic credit ledger if tax was paid through ITC, except in case of exports and
deemed exports - Where, upon examination of the application of refund of any amount paid
as tax other than the refund of tax paid on zero-rated supplies or deemed export, the proper
officer is satisfied that a refund under section 54(5) of the Act is due and payable to the
applicant, he shall make an order in form RFD-06 sanctioning the amount of refund to be
paid, in cash, proportionate to the amount debited in cash against the total amount paid for
discharging tax liability for the relevant period, mentioning therein the amount adjusted
against any outstanding demand under the Act or under any existing law and the balance
amount refundable and for the remaining amount which has been debited from the
electronic credit ledger for making payment of such tax, the proper officer shall issue form
GST PMT-03 re-crediting the said amount as Input Tax Credit in electronic credit ledger - rule
92(1A) of CGST Rules, inserted w.e.f. 23-3-2020.
This provision does not apply in case of exports or deemed export. Thus, in that case, refund
can be made in cash even if output tax was paid through ITC i.e. through electronic credit
ledger.
43.9-1 Show Cause Notice if whole or part of refund is not admissible
If the proper officer is satisfied, for reasons to be recorded in writing, that the whole or any
part of the amount claimed as refund is not admissible or is not payable to the applicant, he
shall issue a notice in form GST RFD-08 to the applicant, requiring him to furnish a reply in
form GST RFD-09 within fifteen days of the receipt of such notice and after considering the
reply, make an order in form GST RFD-06, sanctioning the amount of refund in whole or part,
or rejecting the said refund claim and the said order shall be made available to the applicant
electronically and the provision of rule 92(1) shall, mutatis mutandis, apply to the extent
refund is allowed - Rule 92(3) of CGST and SGST Rules, 2017.
No application for refund shall be rejected without giving the applicant a reasonable
opportunity of being heard.
43.9-2 Refund order or adjudication order after SCN and hearing
If the proper officer is satisfied that the amount refundable under rule 92(1), 92(1A) or 92(2)
is payable to the applicant under section 54(8) of CGST and SGST Act [unjust enrichment not
 911

applicable], he shall make an order in form GST RFD-06 and issue a payment order (it was
termed as 'payment advise' upto 24-9-2019) in form GST RFD-05, for the amount of refund.
This amount shall be electronically credited to any of the bank accounts of the applicant
mentioned in his registration particulars and as specified in the application for refund - Rule
92(4) of CGST and SGST Rules, 2017 amended w.e.f. 24-9-2019 [The words '92(1A)' inserted
w.e.f. 23-3-2020].
The order issued in form GST RFD-06 shall not be required to be revalidated by the proper
officer, if refund is disbursed in same financial year - first proviso to rule 92(4) of CGST Rules
inserted w.e.f. 1-2-2019.
The payment order (it was termed as 'payment advise' upto 24-9-2019) in form GST RFD-05
shall be required to be revalidated where the refund has not been disbursed within the same
financial year in which the said payment order (it was termed as 'payment advise' upto 24-
9-2019) was issued - second proviso to rule 92(4) of CGST Rules inserted w.e.f. 1-2-2019 and
amended w.e.f. 24-9-2019.
If the proper officer is satisfied that the amount refundable under rule 92(1), 92(1A) or 92(2)
is not payable to the applicant under section 54(8) [unjust enrichment applicable], he shall
make an order in form GST RFD-06 and issue an advice in form GST RFD-05, for the amount
of refund to be credited to the Consumer Welfare Fund - Rule 92(5) of CGST and SGST Rules,
2017 [The words '92(1A)' inserted w.e.f. 23-3-2020].
Refund order will be passed manually in form RFD-04/06/07 as applicable.
Refund Order details will be filed electronically by Departmental Officer in form GST RFD 01B
- form inserted w.e.f. 15-11-2017 in CGST Rules.
43.9-3 Adjustment of refund against outstanding demand
The provisions relating to refund provide for partial as well as complete adjustment of refund
against any outstanding demand under GST or under any existing law. It is hereby clarified
that both partial or complete adjustment of sanctioned amount of refund against any
outstanding demand under GST or under any existing law would be made in FORM GST RFD-
06. Furthermore, Section 142 of the CGST Act provides for recovery of any tax, interest, fine,
penalty or any other amount recoverable under the existing law as an arrear of tax under
GST unless such amount is recovered under the existing law. Adjustment of refund amount
against any outstanding demand under the existing law can be done - para 35 of CBI&C
Circular No. 125/44/2019 - GST dated 18-11-2019.
43.9-4 Credit of the amount of rejected refund claim
Where any deficiencies have been communicated under rule 90(3), the amount debited
under rule 89(3) of CGST Rules shall be re-credited to the electronic credit ledger - Rule 93(1)
of CGST and SGST Rules, 2017.
Where any amount claimed as refund is rejected under rule 92, either fully or partly, the
amount debited, to the extent of rejection, shall be re-credited to the electronic credit ledger
by an order made in form GST PMT-03 - Rule 93(2) of CGST and SGST Rules, 2017.
For the purposes of this rule, a refund shall be deemed to be rejected, if the appeal is finally
rejected or if the claimant gives an undertaking in writing to the proper officer that he shall
not file an appeal.
 912

43.10 Withholding of refund or deduction from refund in certain cases

If taxable person has defaulted in furnishing of return or payment of taxes or if any tax,
interest or penalty is payable by him under GST Act or earlier tax laws (excise, service tax,
State Vat etc.), those dues can be adjusted from refund payable to taxable person and only
balance amount should be paid to him.
Where any refund is due under sub-section (3) to a registered person who has defaulted in
furnishing any return or who is required to pay any tax, interest or penalty, which has not
been stayed by any court, Tribunal or Appellate Authority by the specified date (i.e. last date
for filing an appeal under CGST Act), the proper officer may— (a) withhold payment of
refund due until the said person has furnished the return or paid the tax, interest or penalty,
as the case may be (b) deduct from the refund due, any tax, interest, penalty, fee or any
other amount which the taxable person is liable to pay but which remains unpaid under this
Act or under earlier tax laws - section 54(10) of CGST Act.
Deputy/Assistant Commissioner of Central Tax is designated as 'proper officer' for the
purpose of adjusting refund under section 54(10) - CBI&C circular No. 3/3/2017-GST dated
5-7-2017 [State Government will prescribe 'proper officer' for purpose of SGST in the
respective State].
If appeal has been filed and pre-deposit as required is paid, then refund cannot be withheld.
43.10-1 Withholding refund by order by Commissioner, if matter is in appeal
If an order giving rise to a refund is the subject matter of an appeal or further proceeding or
where any other proceeding under this Act is pending and the Commissioner is of the
opinion that grant of such refund is likely to adversely affect the revenue in the said appeal
or other proceedings on account of malfeasance or fraud committed, he may, after giving
the taxpayer an opportunity of being heard, withhold the refund till such time as he may
determine - section 54(11) of CGST Act.
Where a refund is withheld under section 54(11), the taxable person shall be entitled to
interest at rate not exceeding 6% as may be notified on recommendation of GST Council, if
as a result of the appeal or further proceeding he becomes entitled to refund - section 54(12)
of CGST Act.
The interest rate is 6% w.e.f. 1-7-2017- Notification No. 13/2017-CT dated 28-6-2017 and
6/2017-IT dated 28-6-2017.
43.11 Payment of refund amount through PFMS
The sanctioned refund amounts, as entered in the payment orders issued by the Central and
State/UT tax officers, shall be disbursed through the Public Financial Management System
(PFMS) of the Controller General of Accounts (CGA), Ministry of Finance, Government of
India.
On filing of a refund application in FORM GST RFD-01, the common portal shall generate a
master file for the applicant containing the relevant details like name, GSTIN, bank account
details etc. This master file shall be shared with PFMS for validation of the bank account
details provided by the applicant in the refund application. Once the bank account is
validated, PFMS will create a unique assessee code (combination of GSTIN + validated bank
 913

account number) for the applicant. This unique assessee code will be used by PFMS for all
refund payments made to the applicant in the said bank account.
In order to avoid repeat validations and generation of multiple unique assessee codes for
the same GSTIN, it shall be advisable for the applicants to enter the same bank account
details in successive refund applications submitted in FORM GST RFD-01. In cases where an
applicant wishes to avail the refund in a different bank account, which has not yet been
validated, a new unique assessee code (comprising of GSTIN + new bank account) will be
generated by PFMS after validation of the said bank account - para 28 of CBI&C Circular No.
125/44/2019 - GST dated 18-11-2019.
43.11-1 If bank account details mentioned are invalidated
If the bank account details mentioned by an applicant in the refund application submitted in
FORM GST RFD-01 are invalidated, an error message shall be transmitted by PFMS to the
common portal electronically and the common portal shall make the error message available
to the applicant and the refund officers on their dashboards. On receiving such an error
message, an applicant can - (a) rectify the invalidated bank account details by filing a non-
core amendment in FORM GST REG-14; or (b) add a new bank account by filing a non-core
amendment in FORM GST REG-14 - para 29 of CBI&C Circular No. 125/44/2019 - GST dated
18-11-2019.
The updated bank account details will be reflected in a drop-down menu on the dashboard.
From this drop-down menu, the applicant can choose any bank account, including the ones
rectified (option (a)) or newly added (option (b)), from the list of bank accounts available in
his registration database. The chosen bank account details will again be sent to PFMS for
validation. The proper officer will be able to issue the payment order in FORM GST RFD-05
only after the selected bank account has been validated - para 30 of CBI&C Circular No.
125/44/2019 - GST dated 18-11-2019.
By following the above process, validation errors, if any, will generally be corrected before
the issuance of payment order in FORM GST RFD-05. Therefore, there should generally not
be any validation errors after issuance of a payment order in FORM GST RFD-05. However,
in certain exceptional cases, it is possible that a validation error occurs after issuance of the
payment order. In such cases, the said payment order will be invalidated by the common
portal and a new payment order will have to be issued by the proper officer after following
the rectification process described in paras 29 and 30 above.
The re-issued payment order will have a new reference number and shall contain the newly
selected bank account details. However, there will be no change in either the original ARN
or the sanction order number or the amount for which the payment order was originally
issued - para 31 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
43.11-2 Indicate bank account in refund claim only which was informed at the time of
registration
It may be noted that the applicant, at the time of filing of refund application in FORM GST
RFD-01, can select a bank account only from the list of bank accounts provided by him at the
time of registration in FORM GST REG-01, or subsequently through filing a non-core
amendment in FORM GST REG-14. The same account details will be auto-populated in the
 914

payment order issued in FORM GST RFD-05. Any change in these auto-populated bank
account details shall not be allowed unless there is a validation error in relation to the same
- para 32 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
43.11-3 Intimation of disbursal of refund to applicant tax payer
The disbursement status of the refund amount would be communicated by PFMS to the
common portal. The common portal shall notify the same to the taxpayer by e-mail/SMS.
Such details shall also be available on the status tracking facility on the dashboard - para 33
of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
43.12 Interest on delayed refunds
If any tax refundable under section 54(5) to any applicant is not refunded within sixty days
from the date of receipt of application under section 54(1), interest at such rate not
exceeding 6%, as may be specified in the notification issued by the Central or a State
Government on the recommendation of the GST Council shall be payable in respect of such
refund from the date immediately after the expiry of the sixty days from date of receipt of
application under section 54(1) till the date of refund of such tax - section 56 of CGST Act.
Where any interest is due and payable to the applicant under section 56 of CGST Act, the
proper officer shall make an order along with a payment order (it was termed as 'payment
advise' upto 24-9-2019) in form GST RFD-05, specifying therein the amount of refund which
is delayed, the period of delay for which interest is payable and the amount of interest
payable, and such amount of interest shall be electronically credited to any of the bank
accounts of the applicant mentioned in his registration particulars and as specified in the
application for refund - Rule 94 of CGST and SGST Rules, 2017 amended w.e.f. 24-9-2019.
Rate of interest - The interest rate notified is 6% w.e.f. 1-7-2017 - Notification No. 6/2017-
IT dated 28-6-2017 and 13/2017-CT dated 28-6-2017.
Interest sixty days after date of order in appeal, if refund was rejected - Where any order
of refund arises from an order passed by an Adjudicating Authority, or Appellate Authority
or Appellate Tribunal or any Court which has attained finality and the same is not refunded
within 60 days from date of receipt of such application filed consequent to such order,
interest at such rate not exceeding 9%, as may be specified in the notification issued by the
Central or a State Government on the recommendation of the GST Council shall be payable
in respect of such refund from the date immediately after the expiry of the sixty days from
date of receipt of application - proviso to section 56 of CGST Act.
For the purposes of section 56, where any order of refund is made by an Appellate Authority,
Appellate Tribunal or any court against an order of the proper officer under section 54(5) of
CGST Act, the order passed by the Appellate Authority, Appellate Tribunal or by the court
shall be deemed to be an order passed under the section 54 (5) - Explanation to section 56
of CGST Act.
Interest only after order of Appellate Authority - If refund is rejected by adjudicating
authority but sanctioned by appellate authority, interest will be payable sixty days after
submission of application after receipt of order of appellate authority and not from date or
order of adjudicating authority. This is highly unfair.
 915

Procedure for payment of Interest if refund not credited within 60 days - Interest at the
rate of 6 per cent (notified vide notification No. 13/2017-Central Tax dated 28.06.2017) on
the refund amount starting from the date immediately after the expiry of sixty days from
the date of receipt of application (ARN) till the date of refund of such tax shall have to be
paid to the applicant.
Any tax shall be considered to have been refunded only when the amount has been credited
to the bank account of the applicant. Interest will be calculated starting from the date
immediately after the expiry of sixty days from the date of receipt of the application till the
date on which the amount is credited to the bank account of the applicant. Accordingly, all
tax authorities are advised to issue the final sanction order in FORM GST RFD-06 and the
payment order in FORM GST RFD-05 within 45 days of the date of generation of ARN, so that
the disbursement is completed within 60 days - para 34 of CBI&C Circular No. 125/44/2019
- GST dated 18-11-2019.
43.13 Refund claim in respect of 'deemed export'
As per 3rd proviso to Rule 89(1) of CGST Rules, 2017, in respect of supplies regarded as
deemed exports, the application may be filed by - (a) the recipient of deemed export
supplies; or (b) the supplier of deemed export supplies in cases where the recipient does not
avail of input tax credit on such supplies and furnishes an undertaking to the effect that the
supplier may claim the refund.
In case of deemed exports, refund can be claimed either by supplier or recipient of deemed
exports. There is no restriction on recipient of deemed export supplies in availing ITC of the
tax paid on such supplies when the recipient files for refund claim - CBI&C Circular No.
147/03/2021-GST dated 12-3-2021.
Following evidence is required to be produced while filing refund application in respect of
'deemed exports' as specified vide Notification No. 48/2017-CT dated 18-10-2017.
1. Acknowledgement by the jurisdictional Tax Officer of the Advance Authorisation holder
or EPCG Authorisation holder, as the case may be, that the said deemed export supplies have
been received by the said Advance Authorisation or EPCG Authorisation holder, or a copy of
the tax invoice under which such supplies have been made by the supplier, duly signed by
the recipient Export Oriented Unit that said deemed export supplies have been received by
it. [Thus, in case of EOU, acknowledgement by EOU is sufficient].
2. An undertaking by the recipient of deemed export supplies that no input tax credit on
such supplies has been availed of by him.
3. An undertaking by the recipient of deemed export supplies that he shall not claim the
refund in respect of such supplies and the supplier may claim the refund.
Refund to recipient permitted on other inputs or input services if he makes zero rated
supply - If the supplier has claimed benefit of deemed exports under Notification No.
48/2017-CT dated 18-10-2017, refund of input tax credit, availed in respect of other inputs
or input services is available if the recipient makes a zero rated supply - - rule 89(4A) of CGST
Rules, inserted on 23-1-2018 but with retrospective effect from 23-10-2017.
If supplier/recipient claims refund of GST, the recipient cannot export on payment of IGST
and claim refund of IGST - If the supplier of inputs is claiming deemed export benefits,
 916

export by recipient of goods on payment of IGST is not permissible. If still IGST is paid on
export of goods or services, its input tax credit is not available - Rule 96(10) of CGST Rules,
inserted on 23-1-2018 but with retrospective effect from 23-10-2017.
Explanation - For the purpose of rule 96(10), the benefit of the notifications mentioned
therein shall not be considered to have been availed only where the registered person has
paid IGST and GST Compensation Cess on inputs and has availed exemption of only Basic
Customs Duty (BCD) under the said notifications - Explanation to rule 96(10) of CGST Rules
inserted on 23-3-2020 but with retrospective effect from 23-10-2017.
This restriction has been held as valid in Cosmo Films Ltd. v. UOI [2020] 120 taxmann.com
417 (Gujarat HC DB).
Instructions for Refund of tax paid on deemed exports - Certain supplies of goods have been
notified as deemed exports vide notification No. 48/2017-Central Tax dated 18.10.2017
under section 147 of the CGST Act. Further, the third proviso to rule 89(1) of the CGST Rules
allows either the recipient or the supplier to apply for refund of tax paid on such deemed
export supplies. In case such refund is sought by the supplier of deemed export supplies, the
documentary evidences as specified in notification No. 49/2017- Central Tax dated
18.10.2017 are also required to be furnished which includes an undertaking that the
recipient of deemed export supplies shall not claim the refund in respect of such supplies
and shall not avail any input tax credit on such supplies.
Similarly, in case the refund is filed by the recipient of deemed export supplies, an
undertaking shall have to be furnished by him stating that refund has been claimed only for
those invoices which have been detailed in statement 5B for the tax period for which refund
is being claimed and that he has not availed input tax credit on such invoices. The recipient
shall also be required to declare that the supplier has not claimed refund with respect to the
said supplies.
In case refund on deemed exports is sought by the supplier of deemed export supplies, the
documentary evidences as specified in notification No. 49/2017- Central Tax dated
18.10.2017 are also required to be furnished which includes an undertaking that the
recipient of deemed export supplies shall not claim the refund in respect of such supplies
and shall not avail any input tax credit on such supplies. Similarly, in case the refund is filed
by the recipient of deemed export supplies, an undertaking shall have to be furnished by
him stating that refund has been claimed only for those invoices which have been detailed
in statement 5B for the tax period for which refund is being claimed and the amount does
not exceed the amount of input tax credit availed in the valid return filed for the said tax
period. The recipient shall also be required to declare that the supplier has not claimed
refund with respect to the said supplies. The procedure regarding procurement of supplies
of goods from DTA by Export Oriented Unit (EOU)/Electronic Hardware Technology Park
(EHTP) Unit/Software Technology Park (STP) Unit/Bio-Technology Parks (BTP) Unit under
deemed export as laid down in Circular No. 14/14/2017-GST dated 06.11.2017 needs to be
complied with - para 41 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019 as
amended by CBI&C Circular No. 147/03/2021-GST dated 12-3-2021.
43.14 Refund of unutilized input tax credit
 917

Subject to the provisions of section 54(10), a taxable person may claim refund of any
unutilized input tax credit at the end of any tax period - section 54(3) of CGST Act.
[section 54(10) provides for recovery of any penalty, tax or interest from any refund due].
No refund of unutilized input tax credit shall be allowed in cases other than exports including
zero rated supplies or in cases where the credit has accumulated on account of rate of tax
on inputs being higher than the rate of tax on output supplies, other than nil rated or fully
exempt supplies - first proviso to section 54(3) of CGST Act.
No refund of unutilized input tax credit shall be allowed in cases where the goods exported
out of India are subjected to export duty - second proviso to section 54(3) of CGST Act.
No refund of input tax credit shall be allowed if the supplier of goods or services avails duty
drawback of CGST/SGST/UTGST or claims refund of IGST paid on such supplies - third proviso
to section 54(3) of CGST Act.
However, drawback of customs duty portion can be availed.
Drawback - "Drawback" in relation to any goods manufactured in India and exported, means
the rebate of duty, tax or cess chargeable on any imported inputs or on any domestic inputs
or input services used in the manufacture of such goods - section 2(42) of CGST Act.
Refund only in case of (a) exports and supplies to SEZ (b) inverted rate structure - Refund
will be admissible only in case of physical exports and supplied to SEZ. Provision of 'deemed
export' has been made in CGST Act. However, there is no specific provision of refund in case
of deemed exports or supplies to EOU.
Refund is admissible if GST rate on inputs is higher that GST rate of output supplied.
However, refund is not available in cases were supply is exempted or nil rated - first proviso
to section 54(3) of CGST Act.
Sanctioning 90% of claim on provisional basis in case of exports - Notwithstanding anything
contained in section 54(5) [which states that refund should be credited to Consumer Welfare
Fund], the proper officer may, in the case of any claim for refund on account of zero-rated
supply of goods or services or both made by registered persons, other than such category of
registered persons as may be notified by the Government, on the recommendations of the
Council, refund on a provisional basis, 90% of the total amount so claimed, excluding the
amount of input tax credit provisionally accepted, in such manner and subject to such
conditions, limitations and safeguards as may be prescribed and thereafter make an order
under section 54(5) for final settlement of the refund claim after due verification of
documents furnished by the applicant - section 54(6) of CGST Act.
Deputy/Assistant Commissioner of Central Tax is designated as 'proper officer' for the
purpose of granting refund under section 54(6) - CBI&C circular No. 3/3/2017-GST dated 5-
7-2017 [State Government will prescribe 'proper officer' for purpose of SGST in the
respective State].
43.14-1 Refunds of unutilized Input Tax Credit
Applicants of refunds of unutilized ITC, i.e. refunds pertaining to items listed at (a), (c) and
(e) in para 3 above, shall have to upload a copy of FORM GSTR-2A for the relevant period (or
any prior or subsequent period(s) in which the relevant invoices have been auto-populated)
 918

for which the refund is claimed. The proper officer shall rely upon FORM GSTR-2A as an
evidence of the accountal of the supply by the corresponding supplier(s) in relation to which
the input tax credit has been availed by the applicant.
Such applicants shall also upload the details of all the invoices on the basis of which input
tax credit has been availed during the relevant period for which the refund is being claimed,
in the format enclosed as Annexure-B along with the application for refund claim. Such
availment of ITC will be subject to restriction imposed in rule 36(4) of the CGST Rules.
The applicant shall also declare the eligibility or otherwise of the input tax credit availed
against the invoices related to the claim period in the said format for enabling the proper
officer to determine the same.
The proper officer shall not insist on the submission of an invoice (either original or
duplicate) the details of which are available in FORM GSTR-2A of the relevant period
uploaded by the applicant - Para 36 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-
2019.
In CBI&C Circular No.135/05/2020 - GST dated 31-3-2020, it has been clarified that refund
shall not be admissible if the details of invoices of supplier are not reflected in GSTR 2A of
the applicant.
In subsequent CBI&C Circular No. 139/09/2020-GST dated 10-6-2020, it has been clarified
that this circular does not in any way impact the refund of ITC availed on the
invoices/documents relating to imports, ISD invoices and the inward supplies liable to
Reverse Charge (RCM supplies) etc. The treatment of refund of such ITC relating to imports,
ISD invoices and the inward supplies liable to Reverse Charge (RCM supplies) will continue
to be same as it was before the issuance of Circular No. 135/05/2020-GST dated 31-3-2020
[i.e. refund will be available in respect of invoices/documents relating to imports, ISD
invoices and the inward supplies liable to Reverse Charge (RCM supplies) etc., even if these
do not get reflected in GSTR-2A].
Earlier instructions - Self-certified copies of invoices in relation to which the refund of ITC is
being claimed and which are declared as eligible for ITC in Annexure - B, but which are not
populated in FORM GSTR-2A, shall be uploaded by the applicant along with the application
in FORM GST RFD 01. - Para 36 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
Now, these instructions are withdrawn vide CBI&C Circular No.135/05/2020-GST dated 31-
3-2020. Thus, if details on invoice of inward supply are not reflected in GSTR 2A of the
applicant, refund will not be admissible.
43.14-2 Calculation of refund claim by common portal
In case of refunds pertaining to items listed at (a), (c) and (e) in para 3 above, the common
portal calculates the refundable amount as the least of the following amounts - (a) The
maximum refund amount as per the formula in rule 89(4) or rule 89(5) of the CGST Rules
[formula is applied on the consolidated amount of ITC, i.e. Central tax + State tax/Union
Territory tax +Integrated tax] (b) The balance in the electronic credit ledger of the applicant
at the end of the tax period for which the refund claim is being filed after the return in FORM
GSTR-3B for the said period has been filed; and (c) The balance in the electronic credit ledger
of the applicant at the time of filing the refund application.
 919

After calculating the least of the three amounts, as detailed above, the equivalent amount
is to be debited from the electronic credit ledger of the applicant in the following order - (a)
Integrated tax, to the extent of balance available (b) Central tax and State tax/Union
Territory tax, equally to the extent of balance available and in the event of a shortfall in the
balance available in a particular electronic credit ledger (say, Central tax), the differential
amount is to be debited from the other electronic credit ledger (i.e., State tax/Union
Territory tax, in this case) - para 37 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-
2019.
The order of debit described above, however, is not presently available on the common
portal. Till the time such facility is made available on the common portal, the taxpayers are
advised to follow the order as explained above for all refund applications. However, for
applications where this order is not adhered to by the applicant, no adverse view may be
taken by the tax authorities. The above system validations are being clarified so that there
is no ambiguity in relation to the process through which an application in FORM GST RFD-01
is generated - para 38 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
Separate calculation of ITC of GST Compensation Cess - For all refund applications where
refund of unutilized ITC of compensation cess is being claimed, the calculation of the
refundable amount of compensation cess shall be done separately and the amount so
calculated will be entirely debited from the balance of compensation cess available in the
electronic credit ledger - para 39 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
43.14-3 Refund of ITC available even if duty drawback was claimed
The third proviso to section 54(3) of the CGST Act states that no refund of input tax credit
shall be allowed in cases where the supplier of goods or services or both avails of drawback
in respect of Central tax. It is clarified that if a supplier avails of drawback in respect of duties
rebated under the Customs and Central Excise Duties Drawback Rules, 2017, he shall be
eligible for refund of unutilized input tax credit of Central tax/State tax/Union Territory
tax/Integrated tax/Compensation cess. [This is correct as duty drawback is presently only of
customs duty].
It is also clarified that refund of eligible credit on account of State tax shall be available if the
supplier of goods or services or both has availed of drawback in respect of Central tax - para
40 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
43.14-4 Credit of ITC even when zero rated supply is exempt supply
As per section 16(2) of the IGST Act, credit of input tax may be availed for making zero rated
supplies, notwithstanding that such supply is an exempt supply. In terms of section 2 (47) of
the CGST Act, exempt supply includes non-taxable supply. Further, as per section 16(3) of
the IGST Act, a registered person making zero rated supply shall be eligible to claim refund
when he either makes supply of goods or services or both under bond or letter of
undertaking (LUT) or makes such supply on payment of Integrated tax.
However, in case of zero-rated supply of exempted or non-GST goods, the requirement for
furnishing a bond or LUT cannot be insisted upon. It is thus, clarified that in respect of refund
claims on account of export of non-GST and exempted goods without payment of Integrated
tax; LUT/bond is not required. Such registered persons exporting non-GST goods shall
 920

comply with the requirements prescribed under the existing law (i.e. Central Excise Act, 1944
or the VAT Law of the respective State) or under the Customs Act, 1962, if any. Further, the
exporter would be eligible for refund of unutilized input tax credit of Central tax, State tax,
Union Territory tax, Integrated tax and compensation cess in such cases - para 49 of CBI&C
Circular No. 125/44/2019 - GST dated 18-11-2019.
43.14-5 Refund of transitional credit not permissible
Refund of unutilized input tax credit is allowed in two scenarios mentioned in section 54(3)
of the CGST Act. These two scenarios are zero rated supplies made without payment of tax
and inverted tax structure. In rules 89(4) and 89(5) of the CGST Rules, the amount of refund
under these scenarios is to be calculated using the formulae given in the said sub-rules. The
formulae use the phrase 'Net ITC' and defines the same as "input tax credit availed on inputs
and input services during the relevant period other than the input tax credit availed for
which refund is claimed under sub-rules (4A) or (4B) or both".
It is clarified that as the transitional credit pertains to duties and taxes paid under the existing
laws viz., under Central Excise Act, 1944 and Chapter V of the Finance Act, 1994, the same
cannot be said to have been availed during the relevant period and thus, cannot be treated
as part of 'Net ITC' and thus, no refund of such unutilized transitional credit is admissible -
para 50 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
43.15 Refund of input tax credit in Electronic Credit Ledger
Where the application relates to refund of input tax credit, the electronic credit ledger shall
be debited by the applicant in an amount equal to the refund so claimed - Rule 89(3) of CGST
and SGST Rules, 2017.
43.15.1 Mode of Calculation of refund of ITC in zero rated supplies
In the case of zero-rated supply of goods or services or both without payment of tax under
bond or letter of undertaking in accordance with the provisions of section 16(3) of the IGST
Act, refund of input tax credit shall be granted as per the following formula [rule 89(4) of
CGST Rules, inserted w.e.f. 23-10-2017].
Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply
of services) x Net ITC ÷Adjusted Total Turnover
(A) "Refund amount" means the maximum refund that is admissible.
(B) "Net ITC" means input tax credit availed on inputs and input services during the
relevant period other than the input tax credit availed for which refund is claimed
under rules 89(4A) or 89(4B) or both.
Stores, spares, packing material, stationery are all 'inputs' and its ITC is permissible
However, refund of ITC on capital goods is not allowable - CBI&C circular No.
79/53/2018-GST dated 31-12-2018.
(C) "Turnover of zero-rated supply of goods" means the value of zero-rated supply of
goods made during the relevant period without payment of tax under bond or letter
of undertaking or the value which is 1.5 times the value of like goods domestically
supplied by the same or, similarly placed, supplier, as declared by the supplier,
 921

whichever is less, other than the turnover of supplies in respect of which refund is
claimed under sub-rule (4A) or (4B) or both.
The words in italics are inserted w.e.f. 23-3-2020 to provide for cap of value of goods
for exports. The purpose is that the taxable person should not inflate export value to
get undue export benefits.
[Clause (C) was reading as follows upto 23-3-2020 -"Turnover of zero-rated supply of
goods" means the value of zero-rated supply of goods made during the relevant
period without payment of tax under bond or letter of undertaking, other than the
turnover of supplies in respect of which refund is claimed under rule 89(4A) or 89(4B)
or both].
(D) "Turnover of zero-rated supply of services" means the value of zero-rated supply of
services made without payment of tax under bond or letter of undertaking,
calculated in the following manner, namely:- Zero-rated supply of services is the
aggregate of the payments received during the relevant period for zero-rated supply
of services and zero-rated supply of services where supply has been completed for
which payment had been received in advance in any period prior to the relevant
period reduced by advances received for zero-rated supply of services for which the
supply of services has not been completed during the relevant period.
(E) "Adjusted Total Turnover" means the sum total of the value of- (a) the turnover in a
State or a Union territory, as defined under section 2(112) of CGST Act, excluding the
turnover of services; and (b) the turnover of zero-rated supply of services determined
in terms of clause (D) above and non-zero-rated supply of services.
excluding—
(i) the value of exempt supplies other than zero-rated supplies during the relevant
period; and
(ii) the turnover of supplies in respect of which refund is claimed under rule 89(4A) or
rule 89(4B) or both, if any, during the relevant period [definition as amended w.e.f.
4-9-2018].
Exempted supply has been excluded as ITC in respect of such supply is not available
and hence will not be part of 'Net ITC'.
'Turnover in State' or 'turnover in Union territory' 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) and exempt supplies made within a State or Union
territory by a taxable person, exports of goods or services or both and inter-State
supplies of goods or services or both made from the State or Union territory by the
said taxable person but excludes central tax, State tax, Union territory tax, integrated
tax and cess - section 2(112) of CGST Act.
The value of export/zero-rated supply of goods to be included while calculating
"adjusted total turnover" will be same as being determined as per the amended
 922

definition of "Turnover of zero-rated supply of goods" in the rule 89(4) [i.e.

considering value cap of 1.5 times value of like goods domestically supplied - CBI&C
Circular No. 147/03/2021-GST dated 12-3-2021.
Till 4-9-2018, the definition was as follows -"Adjusted Total turnover" means the
turnover in a State or a Union territory, as defined under section 2(112) of CGST Act,
excluding - (a) the value of exempt supplies other than zero-rated supplies and (b)
the turnover of supplies in respect of which refund is claimed under rule 89(4A) or
89(4B) or both, if any, during the relevant period.

(Exempted supply has been excluded as ITC in respect of such supply is not available
and hence will be part of 'Net ITC')
(F) "Relevant period" means the period for which the claim has been filed.
Provisions of rules 89(4A) and 89(4B) are as follows.

Rule 89(4A) - In the case of supplies received on which the supplier has availed the benefit
of notification No. 48/2017-Central Tax dated 18th October, 2017 (deemed exports), refund
of input tax credit, availed in respect of other inputs or input services used in making zero-
rated supply of goods or services or both, shall be granted.
Thus, if the supplier has claimed benefit of deemed exports under Notification No. 48/2017-
CT dated 18-10-2017, refund of input tax credit, availed in respect of other inputs or input
services is available if the recipient makes a zero rated supply - - rule 89(4A) of CGST Rules,
inserted on 23-1-2018 but with retrospective effect from 23-10-2017.
Rule 89(4B) - In the case of supplies received on which the supplier has availed the benefit
of notification No. 40/2017-CT (Rate) dated 23-10-2017 (supply to merchant exporter on
payment of 0.05% of SGST plus 0.05% of CGST) or notification No. 41/2017-IT dated 23-10-
2017 (Rate) (supply to merchant exporter on payment of 0.1% of IGST) or notification No.
78/2017-Customs dated the 13-10-2017 (Exempting goods imported by EOU from basic
customs duty and IGST upto 31-3-2022 - really original notification is 52/2003-Cus dated 31-
3-2003) or notification No. 79/2017-Customs dated the 13-10-2017 (Exempting goods
imported under Advance Authorisation from IGST upto 31-3-2022 - really original
notifications are 18/2015-Cus, 20,2015-Cus both dated 1-4-2015 and 45/2016-Cus dated 13-
8-2016), or all of them, refund of input tax credit, availed in respect of inputs received under
the said notifications for export of goods and the input tax credit availed in respect of other
inputs or input services to the extent used in making such export of goods, shall be granted.
However, if capital goods were imported under EPCG without payment of IGST, refund of
IGST paid on exported goods can be obtained.
Refund claim by merchant exporter - The merchant exporter can claim refund of input tax
credit as per rule 89(4B) of CGST Rules. The procedure has been specified in CBI&C circular
No. 94/13/2019-GST dated 28-3-2019.
Refund to exporter when supplier paid GST @ 0.1% IGST or 0.05% SGST plus 0.05% CGST -
How should a merchant exporter claim refund of input tax credit availed on supplies received
on which the supplier has availed the benefit of notification No. 40/2017-Central Tax (Rate),
 923

dated the 23rd October, 2017 or notification No. 41/2017-Integrated Tax (Rate), dated the
23rd October, 2017 ?
Clarification - (a) Rule 89(4B) of the CGST Rules provides that where the person claiming
refund of unutilized input tax credit on account of zero-rated supplies without payment of
tax has received supplies on which the supplier has availed the benefit of the said
notifications, the refund of input tax credit, availed in respect of such inputs received under
the said notifications for export of goods, shall be granted (b) This refund of accumulated
ITC under rule 89(4B) of the CGST Rules shall be applied under the category "any other"
instead of under the category "refund of unutilized ITC on account of exports without
payment of tax" in FORM GST RFD-01 and shall be accompanied by all supporting documents
required for substantiating the refund claim under the category "refund of unutilized ITC on
account of exports without payment of tax". After scrutinizing the application for
completeness and eligibility, if the proper officer is satisfied that the whole or any part of
the amount claimed is payable as refund, he shall request the taxpayer, in writing, to debit
the said amount from his electronic credit ledger through FORM GST DRC-03. Once the proof
of such debit is received by the proper officer, he shall proceed to issue the refund order in
FORM GST RFD-06 and the payment order in FORM GST RFD-05 - Sr. No. 4 of para 57 of
CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
Exporter of such goods can export the goods only under LUT/bond and cannot export on
payment of Integrated tax - para 59 CBI&C Circular No. 125/44/2019-GST dated 18-11-2019.
43.16 Refund of ITC to person who has supplied goods to exporter @ 0.1% GST
Notification No. 40/2017-Central Tax (Rate) and notification No. 41/2017-Integrated Tax
(Rate) both dated 23.10.2017 provide for supplies for exports at a concessional rate of 0.05%
and 0.1% respectively, subject to certain conditions specified in the said notifications. It is
clarified that the benefit of supplies at concessional rate is subject to certain conditions and
the said benefit is optional. The option may or may not be availed by the supplier and/or the
recipient and the goods may be procured at the normal applicable tax rate. It is also clarified
that the exporter will be eligible to take credit of the tax @ 0.05%/0.1% paid by him. The
supplier who supplies goods at the concessional rate is also eligible for refund on account of
inverted tax structure as per the section 54(3)(ii) of the CGST Act. Exporter of such goods
can export the goods only under LUT/bond and cannot export on payment of Integrated tax
- para 59 CBI&C Circular No. 125/44/2019-GST dated 18-11-2019.
43.17 Refund of ITC in case of zero rated supply on the basis of ITC 'availed' in that month,
even in respect of earlier months
Presently, ITC is reflected in the electronic credit ledger on the basis of the amount of the
ITC availed on self-declaration basis in FORM GSTR-3B for a particular tax period. It may
happen that the goods purchased against a particular tax invoice issued in a particular
month, say August 2018, may be declared in the FORM GSTR-3B filed for a subsequent
month, say September 2018. This is inevitable in cases where the supplier raises an invoice,
say in August, 2018 and the goods reach the recipient's premises in September, 2018. Since
GST law mandates that ITC can be availed only after the goods have been received, the
recipient can only avail the ITC on such goods in the FORM GSTR-3B filed for the month of
September, 2018. However, it has been reported that tax authorities are excluding such
 924

invoices from the calculation of refund of unutilized ITC filed for the month of September,
2018. In this regard, it is clarified that "Net ITC" as defined in rule 89(4) of the CGST Rules
means input tax credit availed on inputs and input services during the relevant period.
Relevant period means the period for which the refund claim has been filed. Input tax credit
can be said to have been "availed" when it is entered into the electronic credit ledger of the
registered person. Under the current dispensation, this happens when the said taxable
person files his/her monthly return in FORM GSTR-3B. Further, section 16(4) of the CGST Act
stipulates that ITC may be claimed on or before the due date of filing of the return for the
month of September following the financial year to which the invoice pertains or the date
of filing of annual return, whichever is earlier. Therefore, the input tax credit of invoices
issued in August, 2019, "availed" in September, 2019 cannot be excluded from the
calculation of the refund amount for the month of September, 2019 - para 61 of CBI&C
Circular No. 125/44/2019 - GST dated 18-11-2019.
This principle indeed should apply even when ITC is 'availed' 3, 4 or 5 months or even more,
as law allows availment of ITC upto next September.
43.17-1 ITC available on stores, spares, stationery etc. so long as these are not capitalized
in books
It has been represented that on certain occasions, departmental officers do not consider ITC
on stores and spares, packing materials, materials purchased for machinery repairs, printing
and stationery items, as part of Net ITC on the grounds that these are not directly consumed
in the manufacturing process and therefore, do not qualify as input. There are also instances
where stores and spares charged to revenue are considered as capital goods and therefore
the ITC availed on them is not included in Net ITC, even though the value of these goods has
not been capitalized in his books of account by the applicant. It is clarified that the ITC of the
GST paid on inputs, including inward supplies of stores and spares, packing materials etc.,
shall be available as ITC as long as these inputs are used for the purpose of the business
and/or for effecting taxable supplies, including zero-rated supplies, and the ITC for such
inputs is not restricted under section 17(5) of the CGST Act. Further, capital goods have been
clearly defined in section 2(19) of the CGST Act as goods whose value has been capitalized
in the books of account and which are used or intended to be used in the course or
furtherance of business. Stores and spares, the expenditure on which has been charged as a
revenue expense in the books of account, cannot be held to be capital goods - para 62 of
CBI&C Circular No. 125/44/2019-GST dated 18-11-2019.
43.18 Refund of input tax credit in case of export of goods or services or both
In case of zero rated supplies made without payment of tax, refund of input tax credit will
be available as per proviso (i) to section 54(1) of CGST Act.
No refund of unutilized input tax credit shall be allowed in cases other than exports including
zero rated supplies or in cases where the credit has accumulated on account of rate of tax
on inputs being higher than the rate of tax on output supplies, other than nil rated or fully
exempt supplies - first proviso to section 54(3) of CGST Act.
No refund of unutilized input tax credit shall be allowed in cases where the goods exported
out of India are subjected to export duty - second proviso to section 54(3) of CGST Act.
 925

No refund of input tax credit shall be allowed if the supplier of goods or services avails duty
drawback of IGST/CGST/SGST/UTGST or claims refund of IGST paid on such supplies - third
proviso to section 54(3) of CGST Act.
It has been clarified that restriction is only on drawback of IGST/CGST/UTGST/SGST. Thus,
refund is available if duty drawback of only customs portion has been availed. Further, if
drawback of central tax (CGST) has been availed, refund of SGST can be claimed - CBI&C
circular No. 37/11/2018-GST dated 15-3-2018.
Refund of IGST paid on goods exported can be withheld only in circumstances arising of rule
96(4) of CGST Rules. Refund of IGST on zero rated exported goods cannot be withheld even
if higher rate of duty drawback was claimed - Amit Cotton Industries v. Principal
Commissioner of Customs (2019) 75 GST 33 = 107 taxmann.com 167 (Guj HC DB).
Proper Officer for refund of CGST - Deputy/Assistant Commissioner of Central Tax is
designated as 'proper officer' for the purpose of granting refund of ITC - CBI&C circular No.
3/3/2017-GST dated 5-7-2017 [State Government will prescribe 'proper officer' for purpose
of SGST in the respective State].
Drawback - "Drawback" in relation to any goods manufactured in India and exported, means
the rebate of duty, tax or cess chargeable on any imported inputs or on any domestic inputs
or input services used in the manufacture of such goods - section 2(42) of CGST Act.
Receipt of payment in foreign exchange required only in case of export of services and not
in case of export of goods - It has been clarified vide CBI&C circular No. 37/11/2018-GST
dated 15-3-2018. That BRC (Bank Remittance Certificate) or FIRC (Foreign Exchange
Remittance Certificate) is required only in case of export of services and not in case of export
of goods - reiterated in FAQ on GST Chapter 14Q No. 13 issued by CBI&C on 15-12-2018.
No refund of Input Tax Credit of transitional credit in TRANS-1 used for export of goods or
services - The refund of Input Tax Credit is only of 'Net ITC' i.e. input tax credit availed during
relevant period. Thus, refund of input tax credit in TRANS-1 is not available even if used for
export of goods or services - CBI&C circular No. 37/11/2018-GST dated 15-3-2018.
This view may be correct as per strict interpretation of rules, but indeed highly unfair.
However, upto September 2017, exporters were permitted to have duty drawback of both
customs portion and excise portion and hence, some exporters must have got partial relief.
43.18-1 Frequency or Period for which refund claim of Input Tax Credit should be filed
It is possible that input tax credit may be received in a month while exports may be made in
subsequent month. In some months, there will be exports but no input tax credit available.
In such cases, the refund claim can be filed during 'relevant period' which is different from
'tax period'. Hence, exporter may file refund claim per month or per quarter or by clubbing
successive calendar months/quarters. However, such refund claim cannot spread over
different financial years -- CBI&C circular No. 37/11/2018-GST dated 15-3-2018.
This principle should apply for refund of tax due to inverted duty structure also.
The aforesaid circular dated 15-1-2018 stated that the refund claim cannot spread across
different financial years. These instructions have been omitted vide CBI&C Circular
No.135/05/2020 - GST dated 31-3-2020. Thus, now, refund claim can cover period across
different financial years also.
 926

Though the amendment was made on 31-3-2020, till 28-8-2020, the GSTN system was not
allowing filing of refund claim across two financial years. Now, the system is allowing filing
of such refund claim spread across different financial years.
43.19 Guidelines for claims of refund of GST Compensation Cess
Doubts have been raised whether a registered person is eligible to claim refund of unutilized
input tax credit of compensation cess paid on inputs, where the zero-rated final product is
not leviable to compensation cess. For instance, cess is levied on coal, which is an input for
the manufacture of aluminium products, whereas cess is not levied on aluminium products.
In this context, attention is invited to section 16(2) of the Integrated Goods and Services Tax
Act, 2017 (hereafter referred to as the "IGST Act") which states that, subject to the provisions
of section 17(5) of the CGST Act, credit of input tax may be availed for making zero rated
supplies. Further, section 16 of the IGST Act has been mutatis mutandis made applicable to
inter-State supplies under the Cess Act vide section 11(2) of the Cess Act.
Thus, it implies that input tax credit of Compensation Cess may be availed for making zero-
rated supplies. Further, by virtue of section 54(3) of the CGST Act, the refund of such
unutilized ITC shall be available. Accordingly, it is clarified that a registered person making
zero rated supply of aluminium products under bond or LUT may claim refund of unutilized
credit including that of compensation cess paid on coal.
Such registered persons may also make zero-rated supply of aluminium products on
payment of Integrated tax but they cannot utilize the credit of the compensation cess paid
on coal for payment of Integrated tax in view of the proviso to section 11(2) of the Cess Act,
which allows the utilization of the input tax credit of cess, only for the payment of cess on
the outward supplies - para 42 of CBI&C Circular No. 125/44/2019-GST dated 18-11-2019.
As regards the certain issues related to refund of accumulated input tax credit of
compensation cess on account of zero-rated supplies made under Bond/Letter of
Undertaking on which clarifications have been sought since GST roll out, the same have been
examined and are clarified as below:
Refund of accumulated credit of GST Compensation Cess - A registered person uses inputs
on which compensation cess is leviable (e.g. coal) to export goods on which there is no levy
of compensation cess (e.g. aluminium). For the period July, 2017 to May, 2018, no ITC is
availed of the compensation cess paid on the inputs received during this period. ITC is only
availed of the Central tax, State tax/Union Territory tax or Integrated tax charged on the
invoices for these inputs. This ITC is utilized for payment of Integrated tax on export of goods.
Vide Circular No. 45/19/2018-GST dated 30.05.2018, it was clarified that refund of
accumulated ITC of compensation cess on account of zero-rated supplies made under
Bond/Letter of Undertaking is available even if the exported product is not subject to levy of
cess. After the issuance of this Circular, the registered person decides to start exporting
under bond/LUT without payment of tax. He also decides to avail (through the return in
FORM GSTR-3B) the ITC of compensation cess, paid on the inputs used in the months of July,
2017 to May, 2018, in the month of July, 2018. The registered person then goes on to file a
refund claim for ITC accumulated on account of exports for the month of July, 2018 and
 927

includes the said accumulated ITC for the month of July, 2018. How should the amount of
compensation cess to be refunded be calculated?
In such case, refund on account of compensation cess is to be recomputed as if the same
was available in the respective months in which the refund of unutilized credit of Central
tax/State tax/Union Territory tax/Integrated tax was claimed on account of exports made
under LUT/Bond. If the aggregate of these recomputed amounts of refund of compensation
cess is less than or equal to the eligible refund of compensation cess calculated in respect of
the month in which the same has actually been claimed, then the aggregate of the
recomputed refund of compensation cess of the respective months would be admissible.
However, the recomputed amount of eligible refund (of compensation cess) in respect of
past periods, as aforesaid, would not be admissible in respect of consignments exported on
payment of Integrated tax. This process would be applicable for application(s) for refund of
compensation cess (not claimed earlier) in respect of the past period - para 43(a) of CBI&C
Circular No. 125/44/2019-GST dated 18-11-2019.
Refund of GST Compensation Cess on coal used for generation of electricity when final
manufactured product exported - A registered person uses coal for the captive generation
of electricity which is further used for the manufacture of goods (say aluminium) which are
exported under Bond/Letter of Undertaking without payment of duty. Refund claim is filed
for accumulated Input Tax Credit of compensation cess paid on coal. Can the said refund
claim be rejected on the ground that coal is used for the generation of electricity which is an
intermediate product and not the final product which is exported and since electricity is
exempt from GST, the ITC of the tax paid on coal for generation of electricity is not available?
Clarification: There is no distinction between intermediate goods or services and final goods
or services under GST. Inputs have been clearly defined to include any goods other than
capital goods used or intended to be used by a supplier in the course or furtherance of
business. Since coal is an input used in the production of aluminium, albeit indirectly through
the captive generation of electricity, which is directly connected with the business of the
registered person, input tax credit in relation to the same cannot be denied - para 43(b) of
CBI&C Circular No. 125/44/2019-GST dated 18-11-2019.
Refund of ITC on compensation cess when partial reversal was made of GST Compensation
Cess - A registered person avails ITC of compensation cess (say, of Rs. 100/-) paid on
purchases of coal every month. At the same time, he reverses a certain proportion (say, half
i.e. Rs. 50/-) of the ITC of compensation cess so availed on purchases of coal which are used
in making zero rated outward supplies. Both these details are entered in the FORM GSTR-3B
filed for the month as a result of which an amount of Rs. 50/- only is credited in the electronic
credit ledger. The reversed amount (Rs. 50/-) is then shown as a 'cost' in the books of account
of the registered person. However, the registered person declares Rs. 100/- as 'Net ITC' and
uses the same in calculating the maximum refund amount which works out to be Rs. 50/-
(assuming that export turnover is half of total turnover). Since both the balance in the
electronic credit ledger at the end of the tax period for which the claim of refund is being
filed and the balance in the electronic credit ledger at the time of filing the refund claim is
Rs. 50/- (assuming that no other debits/credits have happened), the common portal will
proceed to debit Rs. 50/- from the ledger as the claimed refund amount. The question is
 928

whether the proper officer should sanction Rs. 50/- as the refund amount or Rs. 25/- (i.e.
half of the ITC availed after adjusting for reversals)?
Clarification: ITC which is reversed cannot be held to have been 'availed' in the relevant
period. Therefore, the same cannot be part of refund of unutilized ITC on account of zero-
rated supplies. Moreover, the reversed ITC has been accounted as a cost which would have
reduced the income tax liability of the applicant. Therefore, the same amount cannot, at the
same time, be refunded to him/her in the ratio of export turnover to total turnover.
However, if the said reversed amount is again availed in a later tax period, subject to the
restriction under section 16(4) of the CGST Act, it can be refunded in the ratio of export
turnover to total turnover in that tax period in the same manner as detailed in para 37 above.
This is subject to the restriction that the accounting entry showing the said ITC as cost is also
reversed - para 43(c) of CBI&C Circular No. 125/44/2019-GST dated 18-11-2019.
43.20 Refund in case of inverted duty structure
In case of inverted duty rates (i.e. input tax credit more than tax payable on outward supply),
there is provision of refund of excess credit under section 54(3) of CGST and SGST Act.
No refund if tax is Nil or exempt - The refund is not admissible where the rate of output
supply is Nil or exempt. Thus, some tax must be payable.
No refund in cases of inverted duty structure in respect of railway locomotives and its parts,
even if ITC more that tax paid - As per proviso (ii) to section 54(3) of CGST and SGST Act,
Government can notify supply of goods or services where refund of unutilized input tax
credit (ITC) will not be admissible, even if ITC is more that tax payable on output supply.
Under these powers, Notification Nos. 5/2017-CT (Rate) and 5/2017-IT (Rate) both dated 28-
6-2017 has been issued. As per this notification, the refund is not admissible even if ITC is
more that tax paid, in case of Railway locomotives and their parts falling under headings
8601 to 8608 [provision w.e.f. 1-7-2017 continuing after 1-8-2018 also].
No refund of ITC even if input tax credit more than GST payable on outward supply in case
of construction of complex - In case of service of construction of complex [specified in Item
5(b) of Schedule II of CGST Act], refund of unutilized ITC will not be available - Notification
Nos. 15/2017-CT (Rate) and 12/2017-IT (Rate) both dated 28-6-2017.
No refund of GST Compensation Cess under inverted duty structure in respect of tobacco
products from 1-7-2020 - There will be no refund of GST Compensation Cess under
provisions of inverted duty structure in respect of tobacco and manufactured tobacco
substitutes falling under chapter 24 - Notification No.3/2019-Compensation Cess (Rate)
dated 30-9-2019 [This notification has been given retrospective effect from 1-7-2017 vide
section 133 of Finance Act, 2020 [clause 131 of Finance Bill, 2020]. Thus, this notification
applies to all supplies made from 1-7-2017 onwards].
No refund if tax rate on same product subsequently reduced - In some cases, GST rate on a
product is reduced at a later stage e.g. GST rate is reduced from 18% to 12%. This is not case
covered under section 54(3) of CGST Act. In such cases, refund of excess tax paid is not
admissible - CBI&C Circular No.135/05/2020 - GST dated 31-3-2020.
43.20-1 Calculation of refund in case of inverted duty structure
 929

In the case of refund on account of inverted duty structure, refund of Input Tax Credit will
be as per following formula [Rule 89(5) of CGST and SGST Rules, 2017 amended on 13-6-
2018 but with retrospective effect from 1-7-2017]
Maximum Refund Amount = (([Turnover of inverted rated supply of goods and services) x
Net ITC]/Adjusted Total Turnover) - tax payable on such inverted rated supply of goods and
services.
Adjusted Total Turnover and 'relevant period' have same meaning as assigned in rule 89(4)
of CGST and SGST Rules - Explanation (b) to rule 89(5) of CGST Rules [words in italics inserted
w.e.f. 31-12-2018].
"Net ITC" means input tax credit availed on inputs (*) during the relevant period other than
the input tax credit availed for which refund is claimed under sub-rule (4A) or (4B) or both
[The words were and 'input services'. These words have been omitted w.e.f. 18-4-2018, but
w.e.f. 1-7-2017]
The effect of the amendment is that refund in case of inverted duty structure will be only in
respect of input goods w.e.f. 1-7-2017 [but not of input services and capital goods]
Note that in case of refund of ITC in case of zero rated supplies, refund of GST on input
services is permissible but not in case of refund under inverted duty structure.
While calculating net ITC, even inputs where GST rate is less than GST rate on output supply
is required to be considered. Stores, spares, packing material, stationery are all 'inputs'.
However, refund of ITC on input services and capital goods is not allowable - CBI&C circular
No. 79/53/2018-GST dated 31-12-2018.
Refund of Input Tax Credit of GST paid on services is not available in case of inverted duty
structure - Daewoo-TPL JV, In re [2019] 107 taxmann.com 351 (AAR - Maharashtra).
43.20-2 Refund of accumulated ITC on account of inverted tax structure - No refund of GST
paid on capital goods and input services
Section 54(3) of the CGST Act provides that refund of any unutilized ITC may be claimed
where the credit has accumulated on account of rate of tax on inputs being higher than the
rate of tax on output supplies (other than nil rated or fully exempt supplies). Section 2(59)
of the CGST Act defines inputs as any goods other than capital goods used or intended to be
used by a supplier in the course or furtherance of business. Thus, inputs do not include
services or capital goods.
Therefore, clearly, the intent of the law is not to allow refund of tax paid on input services
or capital goods as part of refund of unutilized input tax credit. It is clarified that both the
law and the related rules clearly prevent the refund of tax paid on input services and capital
goods as part of refund of input tax credit accumulated on account of inverted tax structure
- para 53 of CBI&C Circular No. 125/44/2019 -GST dated 18-11-2019.
Provision that refund of GST paid on input services is not available has been held as invalid
- In VKC Footsteps v. UOI (2020) 81 GST 628 = 118 taxmann.com 81 (Guj HC DB), the provision
that refund of GST paid on input services is not available has been held as invalid in case of
inverted duty structure. The explanation (a) of Rule 89(5) of the CGST Rules which defines
Net ITC and excludes Input Services from its purview is ultra vires to the provisions of Section
54(3) of the CGST Act.
 930

There is exactly contrary judgment in Tvl.Transtonnelstroy Afcons Joint venture v. UOI (2020)
119 taxmann.com 324 (Mad HC DB).
43.20-3 All inputs are to be considered while calculating refund in case of inverted duty
structure
There have been instances where while processing the refund of unutilized ITC on account
of inverted tax structure, some of the tax authorities denied the refund of ITC of GST paid
on those inputs which are procured at equal or lower rate of GST than the rate of GST on
outward supply, by not including the amount of such ITC while calculating the maximum
refund amount as specified in rule 89(5) of the CGST Rules. The matter has been examined
and the following issues are clarified:
Refund of unutilized ITC in case of inverted tax structure, as provided in section 54(3) of the
CGST Act, is available where ITC remains unutilized even after setting off of available ITC for
the payment of output tax liability. Where there are multiple inputs attracting different rates
of tax, in the formula provided in rule 89(5) of the CGST Rules, the term "Net ITC" covers the
ITC availed on all inputs in the relevant period, irrespective of their rate of tax.
43.20-4 Mode of calculation of refund in case of inverted duty structure
The calculation of refund of accumulated ITC on account of inverted tax structure, in cases
where several inputs are used in supplying the final product/output, can be clearly
understood with the help of following example:
i. Suppose a manufacturing process involves the use of an input A (attracting 5 per cent
GST) and input B (attracting 18 per cent GST) to manufacture output Y (attracting 12
per cent GST).
ii. The refund of accumulated ITC in the situation at (i) above, will be available under
section 54(3) of the CGST Act read with rule 89(5) of the CGST Rules, which prescribes
the formula for the maximum refund amount permissible in such situations.
iii. Further assume that the applicant supplies the output Y having value of Rs. 3,000/-
during the relevant period for which the refund is being claimed. Therefore, the
turnover of inverted rated supply of goods and services will be Rs. 3,000/-. Since the
applicant has no other outward supplies, his adjusted total turnover will also be Rs.
3,000/-.
iv. If we assume that Input A, having value of Rs. 500/- and Input B, having value of Rs.
2,000/-, have been purchased in the relevant period for the manufacture of Y, then
Net ITC shall be equal to Rs. 385/- (Rs. 25/- and Rs. 360/- on Input A and Input B
respectively).
v. Therefore, multiplying Net ITC by the ratio of turnover of inverted rated supply of
goods and services to the adjusted total turnover will give the figure of Rs. 385/-.
vi. From this, if we deduct the tax payable on such inverted rated supply of goods or
services, which is Rs. 360/-, we get the maximum refund amount, as per rule 89(5) of
 931

the CGST Rules which is Rs. 25/- - para 54 of CBI&C Circular No. 125/44/2019-GST
dated 18-11-2019.

43.21 Refund in case of inverted duty structure in case of textile articles w.e.f. 1-8-2018
As per Notification Nos. 5/2017-CT (Rate) and 5/2017-IT (Rate) both dated 28-6-2017, in case
of following items (textile products) refund is admissible w.e.f. 1-8-2018, if ITC is more than
tax paid,
Woven textile fabrics falling under specified headings in chapters 50 to 55
Knotted netting of twine, cordage of rope, made up of fishing nets or other made up
nets, of textile fabrics, falling under heading =5608 [inserted w.e.f. 14-11-2017]
Corduroy fabrics falling under heading 5801 [inserted w.e.f. 22-9-2017]

Narrow woven fabrics falling under heading 5806 [inserted w.e.f. 14-11-2017]
Knitted or crocheted fabrics (all goods) falling under chapter 60.

In case of aforesaid textile articles, refund was not available in respect of inverted duty
structure upto 1-8-2018. Now, refund of excess input tax credit will be admissible w.e.f. 1-
8-2018, if ITC on inputs is more than GST payable on final product. The refund was not
admissible upto 1-8-2018. Hence, any ITC availed and accumulated upto 31-7-2018 and lying
unutilized after payment of tax upto and for the month of July 2018, will lapse.
Mode of calculation of eligible and ineligible ITC has been specified in CBI&C circular No.
56/30/2018-GST dated 24-8-2018.
The circular stated that the unutilized credit as on 31-8-2018 will lapse. These instructions
have been held invalid in Shabnam Petrofils v. UOI (2019) 75 GST 801 = 108 taxmann.com
15 (Guj HC). The reason given is that ITC is a vested right and hence cannot be taken away.
Refund in respect of inverted duty structure by persons in textile sector - The taxable
persons have reversed the ITC in August 2018 or subsequent GSTR-3B returns as instructions
dated 24-8-2018. Hence, they cannot apply for refund as system does not allow filing of such
refund claim. Hence, as one time measure, it is provided that they should apply in form GST-
RFD-01A and claim under 'any other' instead of under the category 'refund of ITC on account
of accumulation due to inverted duty structure'. They should apply with relevant documents.
The proper officer shall sanction refund claim as per procedure prescribed. For subsequent
period, refund application shall be filed in form GST RFD-01A under 'refund of ITC on account
of accumulation due to inverted duty structure'. Those who have not reversed the ITC in
GSTR-3B may reverse the amount through form GST DRC-03 instead of through GSTR-3B.
The person who has reversed ITC after month of August 2018 is liable to pay interest - CBI&C
circular No. 94/13/2019-GST dated 28-3-2019.
Restriction on ITC balance not applicable to credit of input services and capital goods or
stock of finished goods as on 31-7-2018 - Restriction on ITC in respect of ITC balance as on
31-7-2018 is not applicable to credit of input services and capital goods. The restriction also
does not apply to inputs contained in finished stock as on 31-7-2018 - CBI&C circular No.
56/30/2018-GST dated 24-8-2018.
 932

Restriction not applicable in case of export of goods - This restriction is only in respect of
refunds under section 54(3)(ii) of CGST Act. Thus, the restriction on ITC in respect of ITC
balance as on 31-7-2018 is not applicable to refund under section 54(3)(i) of CGST Act i.e.
zero rated supplies. Hence, in case of export of these goods, refund of entire ITC will be
available - MF(DR) circular No. 18/18/2017-GST dated 16-11-2017. [The clarification is in
respect of fabrics, but principle applies to all goods notified under Notification No. 5/2017-
CT (Rate) dated 28-6-2017].
Restriction on ITC not applicable to cotton, silk and other natural fibre fabrics which do not
have inverted duty structure - The restriction on ITC in respect of ITC balance as on 31-7-
2018 is not applicable to cotton, silk and other natural fibre fabrics who do not have inverted
duty structure - CBI&C circular No. 56/30/2018-GST dated 24-8-2018.
Restriction not applicable to job workers in the textile sector - There is prohibition for
refund in case of inverted duty structure in case of fabrics. However, this restriction is not
applicable to independent fabric processors (job workers). The restriction is on goods and
not on services. Hence, the job workers can claim refund of GST in case of inverted duty
structure - CBI&C circular No. 48/22/2018-GST dated 14-6-2018 and CBI&C circular No.
56/30/2018-GST dated 24-8-2018.
Refund in case of inverted duty structure on textile products w.e.f. 1-8-2018 - Certain
registered persons have reversed, through return in FORM GSTR-3B filed for the month of
August, 2018 or for a subsequent month, the accumulated input tax credit (ITC) required to
be lapsed in terms of notification No. 20/2018-Central Tax (Rate) dated 26.07.2018 read with
circular No. 56/30/2018-GST dated 24.08.2018 (hereinafter referred to as the "said
notification"). Some of these registered persons, who have attempted to claim refund of
accumulated ITC on account of inverted tax structure for the same period in which the ITC
required to be lapsed in terms of the said notification has been reversed, are not able to
claim refund of accumulated ITC to the extent to which they are so eligible. This is because
of a validation check on the common portal which prevents the value of input tax credit in
Statement 1A of FORM GST RFD-01A from being higher than the amount of ITC availed in
FORM GSTR-3B of the relevant period minus the value of ITC reversed in the same period.
This results in registered persons being unable to claim the full amount of refund of
accumulated ITC on account of inverted tax structure to which they might be otherwise
eligible. What is the solution to this problem?
Solution - (a) As a one-time measure to resolve this issue, refund of accumulated ITC on
account of inverted tax structure, for the period(s) in which there is reversal of the ITC
required to be lapsed in terms of the said notification, is to be claimed under the category
"any other" instead of under the category "refund of unutilized ITC on account of
accumulation due to inverted tax structure" in FORM GST RFD-01A. It is emphasized that
this application for refund should relate to the same tax period in which such reversal has
been made.
(b) The application shall be accompanied by all statements, declarations, undertakings and
other documents which are statutorily required to be submitted with a "refund claim of
unutilized ITC on account of accumulation due to inverted tax structure". On receiving the
said application, the proper officer shall himself calculate the refund amount admissible as
 933

per rule 89(5) of Central Goods and Services Tax Rules, 2017 (hereinafter referred to as
"CGST Rules"), in the manner detailed in para 37 above. After calculating the admissible
refund amount, as described above, and scrutinizing the application for completeness and
eligibility, if the proper officer is satisfied that the whole or any part of the amount claimed
is payable as refund, he shall request the taxpayer, in writing, to debit the said amount from
his electronic credit ledger through FORM GST DRC-03. Once the proof of such debit is
received by the proper officer, he shall proceed to issue the refund order in FORM GST RFD-
06 and the payment order in FORM GST RFD-05.
(c) All refund applications for unutilized ITC on account of accumulation due to inverted tax
structure for subsequent tax period(s) shall be filed in FORM GST RFD-01 under the category
"refund of unutilized ITC on account of accumulation due to inverted tax structure - Sr No. 1
of para 57 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
What about those who did not reverse in GSTR-3B in case of inverted duty structure on
textile products w.e.f. 1-8-2018? - The clarification above applies to registered persons who
have already reversed the ITC required to be lapsed in terms of the said notification through
return in FORM GSTR-3B. What about those registered persons who are yet to perform this
reversal?
Clarification - All those registered persons required to make the reversal in terms of the said
notification and who have not yet done so, may reverse the said amount through FORM GST
DRC-03 instead of through FORM GSTR-3B - Sr No. 2 of para 57 of CBI&C Circular No.
125/44/2019-GST dated 18-11-2019.
43.21-1 Consequences if credit to be lapsed on textile products reversed after August
2018?
What shall be the consequence if any registered person reverses the amount of credit to be
lapsed, in terms the said notification, through the return in FORM GSTR-3B for any month
subsequent to August, 2018 or through FORM GST DRC-03 subsequent to the due date of
filing of the return in FORM GSTR-3B for the month of August, 2018?
Clarification - (a) As the registered person has reversed the amount of credit to be lapsed in
the return in FORM GSTR-3B for a month subsequent to the month of August, 2018 or
through FORM GST DRC-03 subsequent to the due date of filing of the return in FORM GSTR-
3B for the month of August, 2018, he shall be liable to pay interest under section 50(1) of
the CGST Act on the amount which has been reversed belatedly. Such interest shall be
calculated starting from the due date of filing of return in FORM GSTR-3B for the month of
August, 2018 till the date of reversal of said amount through FORM GSTR-3B or through
FORM GST DRC-03, as the case may be. (b) The registered person who has reversed the
amount of credit to be lapsed in the return in FORM GSTR-3B for any month subsequent to
August, 2018 or through FORM GST DRC-03 subsequent to the due date of filing of the return
in FORM GSTR-3B for the month of August, 2018 would remain eligible to claim refund of
unutilized ITC on account of accumulation due to inverted tax structure w.e.f 01.08.2018.
However, such refund shall be granted only after the reversal of the amount of credit to be
lapsed, either through FORM GSTR-3B or FORM GST DRC-03, along with payment of interest,
as applicable - Sr No. 3 of para 57 of CBI&C Circular No. 125/44/2019-GST dated 18-11-2019.
 934

43.22 Refund of IGST paid on goods supplied to SEZ or SEZ Developer

In case of refund of IGST paid on export of goods or goods supplied to SEZ unit or SEZ
Developer, separate refund application is not required, as shipping bill or Bill of Export itself
will be treated as application for refund.
Initially, the refund of IGST was manually handled. However, now, the processing of refund
claims has been fully automated. However, in case of LCL Cargo, Export General Manifest
(EGM) related errors continue to hinder smooth and automatic sanction of refund claims.
CBI&C has issued circular No. 01/2019-Cus dated 2-1-2019 explaining in detail the procedure
to be followed by custodians/carrier/shipping lines to avoid mismatch in local EGM and
Gateway EGM.
Department had issued CBI&C circular Nos. 5/2018-Cus dated 23-2-2018 and 12/2018-Cus
dated 29-5-2018, explaining reasons why the refunds of IGST in case of exports are getting
delayed. Main reason is invoice mismatching i.e. details filed in GSTR 1 or Table 6A of GSTR-
3B and Customs EDI system while filing shipping bill. GSTR-1 can be amended through table
9 of GSTR-1. If the details match, refund is granted by EDI system of customs automatically.
The errors noted at customs EDI port have been explained in Notification No. 42/2017-Cus
dated 7-11-2017.
Details of invoice number, invoice value and IGST paid mentioned in GSTR-1 and shipping
bill must match. Refund will be granted through PFMS system only.
Exporters can track refund claim status and errors on ICEGATE website after registering on
the website.
43.22-1 Application for refund of IGST paid on export of services and supplies made to a
SEZ developer or a SEZ unit
While filing the return in FORM GSTR-3B for a given tax period, certain registered persons
commit errors in declaring the export of services on payment of integrated tax or zero-rated
supplies made to a Special Economic Zone developer or a Special Economic Zone unit on
payment of integrated tax. They have shown such supplies in the Table under column 3.1(a)
instead of showing them in column 3.1(b) of FORM GSTR-3B whilst they have shown the
correct details in Table 6A or 6B of FORM GSTR-1 for the relevant tax period and duly
discharged their tax liabilities.
Such registered persons were earlier unable to file the refund application in FORM GST RFD-
01A for refund of integrated tax paid on the export of services or on supplies made to a SEZ
developer or a SEZ unit on the GST common portal because of an in-built validation check in
the system which restricted the refund amount claimed (integrated tax/cess) to the amount
of integrated tax/cess mentioned under column 3.1(b) of FORM GSTR-3B (zero rated
supplies) filed for the corresponding tax period - para 25 of CBI&C Circular No. 125/44/2019-
GST dated 18-11-2019.
For the tax periods commencing from 01.07.2017 to 31.3.2021 [earlier it was 30.06.2019],
such registered persons shall be allowed to file the refund application in FORM GST RFD-01
on the common portal subject to the condition that the amount of refund of integrated
tax/cess claimed shall not be more than the aggregate amount of integrated tax/cess
mentioned in the Table under columns 3.1(a), 3.1(b) and 3.1(c) of FORM GSTR-3B filed for
 935

the corresponding tax period - para 26 of CBI&C Circular No. 125/44/2019 - GST dated 18-
11-2019 as amended vide CBI&C Circular No. 147/03/2021-GST dated 12-3-2021 [Earlier, the
relaxation was upto 30-6-2019. Now, the relaxation has been extended upto 31-3-2021].
43.23 Refund of input taxes to the retail outlets established in departure area of an
international Airport beyond immigration counters making tax free supply to an outgoing
international tourist
Refund of input taxes is available to the retail outlets established in departure area of an
international Airport beyond immigration counters making tax free supply to an outgoing
international tourist, w.e.f. 1-7-2019.
This aspect is discussed under 'Exports'.
43.24 Refund to casual taxable person or non-resident taxable person only after he files
all returns
The amount of advance tax deposited by a casual taxable person or a non-resident taxable
person under section 27(2) of CGST Act, shall not be refunded unless such person has, in
respect of the entire period for which the certificate of registration granted to him had
remained in force, furnished all the returns required under section 39 of CGST Act - section
54(13) of CGST Act.
These are overriding provisions.
43.25 Refund claim by UN Agencies
A specialized agency of the United Nations Organization or any Multilateral Financial
Institution and Organization notified under the United Nations (Privileges and Immunities)
Act, 1947, Consulate or Embassy of foreign countries or any other person or class of persons
as notified under section 55 of CGST Act, entitled to a refund of IGST/CGST/SGST paid by it
on inward supplies of goods or services or both, may make an application for such refund to
the proper officer, in the form and manner prescribed - section 54(2) of CGST Act.
Invoice issued to UN Agencies or embassies should indicate UIN - Supplier supplying goods
or services to UN Agencies etc. should charge GST in his invoice. He should indicate UIN of
the recipient so that recipient (UN Agency, diplomatic mission etc.) can claim refund from
Government - CBIC press release dated 27-4-2018.
Time limit for filing refund claim - The section 54(2) of CGST Act provides time limit of six
months for filing refund claim. However, the time limit has been extended and now refund
claim can be filed within 18 months from the last date of the quarter in which the supply
was received - Notification No. 20/2018-CT dated 28-3-2018.
The notification does not specify the period for which this extended time limit is applicable.
Hence, technically, this revised period of 18 months should apply to all refund claims
hereafter filed.
Refund of GST Compensation Cess to UN and specified international organisations - Section
9(2) of GST (Compensation to States) Act, 2017 provide that all provisions of CGST Act
(including refunds) will apply to Compensation Cess. Hence, Refund of GST Compensation
Cess is permissible to UN and specified international organisations under section 55 of CGST
Act - CBI&C circular No. 68/42/2018-GST dated 5-10-2018.
 936

Specialised Agencies to get refund of IGST paid on goods imported - In order to maintain
parity, Specialised Agencies are entitled to get refund of IGST paid on goods imported -
MF(DR) circular No. 23/2019-Cus dated 1-8-2019.
43.25-1 Refund to UN Agencies and conditions for refund
Following have been notified for purpose of refund under section 55 of CGST Act - (a) UN or
specialized agencies (b) Foreign diplomatic mission or consular post in India, or diplomatic
agents or career consular officers posted therein.
They should obtain supplies for official purposes. Certificate should be given protocol
division of Ministry of External Affairs. The conditions as specified in Notification No.
16/2017-CT (Rate) dated 28-6-2017 should be satisfied.
43.25-2 Procedure to claim refund of tax to Embassies, UN Agencies, Consulates
Procedure has been elaborated in FAQ on GST Chapter 14.1 issued by CBI&C on 15-12-2018.
Any person eligible to claim refund of tax paid by him on his inward supplies as per
notification issued under section 55 shall apply for refund in FORM GST RFD-10 once in every
quarter, electronically on the common portal or otherwise, along with a statement of the
inward supplies of goods or services or both in FORM GSTR-11.- rule 95(1) of CGST Rules,
substituted w.e.f. 29-12-2017.
An acknowledgement for receipt of the application for refund shall be issued in form GST
RFD-02.
Refund of tax paid by the applicant shall be available if- (a)* the inward supplies of goods or
services or both were received from a registered person against a tax invoice (b) name and
GSTIN or UIN of the applicant is mentioned on the tax invoice; and (c) such other restrictions
or conditions as may be specified in the notification are satisfied - Rule 95(3) of CGST and
SGST Rules, 2017. The words in italics inserted on 13-6-2018 but with retrospective effect
from 1-7-2017.
[*- the words in clause (a) were -'and the price of the supply covered under a single tax
invoice exceeds five thousand rupees, excluding tax paid, if any'. These words have been
omitted with retrospective effect from 1-7-2017].
[Drafting mistake corrected and hence retrospective effect has been given w.e.f. 1-7-2017,
though normally, rule cannot be amended with retrospective effect].
The provisions of rule 92 shall, mutatis mutandis, apply for the sanction and payment of
refund under this rule.
International agreement or treaty prevails - Where an express provision in a treaty or other
international agreement, to which the President or the Government of India is a party, is
inconsistent with the provisions of these rules, such treaty or international agreement shall
prevail - Rule 95(5) of CGST and SGST Rules, 2017.
43.25-3 Manual Refund claim by entities having UIN (Unique Identity Number)
Refund is available of GST charged by suppliers in respect of supplies to entities having UIN.
Such entities are United Nations Organisation or organisations under UNO, Consulate or
Embassy of foreign countries.
 937

CBI&C vide circular No. 36/10/2018-GST dated 13-3-2018 has prescribed procedure for
claiming refund by such entities.
The entities can have centralized registration. They have to file application in form GST REG-
13 to obtain registration. Alternatively, they can obtain registration from Protocol Division,
Ministry of External Affairs.
They should file return in form GSTR-11 only for the months for which they intend to claim
refund. Refund claim should be filed in form RFD-10. These are to be filed separately for
each quarter. Refund claim should be filed in printed form with necessary documents. All
refunds will be processed by Central Authorities only. They should submit report in form
Annexure B to Director General of Goods and Services Tax by 10th of succeeding month.
The GSTR-11 does not have facility to get invoice wise details. Hence, a separate statement
shall be submitted.
Since many suppliers have not indicated UIN number, the invoices will be accepted even if
UIN number is not available. This waiver is for refunds during July 2017 to March, 2021,
subject to the condition that the copies of such invoices which are attested by the authorized
representative of the UIN entity. Department should verify those details - CBI&C circular No.
43/17/2018-GST dated 13-4-2018 as amended by CBI&C has issued circular No. 63/37/2018-
GST dated 14-9-2018 and corrected vide corrigendum No. 20/16/04/18-GST dated 6-9-2019
and further Circular No.144/14/2020-GST dated 15-12-2020.
Detailed guidelines for processing refund claims of entities having UIN - CBI&C has issued
circular No. 63/37/2018-GST dated 14-9-2018 giving detailed guidelines for processing of
refund claims of entities having UIN.
Following formats have been specified -
Refund Checklist

Certificate by embassy/Mission/Consulate/UN Agencies

Undertaking by embassy/Mission/Consulate
Statement of Invoices
Monthly report by Principal Director General of GST

It has been clarified that the refund claim should be only as per letter of reciprocity issued
by the Ministry of External Affairs. Generally, these letters of reciprocity have certain
conditions specified on the basis of which refunds have to be processed and sanctioned.
43.26 Exemption of IGST to goods sold to outbound tourist at international airport
Since GST is consumption based tax, it is not payable if goods are consumed outside India.
Hence, in many countries, there is a provision to refund taxes paid on goods which were
purchased within that country.
Such supplies have been exempted from GST w.e.f. 1-7-2019. Refund of input taxes is
available to the retail outlets established in departure area of an international Airport
beyond immigration counters making tax free supply to an outgoing international tourist,
w.e.f. 1-7-2019.
 938

This aspect is discussed under 'Exports'.

No refund to tourists of GST paid by tourist at international Airports - Section 15 of IGST
Act provided that IGST paid on any supply of goods to outbound tourist shall be refunded,
in the manner and subject to such conditions and safeguards as may be prescribed, if such
goods are taken out of India.
"Tourist" means a person not normally resident in India, who enters India for a stay of not
more than six months for legitimate non-immigrant purposes - Explanation to section 15 of
IGST Act.
This section i.e. section 15 has not been made effective so far. It is not likely to be made
effective as now provision has been made for exemption in respect of supplies made to
outbound tourists and refund of ITC to retail outlets w.e.f. 1-7-2019.
43.27 Refund of TDS/TCS deposited in excess
Tax deducted in accordance with the provisions of section 51 of the CGST Act or tax collected
in accordance with the provisions of section 52 of the CGST Act is required to be paid while
discharging the liability in FORM GSTR 7 or FORM GSTR 8, as the case may be, by the
deductor or the collector, as the case may be - para 55 of CBI&C Circular No. 125/44/2019-
GST dated 18-11-2019.
There are instances where taxes so deducted or collected is deposited under the wrong head
(e.g. an amount deducted as Central tax is deposited as Integrated tax/State tax), thereby
creating excess balance in the cash ledger of the deductor or the collector as the case may
be. Doubts have been raised on the fate of this excess balance of TDS/TCS in the cash ledger
of the deductor or the collector.
It is clarified that such excess balance may be claimed by the tax deductor or the collector
as the excess balance in electronic cash ledger. In this case, the common portal would debit
the amount so claimed as refund. However, in case where tax deducted or collected in
excess is also paid while discharging the liability in FORM GSTR 7 or FORM GSTR 8, as the
case may be, and the said amount has been credited to the electronic cash ledger of the
deductee, the deductee can adjust the same while discharging his output liability or he can
claim refund of the same under the category "refund of excess balance in the electronic cash
ledger" - para 56 of CBI&C Circular No. 125/44/2019 - GST dated 18-11-2019.
43.28 Refund of ITC in case of goods supplied to canteen Stores Department of Defence
In case of goods supplied to canteen Stores Department (CSD) under Ministry of Defence,
the supplies are exempt from GST - Notification Nos. 7/2017-CT (Rate) and 7/2017-IT (Rate)
dated 28-6-2017. Out of Input Tax paid on inward supplies, 50% will be refunded to CSD - -
Notification Nos. 6/2017-CT (Rate) and 6/2017-IT (Rate) both dated 28-6-2017.
Procedure for processing of applications filed by Canteen Stores Department has been
specified in CBI&C circular No. 60/34/2018-GST dated 4-9-2018.
43.29 Refund application for a period and category under which a NIL refund application
has already been filed
CBI&C vide circular No. 110/29/2019 - GST dated 3-10-2019 has clarified as follows -
 939

In some cases, registered persons inadvertently file a NIL refund claim for a certain period
under a particular category on the common portal in FORM GST RFD-01A/RFD-01 in spite of
the fact that they had a genuine claim for refund for that period under the said category. In
such cases, they cannot re-file the refund claim for that period under the said category, as
system does not allow filing the claim.
In such cases, refund claim can be filed in FORM GST RFD-01A/RFD-01 if no refund claims in
FORM GST RFD-01A/RFD-01 was filed by the registered person under the same category for
any subsequent period. This condition applies only for refund claims falling under the
following categories - (i) Refund of unutilized input tax credit (ITC) on account of exports
without payment of tax (ii) Refund of unutilized ITC on account of supplies made to SEZ
Unit/SEZ Developer without payment of tax and (iii) Refund of unutilized ITC on account of
accumulation due to inverted tax structure. - - In all other cases, registered persons shall be
allowed to re-apply even if this condition is not satisfied.
Registered persons satisfying the above conditions may file the refund claim under "Any
Other" category instead of the category under which the NIL refund claim has already been
filed. However, the refund claim should pertain to the same period for which the NIL
application was filed. The application under the "Any Other" category shall also be
accompanied by all the supporting documents which would be required to be otherwise
submitted with the refund claim.
On receipt of the claim, the proper officer shall calculate the admissible refund amount as
per the applicable rules and in the manner detailed in para 3 of Circular No. 59/33/2018-GST
dated 04.09.2018, wherever applicable. Further, upon scrutiny of the application for
completeness and eligibility, if the proper officer is satisfied that the whole or any part of
the amount claimed is payable as refund, he shall request the taxpayer in writing, if required,
to debit the said amount from his electronic credit ledger through FORM GST DRC-03. Once
the proof of such debit is received by the proper officer, he shall proceed to issue the refund
order in FORM GST RFD-06 and the payment order in FORM GST RFD-05.
43.30 Claiming refund subsequent to favourable order in appeal or any other forum
CBI&C vide circular No. 111/30/2019 - GST dated 3-10-2019 has clarified as follow -
Appeals against rejection of refund claims are being disposed offline as the electronic
module for the same is yet to be made operational. As per rule 93 of the CGST Rules, where
an appeal is filed against the rejection of a refund claim, re-crediting of the amount debited
from the electronic credit ledger, if any, is not done till the appeal is finally rejected.
Therefore, such rejected amount remains debited in respect of the particular refund claim
filed in FORM GST RFD-01.
In case a favourable order is received by a registered person in appeal or in any other forum
in respect of a refund claim rejected through issuance of an order in FORM GST RFD-06, the
registered person would file a fresh refund application under the category "Refund on
account of assessment/provisional assessment/appeal/any other order" claiming refund of
the amount allowed in appeal or any other forum. Since the amount debited, if any, at the
time of filing of the refund application was not re-credited, the registered person shall not
be required to debit the said amount again from his electronic credit ledger at the time of
 940

filing of the fresh refund application under the category "Refund on account of
assessment/provisional assessment/appeal/any other order". The registered person shall be
required to give details of the type of the Order (appeal/any other order), Order No., Order
date and the Order Issuing Authority. The registered person would also be required to
upload a copy of the order of the Appellate or other authority, copy of the refund rejection
order in FORM GST RFD 06 issued by the proper officer or such other order against which
appeal has been preferred and other related documents.
Upon receipt of the application for refund under the category "Refund on account of
assessment/provisional assessment/appeal/any other order" the proper officer would
sanction the amount of refund as allowed in appeal or in subsequent forum which was
originally rejected and shall make an order in FORM GST RFD 06 and issue payment order in
FORM GST RFD 05 accordingly. The proper officer disposing the application for refund under
the category "Refund on account of assessment/provisional assessment/appeal/any other
order" shall also ensure re-credit of any amount which remains rejected in the order of the
appellate (or any other authority). Such re-credit shall be made following the guideline as
laid down in para 4.2 of Circular No. 59/33/2018 - GST dated 04/09/2018 [This circular is
now rescinded].
43.31 Doctrine of unjust enrichment in case of refund of GST
Refund will be normally paid in Consumer Welfare Fund, and not paid to the taxable person
who has applied for refund - section 54(5) of CGST Act.
This is on the basis of doctrine of unjust enrichment, as explained below.
If the supplier of goods and services has recovered GST from recipient, it is clear that he has
passed on the burden to the recipient and has already recovered GST from him. In such cases,
refund of excess GST paid will amount to excess and un-deserved profit to supplier of goods
and services. It will not be equitable to refund the duty to him, as he will get double benefit
- first from the recipient of goods and services and again from the Government.
This will be 'unjust enrichment' of supplier.
Unjust enrichment - A benefit obtained from another, not intended as a gift and not legally
justifiable, for which the beneficiary must make restitution or recompose - Indian Council for
Enviro-Legal Action v. UOI (2011) 8 SCC 161 * Rameshwar v. State of Haryana (2018) 6 SCC
215.
Unjust Enrichment - Unjust enrichment means retention of a benefit by a person that is
unjust or inequitable. 'Unjust enrichment' occurs when a person retains money or benefits
which in justice, equity and good conscience, belong to someone else - Sahakari Khand
Udyog Mandal v. CCE (2005) 3 SCC 738 - quoted with approval in Indian Council for Enviro-
Legal Action v. UOI (2011) 8 SCC 161 * Rameshwar v. State of Haryana (2018) 6 SCC 215.
Refund, if any, should be paid to customer who has borne the burden of GST. However, in
majority of the cases, it is not practicable to identify individual consumer and pay refund to
him. At the same time, the GST illegally collected and hence cannot be retained by
Government.
In UOI v. Roplas Ltd. AIR 1989 Bom 183 = 1988(38) ELT 27 (Bom HC), it was suggested that
in such cases, the refund due should be transferred to a Consumer Welfare Fund instead of
 941

paying it to the supplier. The fund may be used for activities of protection and benefit of
consumers.
With this view in mind, concept of unjust enrichment was introduced in Central Excise Act
and Customs Act w.e.f. 20th September 1991.
These provisions are being continued under GST also.
Provisions relating to unjust enrichment have been held as valid in Mafatlal Industries Ltd.
v. UOI 89 ELT 247 = (1997) 5 SCC 536 = 111 STC 467 (SC 9 member Constitution bench).
43.31-1 Incidence of tax deemed to have been passed to recipient
Every person who has paid the tax on goods or services or both under this Act shall, unless
the contrary is proved by him, be deemed to have passed on the full incidence of such tax
to the recipient of such goods or services or both - section 49(9) of CGST Act.
If tax was recovered, it means duty incidence has been passed on - If the amount of tax has
been recovered from the recipient, it shall be deemed that the incidence of tax has been
passed on to the ultimate consumer [indeed obvious] - Explanation (ii) to rule 89(2) of CGST
and SGST Rules, 2017.
43.31-2 Precautions while claiming refund to avoid doctrine of unjust enrichment
If the burden of tax has been passed on to customer, there is no point in applying for refund
of GST.
In other cases, to establish that burden has not been passed on to customer, the amount
should be shown as 'claim receivable' in books of account and should not be charged to
profit and loss account.
In Jaipur Syntex Ltd. v. CCE 2002(143) ELT 605 (CEGAT), assessee had paid higher duty and
the differential amount was treated in accounts as 'claims receivable'. This was treated as
part of Balance Sheet and not charged to P&L account. It was held that it is evident that
incidence of duty has not been passed on to customers. [In this case, duty was not shown
separately in invoice].
In CC v. Virudhunagar Textile Mills (2008) 230 ELT 411 (Mad HC DB), differential duty on
capital goods was shown as duty receivable from customs department and balance sheet
with CA certificate was produced. It was held that refund is admissible.
In CC v. Maruti Udyog Ltd. 2003 (155) ELT 523 (CEGAT), amount claimed as refund of duty
was grouped in 'Current Assets' in Balance Sheet as 'Claim Receivable'. It was held that
refund claim to assessee is admissible - similar order in Hero Honda Motors Ltd. v. CC
2000(126) ELT 1014 = 40 RLT 597 (CEGAT) * Welspun Gujarat Stahal v. CC (2014) 306 ELT
513 (CESTAT SMB) * New Tech Stewing Telecom v. CCE (2014) 301 ELT 105 (CESTAT SMB) *
CCE v. Shankar Printing Mills (2015) 321 ELT 295 (CESTAT) * Shreyas Intermediates v. CCE
(2016) 333 ELT 380 (CESTAT).
In CCE v. Dabur India (2014) 46 GST 233 = 46 taxmann.com 359 (All HC DB), duty was paid
under protest. Amount was shown as receivable. MRP/wholesale price was not increased. It
was held that refund is admissible and unjust enrichment provisions are not applicable.
[This is probably the only scientific way by which assessee can establish that he has not
passed on the burden to customers, and is based on accounting principles.]
 942

43.31-3 No unjust enrichment if amount returned to buyer by cheque or credit note

If tax amount is refunded by cheque or credit note to recipient, there cannot be unjust
enrichment.
See case law under 'discount' in 'value for GST'.
43.31-4 Refund to taxable person instead of depositing in consumer welfare fund
Refund, once sanctioned, should be deposited with Consumer Welfare Fund.
However, in following cases, the refundable amount shall, instead of being credited to the
Fund, be paid to the applicant [section 54(8) of CGST Act]
(a) refund of tax on export of goods or services or both exported out of India or on inputs
used in the goods or services or both used in making such exports The words in italics
replaced for 'zero rated supplies' vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019.
(b) refund of unutilized input tax credit under section 54(3) of CGST Act.
(c) refund of tax paid on a supply which is not provided, either wholly or partially, and
for which invoice has not been issued, or where a refund voucher has been issued.
(d) refund of tax in pursuance of section 77 of CGST (IGST paid instead of SGST/CGST or
vice versa).
(e) the tax and interest, if any, or any other amount paid by the applicant, if he had not
passed on the incidence of such tax and interest to any other person; or
(f) the tax or interest borne by such other class of applicants as the Central or a State
Government may, on the recommendation of the GST Council, by notification,
specify.

No refund except in aforesaid cases - Notwithstanding anything to the contrary contained

in any judgment, decree, order or direction of the Appellate Tribunal or any Court or in any
other provision of this Act or the rules made thereunder or in any other law for the time
being in force, no refund shall be made except as provided in section 54(8) - section 54(9) of
CGST Act.
Really, if there is specific order of Court or Tribunal granting refund, how GST officer can
ignore that order?
43.32 Consumer Welfare Fund
Normally, refund is to be credited to Consumer Welfare Fund, except in few specified cases.
There shall be established by the Central or a State Government a fund, to be called the
Consumer Welfare Fund. There shall be credited to the Fund - (a) the amount referred to in
section 54(5) (b) any income from investment of the amount credited to the Fund and (c)
such other monies received by it- section 57 of CGST Act.
43.32-1 Utilization of the Fund
All sums credited to the Fund shall be utilised by the Central/State Government for the
welfare of the consumers in such manner as may be prescribed - section 58(1) of CGST Act.
 943

The Central/State Government or the authority specified by it which shall maintain proper
and separate account and other relevant records in relation to the Fund and prepare an
annual statement of accounts in such form as may be prescribed in consultation with the
Comptroller and Auditor-General of India - section 58(2) of CGST Act.
43.32-2 Credit in Consumer Welfare Fund and utilisation
All credits to the Consumer Welfare Fund shall be made under section 12C(2) of Central
Excise Act, section 57 of CGST Act read with section 20 of IGST Act, section 21 of UTGST Act
and section 12 of GST (Compensation to States) Act - Rule 97(1) of CGST and SGST Rules,
2017 as amended on 18-4-2018.
In case of IGST, 50% will be credited to Central Consumer Fund and balance 50% to State
Consumer Welfare Fund.
In case of GST Compensation Cess also, 50% will be credited to Central Consumer Fund and
balance 50% to State Consumer Welfare Fund - second proviso to rule 97(1) of CGST Rules,
inserted w.e.f. 13-6-2018.
Any amount, having been credited to the Fund, ordered or directed as payable to any
claimant by orders of the proper officer, appellate authority or Appellate Tribunal or Court,
shall be paid from the Fund - Rule 97(2) of CGST and SGST Rules, 2017.
Committee to recommend utilization of Fund - The [Central/State] Government shall, by an
order, constitute a Standing Committee with a Chairman, a Vice-Chairman, a Member
Secretary and such other members as it may deem fit and the Committee shall make
recommendations for proper utilisation of the money credited to the Consumer Welfare
Fund for welfare of the consumers. The Committee shall meet as and when necessary, but
not generally four times in a year - Rule 97(4) and 97(5) of CGST and SGST Rules, 2017.
Standing Committee has been constituted vide CBI&C order No. 3/2018-CT dated 16-8-2018.
Powers of Standing Committee have been specified in rule 97(6) of CGST Rules.
Application received will be scrutinized by Member Secretary and then will be
recommended by him for consideration by Standing Committee.
All applications for grant from the Consumer Welfare Fund shall be made by the applicant
Member Secretary, but the Committee shall not consider an application, unless it has been
inquired into in material details and recommended for consideration accordingly, by the
Member Secretary - Rule 97(7) of CGST and SGST Rules, 2017.
50% of amount to be spent for publicity or consumer awareness on GST by CBI&C - 50% of
amount credited to fund shall be made available to CBI&C for publicity or consumer
awareness on GST. However, availability of funds for consumer welfare activities shall not
be less than Rs 25 crores per annum - Rule 97(7A) of CGST Rules inserted on 9-10-2019 but
w.r.e.f. 1-7-2017.
Who can apply for grant from Consumer Welfare Fund - The 'applicant' can be any of the
following - (i) Central or State Government (ii) Regulatory bodies or autonomous bodies of
Central or State Government (iii) Any agency or organisation engaged in consumer welfare
activities for a period of three years registered under the Companies Act, 2013 or under any
other law for the time being in force (iv) village or mandal or samiti level co-operatives of
 944

consumers especially Women, Scheduled Castes and Scheduled Tribes (v) an educational or
research which has consumers studies as part of curriculum for at least three years (vi) a
complainant who applies for reimbursement of expenses incurred by him in a consumer
dispute redressal agency - Explanation (b) to Rule 97 of CGST and SGST Rules, 2017 inserted
w.e.f. 18-4-2018.
Powers of Standing Committee - The powers of Standing Committee are as specified in rule
97(8) of CGST Rules.
Recommendations to GST Council for utilization of fund - The Central Consumer Protection
Council and the Bureau of Indian Standards shall recommend to the GST Council, the broad
guidelines for considering the projects or proposals for the purpose of incurring expenditure
from the Consumer Welfare Fund - Rule 97(9) of CGST and SGST Rules, 2017.
Constitution of standing committee - Standing Committee under rule 97(4) of CGST Rules
has been constituted with ten members from various Government departments, vide Order
No. 3/2018-CT dated 16-8-2018. Secretary, Department of Consumer Affairs will be
Chairman of meeting.
 945

Powers of GST Officers

44.1 Powers to enable officers to implement law
Various powers are given to GST Officers, so that GST law can be implemented properly and
there should not be tax evasion.
Unfortunately, the powers are often misused. It is rightly said that power corrupts and
absolute power corrupts absolutely.
Enforcement action can be initiated either by State or by Central tax authorities - Though
taxable persons are bifurcated between Central and State authorities for administration
purposes (to avoid dual control), both Central and State tax authorities are authorised to
initiate intelligence based enforcement against tax payers, irrespective of the administrative
assignment of tax payer to any authority. The initiating authority can complete entire
process of investigation, issue of SCN, adjudication, recovery, filing of appeal etc. arising out
of such action - DOF No. CBEC/20/43/01/2017-GST dated 5-10-2018.
Search warrant, authorisation, summons, arrest memo etc. must have Document
Identification Number (DIN) - Search warrant, authorisation, summons, arrest memo, letter
of enquiry etc. must have Document Identification Number (DIN) generated on digital
platform, except in case of emergency. The DIN should be generated on cbicddm.gov.in. If
document is issued without DIN, reason should be recorded and document should clearly
indicate 'issued without DIN'. The procedure to obtain DIN has been stated in CBI&C circular
No. 122/41/2019-GST dated 5-11-2019 [The provision applies only to Central Government
Officers and not to State Government Officers].
The provision of DIN has been extended to all communication and e-mail sent by department
vide CBI&C Circular No. 128/47/2019-GST dated 23-12-2019.
Formats of search authorisations, summons, arrest memos, inspection notices etc. issued by
the GST/Central Excise/Service Tax formations across the country. The standardized
documents have been uploaded by DDM and are ready to be used. When downloaded and
printed, these standardized documents would bear a pre-populated DIN thereon - CBI&C
Circular No. 128/47/2019-GST dated 23-12-2019.
44.1-1 Guidelines for search and seizure operations
CBI&C GST Investigation Wing has issued Instruction No. 1/2020-21/GST-Investigation dated
2-2-2021, issuing guidance for search and seizure as follows.
(i) The officer issuing authorization for search should have valid and justifiable reasons
for authorizing a search, which shall be duly recorded in the file. Search should be
carried out only with a proper search authorization issued by the Competent
Authority.
(ii) The instructions related to generation of DIN for each search authorization shall be
scrupulously followed by the officer authorising search.
(iii) The premises of a person cannot be searched on the authority of a search warrant
issued for the premises of some other person. Where a search warrant, through
oversight, has been issued in the name of a person who is already dead, the
 946

authorised officer should report to the Competent Authority and get a fresh warrant
issued in the names of the legal heirs.
(iv) In case of search of a residence, a lady officer shall necessarily be part of the search
team.
(v) The search shall be made in the presence of two or more independent witnesses who
would preferably be respectable inhabitants of the locality, and if no such inhabitants
are available or willing, the inhabitants of any other locality should be asked to be
witness to the search. PSU employees, Bank employees etc. may be included as
witnesses during sensitive search operations to maintain transparency and credibility.
The witnesses should be informed about the purpose of the search and their duties.
(vi) The officers conducting the search shall first identify themselves by showing their
identity cards to the person-in-charge of the premises. Also, before the start of the
search, the officers as well as the independent witnesses shall offer their personal
search. After the conclusion of the search all the officers and the witnesses should
again offer themselves for their personal search.
(vii) The search authorization shall be executed before the start of the search and the
same shall be shown to the person-in-charge of the premises to be searched and
his/her signature with date and time shall be obtained on the body of the search
authorization. The signatures of the witnesses with date and time should also be
obtained on the body of the search authorization.
(viii) A Panchnama containing truthful account of the proceedings of the search shall
necessarily be made and a list of documents/goods/things recovered should be
prepared, it should be ensured that time and date of start of search and conclusion
of search must be mentioned in the Panchnama. The fact of offering personal search
of the officers and witnesses before initiation and after conclusion of search must be
recorded in the Panchnama.
(ix) In the sensitive premises videography of the search proceedings may also be
considered and the same may be recorded in Panchnama.
(x) While conducting search, the officers must be sensitive towards the assessee/party.
Social and religious sentiments of the person(s) under search and of all the person(s)
present, shall be respected at all times. Special care/attention should be given to
elderly, women and children present in the premises under search. Children should
be allowed to go to school, after examining of their bags. A woman occupying any
premises, to be searched, has the right to withdraw before the search party enters, if
according to the customs she does not appear in public. If a person in the premises is
not well, a medical practitioner may be called.
(xi) The person from whose custody any documents are seized may be allowed to make
copies thereof or take extracts therefrom for which he/she may be provided a
suitable time and place to take such copies or extract therefrom. However, if it is felt
that providing such copies or extracts therefrom prejudicially affect the investigation,
 947

the officer may not provide such copies. If such request for taking copies is made
during the course of search, the same may be incorporated in Panchnama, intimating
place and time to take such copies.
(xii) The officer authorized to search the premises must, sign each page of the Panchnama
and annexures. A copy of the Panchnama along with all its annexures should be given
to the person-in-charge of the premises being searched and acknowledgement in this
regard may be taken. If the person-in-charge refuses to sign the Panchnama, the same
may be pasted in a conspicuous place of the premises, in presence of the witnesses.
Photograph of the Panchnama pasted on the premises may be kept on record.
(xiii) In case any statement is recorded during the search, each page of the statement must
be signed by the person whose statement is being recorded. Each page of the
statement must also be signed by the officer recording the statement as 'before me'.
(xiv) After the search is over, the search authorization duly executed should be returned
to the officer who had issued the said search authorization with a report regarding
the outcome of the search. The names of the officers who had participated in the
search should be written on the reverse of the search authorization. If search
authorization could not be executed due to any reason, the same should be
mentioned in the reverse of the search authorization and a copy of the same may be
kept in the case file before returning the same to the officer who had issued the said
search authorization.
(xv) The officers should leave the premises immediately after completion of Panchnama
proceedings.
(xvi) During the prevalent COVID-19 pandemic situation, it is imperative to take
precautionary measures such as maintaining proper social, distancing norms, use of
masks and hand sanitizers etc. The search team should take all measures as contained
in the guidelines of Ministry of Home Affairs, and Ministry of Health & Family Welfare,
and also the guidelines issued by the State Government from time-to-time.

Audit under section 65 and investigation under section 67 can be simultaneously done -
Audit under section 65 of CGST Act is independent of an investigation under section 67 of
CGST Act. Audit and investigation proceedings may be continued simultaneously - Suresh
Kumar P.P. v. Deputy Director, Directorate General of GST Intelligence (DGGI) [2020] 120
taxmann.com 173/82 GST 734 (Ker HC DB) - SLP against judgment dismissed - Suresh Kumar
P. P. v. Deputy Director, Directorate General Of GST Intelligence (DGGI) [2021] 125
taxmann.com 61 (SC - 3 member bench).
44.1-2 Power of inspection
CGST/SGST/UTGST officer, not below the rank of Joint Commissioner can authorize in writing
any other officer of CGST/SGST/UTGST to inspect any places of business of the taxable
person or the persons engaged in the business of transporting goods or the owner or the
operator of warehouse or godown or any other place.
 948

He can do so when has reasons to believe that - (a) a taxable person has suppressed any
transaction relating to supply of goods or services or both or the stock of goods in hand, or
has claimed input tax credit in excess of his entitlement under the Act or has indulged in
contravention of any of the provisions of this Act or rules made thereunder to evade tax
under this Act; or (b) any person engaged in the business of transporting goods or an owner
or operator of a warehouse or a godown or any other place is keeping goods which have
escaped payment of tax or has kept his accounts or goods in such a manner as is likely to
cause evasion of tax payable under this Act - section 67(1) of CGST Act.
Officer not below rank of Joint Commissioner should authorize in form GST INS-01 any other
officer subordinate to him to conduct inspection and seize documents - rule 139(1) of CGST
Rules, 2017.
44.2 Search and seizure of goods, documents, books or things
Where the CGST/SGST/UTGST officer, not below the rank of Joint Commissioner, either
pursuant to an inspection carried out under section 67(1) or otherwise, has reasons to
believe that any goods liable to confiscation or any documents or books or things, which in
his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in
any place, he may authorize in writing any other CGST/SGST/UTGST officer to search and
seize or may himself search and seize such goods, documents or books or things - section
67(2) of CGST Act.
Order of seizure should be in form GST INS-02 - rule 139(2) of CGST Rules, 2017.
Where it is not practicable to seize any such goods, the proper officer, or any officer
authorized by him, may serve on the owner or the custodian of the goods an order that he
shall not remove, part with, or otherwise deal with the goods except with the previous
permission of such officer.
Such order shall be issued in form GST INS-03.
Inventory should be prepared and signed by person from whom goods were seized - rule
139(5) of CGST Rules, 2017.
The goods, documents or books or things so seized shall be retained by such officer only for
so long as may be necessary for their examination and for any inquiry or proceeding under
this Act - second proviso to section 67(2) of CGST Act.
The documents, books or things which have not been relied upon for the issue of notice
under this Act shall be returned to such person within 30 days of issue of said notice - section
67(3) of CGST Act.
Officer empowered to order search and seizure - 'Proper Officer' (to order search and
seizure and custody of rules as provided in rule 139 of CGST Rules and to release
provisionally the seized goods) for the purpose of CGST is Additional Commissioner/Joint
Commissioner of Central Tax, vide CBE&C circular No. 3/3/2017-GST dated 5-7-2017 [State
Government will prescribe 'proper officer' for purpose of SGST in the respective State]
'Things' include cash and hence can be seized under section 67(2) - 'Things' include cash and
hence can be seized by department from assessee under section 67(2) - Smt Kanishka Matta
v. UOI (2020) 120 taxmann.com 174 = 82 GST 722 (MP HC).
 949

Power to seal or break open door, box, almirah during seizure operations - The officer
authorised under section 67(2) shall have the power to seal or break open the door of any
premises or to break open any almirah, box, receptacle in which any goods, accounts,
registers or documents of the person are suspected to be concealed, where access to such
premises, almirah, box or receptacle is denied - section 67(4) of CGST Act.
Person entitled to make copies or take extracts - The person from whose custody any
documents are seized under section 67(2) shall be entitled to make copies thereof or take
extracts therefrom in the presence of an officer of CGST/SGST/UTGST, except where making
such copies or taking such extracts may, in the opinion of the proper officer, prejudicially
affect the investigation. - section 67(5) of CGST Act.
Provisional release of seized goods - Good seized under section 67(2) shall be released on
provisional basis on execution of bond and furnishing of security or on payment of tax,
interest and penalty - section 67(6) of CGST Act.
The bond shall be in form GST INS-04. Security shall be in form of bank guarantee equivalent
to amount of applicable tax, interest and penalty payable. Applicable tax means IGST, CGST,
SGST and Compensation Cess - rule 140(1) of CGST Rules, 2017.
If goods provisionally released are not produced at the appointed date, security will be
encashed and adjusted against tax, interest, penalty and fine if payable - rule 140(2) of CGST
Rules, 2017.
Officer empowered to order release of seized goods - 'Proper Officer' (to release
provisionally the seized goods under section 67 and rule 140) for the purpose of CGST is
Principal Commissioner/Commissioner of Central Tax, vide CBE&C circular No. 3/3/2017-GST
dated 5-7-2017 [State Government will prescribe 'proper officer' for purpose of SGST in the
respective State]
Handling and storage of valuable goods that are seized/confiscated by department - There
are many instances where goods seized or confiscated by department are stolen when in
custody of department. Hence, a system of e-malkhana (bar coding) is introduced. Access to
store rooms should be only to authorised officers. CCTV should be in activated mode when
keys are used. X-ray machines should be installed and GPS tracking should be done. Standard
Operating Procedures (SOPs) should be issued - MF(DR) Instruction No. 17/2018-Cus dated
15-10-2018.
Return of goods if notice not issued within six months, which can be extended upto 6
months - Where any goods are seized under section 67(2) and no notice in respect thereof
is given within six months of the seizure of the goods, the goods shall be returned to the
person from whose possession they were seized.
The aforesaid period of sixty days may, on sufficient cause being shown, be extended by the
proper officer for a further period not exceeding six months- section 67(7) of CGST Act.
'Proper Officer' for the purpose of CGST is Principal Commissioner/Commissioner of Central
Tax - CBE&C circular No. 3/3/2017-GST dated 5-7-2017 [State Government will prescribe
'proper officer' for purpose of SGST in the respective State. It may be noted that powers
under SGST can be exercised by Central Tax Authorities and powers under CGST can be
 950

exercised by State Tax Authorities, if powers are delegated under section 6 of CGST and SGST
Act].
Immediate sale of perishable or hazardous goods - The Central or a State Government may,
having regard to the perishable or hazardous nature of any goods, depreciation in the value
of the goods with the passage of time, constraints of storage space for the goods or any
other relevant considerations, by notification, specify the goods or class of goods which
shall, as soon as may be after its seizure under section 67(2), be disposed of by the proper
officer in such manner as may be prescribed- section 67(8) of CGST Act.
Where such perishable or hazardous goods have been seized by a proper officer under
section 67(2), he shall prepare an inventory of such goods in the manner as may be
prescribed in this behalf - section 67(9) of CGST Act.
If goods are perishable, these can be released immediately on payment of market price or
tax, interest and penalty payable, whichever is lower. The goods should be released by
issuing order in form GST-INS-05.
If he fails to do so, goods may be disposed of by proper officer [The words were
'Commissioner' upto 23-3-2020] and adjust the amount against tax, interest and penalty -
rule 141(2) of CGST Rules, 2017 amended w.e.f. 23-3-2020.
List of such goods has been specified in Notification No. 27/2018-CT dated 13-6-2018 and
FAQ on GST Chapter 18 Q No. 21 issued by CBI&C on 15-12-2018.
Provisions of CrPC applicable to seizure - The provisions of the Code of Criminal Procedure,
1973, relating to search and seizure, shall, so far as may be, apply to search and seizure
under this section subject to the modification that section 165(5) of the said Code shall have
effect as if for the word "Magistrate", wherever it occurs, the word 'Commissioner' were
substituted - section 67(10) of CGST Act.
Seizure of accounts, registers or documents produced before proper officer - Where the
proper officer has reasons to believe that any person has evaded or is attempting to evade
the payment of any tax, he may, for reasons to be recorded in writing, seize the accounts,
registers or documents of such person produced before him and shall grant a receipt for the
same, and shall retain the same for so long as may be necessary in connection with any
proceedings under this Act or the rules made thereunder for prosecution - section 67(11) of
CGST Act.
44.2-1 Officers empowered to exercise powers under section 67
'Proper Officer' for the purpose of CGST have been specified as follows, vide CBE&C circular
No. 3/3/2017-GST dated 5-7-2017 [State Government will prescribe 'proper officer' for
purpose of SGST in the respective State]
Section 67(7) - Principal Commissioner/Commissioner of Central Tax
Section 67(1), (2), (3), (5) and (9) - Additional or Joint Commissioner of Central Tax
Section 67(11) - Superintendent.
44.2-2 Purchase of goods or services from business premises to check tax invoice
The Commissioner or an officer authorised by him may cause purchase of any goods or
services or both by any person authorised by him from the business premises of any taxable
 951

person, to check the issue of tax invoices or bills of supply by such taxable person, and on
return of goods so purchased by such officer, such taxable person or any person in charge
of the business premises shall refund the amount so paid towards the goods after cancelling
any tax invoice or bill of supply issued earlier - section 67(12) of CGST Act.
44.3 Transit checks - Inspection of goods in movement
The Central or a State Government may require the person in charge of a conveyance
carrying any consignment of goods of value exceeding such amount as may be specified, to
carry with him such documents as may be prescribed in this behalf - section 68(1) of CGST
Act.
The details of documents required under section 68(1) shall be validated in prescribed
manner - section 68(2) of CGST Act.
Where any conveyance referred to in section 68(1) is intercepted by the proper officer at
any place, he may require the person in charge of the said conveyance to produce such
documents and devices for verification and the said person shall be liable to produce the
documents and devices and also allow inspection of goods - section 68(3) of CGST Act.
Inspector of Central Tax has been designated as 'proper officer' for the purpose of
intercepting vehicle and checking document - CBE&C circular No. 3/3/2017-GST dated 5-7-
2017 [State Government will prescribe 'proper officer' for purpose of SGST in the respective
State].
44.4 Power to arrest
If the Commissioner has reason to believe that any person has committed an offence
specified under section 132(1) clauses (a) to (d) which is punishable under section 132(1) or
132(2) clause (i) or (ii), he may, by order, authorise any officer of central tax to arrest such
person -section 69(1) of CGST Act.
Where a person is arrested under section 132(1) for an offence specified under section
132(5) of CGST Act, [cognizable and non-bailable offences], the officer authorised to arrest
the person shall inform such person of the grounds of arrest and produce him before a
magistrate within twenty four hours - section 69(2) of CGST Act.
Subject to provisions of CrPC, where a person is arrested for an offence under section 132(4)
[Non-cognizable and bailable offences], he shall be admitted to bail or in default of bail,
forwarded to the custody of Magistrate - - section 69(3)(a) of CGST Act.
In the case of a non-cognizable and bailable offence, the Deputy Commissioner or the
Assistant Commissioner, shall, for the purpose of releasing an arrested person on bail or
otherwise, have the same powers and be subject to the same provisions as an officer-in-
charge of a police station - section 69(3)(b) of CGST Act.
Arrest can be before assessment - Offences punishable under CGST Act have no correlation
with assessment. Hence, arrest can be before assessment - VS Ferrous Enterprises v. UOI
(2019) 106 taxmann.com 167 (Telangana HC) * Ashok Kumar v. CGST (2020) 118
taxmann.com 486 (Bom - HC).
Adjudication and prosecution under GST can be started simultaneously - Tejas Pravin Dugad
v. UOI (2021) 123 taxmann.com 327 (Bom HC).
 952

In a contrary view, in Jayachandran Alloys (P.) Ltd. v. Superintendent of GST & Central Excise
[2019] 105 taxmann.com 245 (Uttarakhand HC), it has been held that action under section
132 of CGST Act can be initiated only after assessment. Power to punish set out in section
132 of the CGST Act would stand triggered only once it is established that an assessee has
'committed' an offence that has to necessarily be post-determination of demand due from
an assessee, that itself has to necessarily follow process of an assessment [may be justified
on facts of the case, but, in my view, cannot be universal rule].
Powers of arrest under section 69 and provision of criminal offenses under section 132 of
CGST Act are valid - Powers of arrest under section 69 of CGST Act and provisions of criminal
offenses under section 132 of CGST Act are constitutionally valid - Dhruv Krishan Maggu v.
Union of India - [2021] 123 taxmann.com 192 (Delhi HC DB).
44.5 Power to summon persons to give evidence and produce documents
The proper officer under the Act shall have power to summon any person whose attendance
he considers necessary either to give evidence or to produce a document or any other thing
in any inquiry in the same manner as prescribed in the case of civil court under the provisions
of Code of Civil Procedure- section 70(1) of CGST Act.
Superintendent of Central Tax has been designated as 'proper officer' who is empowered to
issue summons- CBE&C circular No. 3/3/2017-GST dated 5-7-2017 [State Government will
prescribe 'proper officer' for purpose of SGST in the respective State].
Powers of Director General Safeguards to issue summons - Director General Safeguards or
a person authorized by him has been conferred with powers to issue summons to give
evidence or produce records. He will be 'proper officer' for this purpose. This will be treated
as 'judicial proceeding' - rule 132 of CGST Rules, 2017.
Enquiry is judicial proceeding - Every such inquiry under section 70(1) shall be deemed to
be a "judicial proceeding" within the meaning of section 193 and section 228 of the Indian
Penal Code, 1860- section 70(2) of CGST Act.
44.6 Access to business premises for inspection and audit
Any officer under this Act, authorized by the proper officer not below rank of Joint
Commissioner, shall have access to any place of business of a registered person to inspect
books of account, documents, computers, computer programs, computer software
(whether installed in a computer or otherwise) and such other things as he may require and
which may be available at such place, for the purposes of carrying out any audit, scrutiny,
verification and checks as may be necessary to safeguard the interest of revenue section
71(1) of CGST Act.
44.6-1 Submission of records for audit and scrutiny
Every person in charge of premises referred to in section 71(1) shall, on demand, make
available to the officer authorized under section 71(1) or the audit party deputed by the
proper officer or a cost accountant or chartered accountant nominated under section 66 -(i)
such records as prepared or maintained by the registered taxable person and declared to
the proper officer in such manner as may be prescribed (ii) trial balance or its equivalent (iii)
Statements of annual financial accounts, duly audited, wherever required (iv) cost audit
 953

report, if any, under section 148 of the Companies Act, 2013 (v) the income-tax audit report,
if any, under section 44AB of the Income-tax Act (vi)any other relevant record.
The records should be submitted for the scrutiny of the officer or audit party or the
chartered accountant or cost accountant within a reasonable time, not exceeding fifteen
working days from the day when such demand is made, or such further period as may be
allowed by the said officer or the audit party or the chartered accountant or cost accountant
- section 71(2) of CGST Act.
Officer empowered to exercise powers under section 71 - 'Proper Officer' to order access to
premises and audit of records under section 71, for the purpose of CGST is Additional
Commissioner/Joint Commissioner of Central Tax, vide CBE&C circular No. 3/3/2017-GST
dated 5-7-2017 [State Government will prescribe 'proper officer' for purpose of SGST in the
respective State].
44.7 Officers required to assist proper officers
All officers of Police, Railways, Customs and those officers engaged in collection of land
revenue, including village officers, officers of State Tax and Union Territory shall assist the
proper officers in the execution of this Act - section 72(1) of CGST Act.
The Central/State Government may, by notification, empower and require any other class
of officers to assist the proper officers in the implementation of this Act when called upon
to do so by the Commissioner - section 72(2) of CGST Act.
 954

Offences and penalties

45.1 Offences under GST Law
Major offence in GST law is obviously non-payment or short payment of taxes or improper
availment or utilization of input tax credit or erroneous refund. These are covered under
sections 73 and 74 of CGST Act. Once penalty under provisions of section 73 or 74 are paid,
all proceedings are concluded and penalty cannot be imposed under any other provision of
GST Law [of course, prosecution can be launched].
Provisions relating to other offences are discussed in this chapter.
Following are offences under GST Law other than those covered in sections 73 and 74 of
CGST Act. Penalties can be imposed by departmental authorities to person committing the
specified offence.
Section 122(1) of CGST Act states as follows—
Where a taxable person who—
(i) supplies any goods or services or both without issue of any invoice or issues an
incorrect or false invoice with regard to any such supply.
(ii) issues any invoice or bill without supply of goods or services or both in violation of
the provisions of this Act, or the rules made thereunder.
(iii) collects any amount as tax but fails to pay the same to the credit of the Government
beyond a period of three months from the date on which such payment becomes
due.
(iv) collects any tax in contravention of the provisions of this Act but fails to pay the same
to the credit of the Government beyond a period of three months from the date on
which such payment becomes due.
(v) fails to deduct the tax in accordance with the provisions of section 51(1), or deducts
an amount which is less than the amount required to be deducted under the said
sub-section, or where he fails to pay to the credit of the Government under section
51(2) thereof, the amount deducted as tax.
(vi) fails to collect tax in accordance with the provisions of section 52(1), or collects an
amount which is less than the amount required to be collected under the said sub-
section, or where he fails to pay to the credit of the Government under section 52(4)
thereof, the amount collected as tax.
(vii) takes or utilizes input tax credit without actual receipt of goods or services or both
either fully or partially, in contravention of the provisions of this Act, or the rules
made thereunder.
(viii) fraudulently obtains refund of tax under this Act.
(ix) takes or distributes input tax credit in violation of section 20, or the rules made
thereunder.
 955

(x) falsifies or substitutes financial records or produces fake accounts or documents or

furnishes any false information or return with an intention to evade payment of tax
due under this Act.
(xi) is liable to be registered under this Act but fails to obtain registration.
(xii) furnishes any false information with regard to registration particulars, either at the
time of applying for registration, or subsequently.
(xiii) obstructs or prevents any officer in discharge of his duties under this Act.
(xiv) transports any taxable goods without the cover of documents as may be specified in
this behalf.
(xv) suppresses his turnover leading to evasion of tax under this Act.
(xvi) fails to keep, maintain or retain books of account and other documents in accordance
with the provisions of this Act or the rules made thereunder.
(xvii) fails to furnish information or documents called for by an officer in accordance with
the provisions of this Act or rules made thereunder or furnishes false information or
documents during any proceedings under this Act.
(xviii) supplies, transports or stores any goods which he has reason to believe are liable to
confiscation under this Act.
(xix) issues any invoice or document by using the registration number of another
registered person.
(xx) tampers with, or destroys any material evidence or document.
(xxi) disposes of or tampers with any goods that have been detained, seized, or attached
under this Act.

shall be liable to a penalty of rupees ten thousand or an amount equivalent to the tax evaded
or the tax not deducted under section 51 or short deducted or deducted but not paid to the
Government or tax not collected under section 52 or short collected or collected but not
paid to the Government or input tax credit availed of or passed on or distributed irregularly,
or the refund claimed fraudulently, as the case may be, whichever is higher.
45.1-1 Penalty on person who takes benefit of offence committed by supplier
Any person who retains the benefit of a transaction covered under clauses (i), (ii), (vii) or
clause (ix) of section 122(1) and at whose instance such transaction is conducted, shall be
liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of
or passed on - section 122(1A) of CGST Act inserted vide Finance Act, 2020, from 1-1-2021.
Thus, if a taxable person avails ineligible ITC on the basis of offence committed by supplier,
he will be liable to pay penalty under section 122(1A) of CGST Act, as inserted w.e.f. 1-1-
2021.
He can also be punished under section 132 of CGST Act by imposing fine and/or
imprisonment [section 132(1) of CGST Act amended vide Finance Act, 2020, from 1-1-2021].
 956

45.2 Supplying goods on which tax not paid or short paid or input tax credit wrongly
availed
Section 122(2) of CGST Act states as follows
Any registered person who supplies any goods or services or both on which any tax has not
been paid or short-paid or erroneously refunded, or where the input tax credit has been
wrongly availed or utilised,—
(a) for any reason, other than the reason of fraud or any wilful misstatement or
suppression of facts to evade tax, shall be liable to a penalty of ten thousand rupees
or ten per cent of the tax due from such person, whichever is higher.
(b) for reason of fraud or any wilful misstatement or suppression of facts to evade tax,
shall be liable to a penalty equal to ten thousand rupees or the tax due from such
person, whichever is higher.

45.3 Aiding or abating offence or contravening provisions

Section 122(3) of CGST Act states as follows :
Any person who :
(a) aids or abets any of the offences specified in clauses (i) to (xxi) of section 122(1)
above.
(b) acquires possession of, or in any way concerns himself in transporting, removing,
depositing, keeping, concealing, supplying, or purchasing or in any other manner
deals with any goods which he knows or has reasons to believe are liable to
confiscation under this Act or the rules made thereunder.
(c) receives or is in any way concerned with the supply of, or in any other manner deals
with any supply of services which he knows or has reason to believe are in
contravention of any provisions of this Act or the rules made thereunder.
(d) fails to appear before the officer of central tax, when issued with a summon for
appearance to give evidence or produce a document in an enquiry.
(e) fails to issue invoice in accordance with the provisions of this Act or rules made
thereunder, or fails to account for an invoice in his books of account.

shall be liable to a penalty which may extend to rupees twenty five thousand.
45.4 Penalty for failure to furnish information or return under section 150 or 151
If a person who is required to furnish an information return under section 150 fails to do so
within the period specified in the notice issued under section 150(3), the proper officer may
direct that such person shall be liable to pay a penalty of one hundred rupees for each day
of the period during which the failure to furnish such return continues. The penalty imposed
under this section shall not exceed five thousand rupees - section 123 of CGST Act.
Deputy/Assistant Commissioner of Central Tax has been designated as 'proper officer' for
purpose of section 123 - CBE&C circular No. 3/3/2017-GST dated 5-7-2017 [State
Government will prescribe 'proper officer' for purpose of SGST in the respective State].
 957

If any person required to furnish any information or return under section 151 - (a) without
reasonable cause fails to furnish such information or return as may be required under that
section, or (b) wilfully furnishes or causes to furnish any information or return which he
knows to be false, he shall be punishable with a fine which may extend to ten thousand
rupees and in case of a continuing offence to a further fine which may extend to one hundred
rupees for each day after the first day during which the offence continues subject to a
maximum limit of twenty five thousand rupees - section 124 of CGST Act.
45.5 General i.e. residual penalty
Any person, who contravenes any of the provisions of this Act or any rules made thereunder
for which no penalty is separately provided for in this Act, shall be liable to a penalty which
may extend to rupees twenty five thousand - section 125 of CGST Act.
45.6 General disciplines related to penalty
General principles of imposing penalty are given in section 126 of CGST Act. The provisions
of this section will not apply in such cases where the penalty prescribed under the Act is
either a fixed sum or expressed as a fixed percentage- section 126(6) of CGST Act.
The principles are sound but unfortunately followed very rarely.
No penalty for minor breaches - No officer under this Act shall impose any penalty for minor
breaches of tax regulations or procedural requirements and in particular, any omission or
mistake in documentation which is easily rectifiable and made without fraudulent intent or
gross negligence.
For the purpose of this sub-section -(a) a breach shall be considered a 'minor breach' if the
amount of tax involved is less than rupees five thousand (b) an omission or mistake in
documentation shall be considered to be easily rectifiable if the same is an error apparent
on record- section 126(1) of CGST Act.
Penalty to be commensurate with severity of breach - The penalty imposed shall depend
on the facts and circumstances of the case and shall be commensurate with the degree and
severity of the breach- section 126(2) of CGST Act.
No penalty without hearing - No penalty shall be imposed on any person without giving a
notice to show cause and without giving him an opportunity of being heard- section 126(3)
of CGST Act.
Nature of breach and applicable law should be specified while imposing penalty - The
officer under this Act shall while imposing penalty in an order for a breach of any law,
regulation or procedural requirement, specify the nature of the breach and the applicable
law, regulation or procedure under which the amount of penalty for the breach has been
specified- section 126(4) of CGST Act.
Lower penalty if breach voluntarily disclosed - When a person voluntarily discloses to an
officer under this Act the circumstances of a breach of the tax law, regulation or procedural
requirement prior to the discovery of the breach by the officer under this Act, the proper
officer may consider this fact as a mitigating factor when quantifying a penalty for that
person- section 126(5) of CGST Act.
 958

No other penalty once penalty in section 73 or 74 is paid - Non-payment or short payment

of taxes or improper availment or utilization of input tax credit or erroneous refunds are
major offences. These are covered under sections 73 and 74 of CGST Act. Once penalty under
provisions of section 73 or 74 are paid, all proceedings are concluded and penalty cannot be
imposed under any other provision of GST Law [of course, prosecution can be launched].
45.6-1 Separate notice and order if offence not covered under any other provision
Where the proper officer is of the view that a person is liable to a penalty and the same is
not covered under any proceedings under section 62 or section 63 or section 64 or section
73 or section 74 or section 129 or section 130, he may issue an order levying such penalty
after giving a reasonable opportunity of being heard to such person - section 127 of CGST
Act.
Deputy/Assistant Commissioner of Central Tax has been designated as 'proper officer' for
purpose of section 127 - CBE&C circular No. 3/3/2017-GST dated 5-7-2017 [State
Government will prescribe 'proper officer' for purpose of SGST in the respective State].
45.6-2 General waiver or reduction in penalty under mitigating circumstances
The Government may, by notification, waive in part or full, any penalty referred to in section
122 or section 123 or section 125 or any late fee referred to in section 47 for such class of
taxpayers and under such mitigating circumstances as may be specified therein on the
recommendations of the GST Council - section 128 of CGST Act.
Mens Rea not required in Penalty provisions - Mens rea means guilty mind. Normally,
penalty is levied if violation is intentional. However, in many penal provisions in taxation
laws, the liability is absolute, i.e. penalty is leviable irrespective of intention. Penalty is
leviable for violation of rules - it does not matter whether it is a genuine mistake, lack of
knowledge, negligence or intentional violation of rules. This can be considered only while
deciding quantum of penalty leviable.
Hon. Supreme Court, High Courts and Tribunals have consistently held that mens rea is not
an essential ingredient for imposing a penalty unless statute specifically prescribes so. In
economic crimes and departmental penalties, 'mens rea' is not essential for imposing
penalty - R S Joshi v. Ajit Mills - AIR 1977 SC 2279 = (1977) 4 SCC 98 = 40 STC 497 = 1979 UPTC
171 (SC 7 member bench).
In Gujarat Travancore Agency, Cochin v. CIT, Kerala 42 ELT 350 (SC) = 44 Taxman 278 = AIR
1989 SC 1671 = (1989) 3 SCC 52 = 177 ITR 455 (SC), Hon. Supreme Court held that penalty is
a civil obligation and coercive measure to check loss of revenue and is far different from
penalty for a crime or a fine or forfeiture for violation of criminal or penal laws. Unless there
is something in the language of statute indicating the need to establish element of mens rea,
it is generally sufficient to prove that a default in complying with the statute has occurred -
same view in Addl. CIT v. I M Patel & Co. 86 STC 185 = 62 Taxman 497 (SC) = AIR 1992 SC
1762 = 196 ITR 297 = 1992 AIR SCW 1972 = (1993) Suppl 1 SCC 621 * CIT v. Kalyan Das Rastogi
- (1992) 193 ITR 713 = 63 Taxman 382 (SC) * CCI v. Thomas Cook (2018) 5 SCC 549.
45.6-3 Lenient view in case of bona fide belief or technical lapses
Supreme Court in Hindustan Steel Ltd. v. State of Orissa AIR 1970 SC 253 = 25 STC 211=83
ITR 26 = (1969) 2 SCC 627 = 2 ELT (J159) (SC), observed as follows : The discretion to impose
 959

penalty must be exercised judicially. A penalty will ordinarily be imposed in case where the
party acts deliberately in defiance of law, but not in cases where there is a technical or venial
breach of the provisions of the Act or where the breach flows from a bona fide belief that
the offender is not liable under the Act. - - An order imposing penalty for failure to carry out
a statutory obligation is the result of quasi-judicial proceeding. Penalty will not be ordinarily
imposed unless the party obliged either acted deliberately in defiance of law or was guilty
of conduct contumacious or dishonest or acted in conscious disregard of its obligation.
Penalty will not be imposed merely because it is lawful to do so. - - Even if a minimum penalty
is prescribed, the Authority will be justified in refusing to impose penalty, when there is a
technical or venial breach of the Act or where breach flows from a bona fide belief that the
offender is not liable to act in the manner prescribed by the Statute - quoted with approval
in Shiv Dutt Fateh Chand v. UOI - (1983) 53 STC 289 (SC) = AIR 1984 SC 1194= 148 ITR 664
(SC).
In Bharjatiya Steel Industries v. CST (2008) 11 SCC 617 = 13 VST 514 (SC), it was held that
when assessing authority has been conferred with a discretionary jurisdiction to levy
penalty, by necessary implication, the authority may not levy penalty. If it has discretion not
to levy penalty, existence of mens rea is a relevant factor. [In earlier para of the judgment,
it has been held that where adjudicatory authority has no discretion in imposing penalty,
existence of mens rea is not relevant].
In Cement Marketing Co. of India v. Asstt. Commissioner of Sales Tax - (1980) 1 SCC 71 = (6)
ELT 295 (SC) = 124 ITR 15 = 4 Taxman 44 = (1980) 45 STC 197 (SC) = AIR 1980 SC 346 also, it
was held that even if a minimum penalty is prescribed, the authority will be justified in
refusing to impose a penalty when there is a technical or venial breach of the provisions of
the Act or where the breach flows from a bona fide belief that the offender is not liable to
act in the manner prescribed in the statute. In this case, it was held that 'falsely represents'
postulates mens rea in that the representation should be something which in fact and to his
knowledge is false, and this element would be excluded if the person acted in bona fide
belief that his representation is true.
In D Navinchandra v. UOI - 1987 (29) ELT 492 (SC) = 1987 (3) SCC 66 and B Vijay Kumar v.
UOI - AIR 1987 SC 1794 also, it has been held that bona fides must be considered while
imposing penalty.
No penalty if party had bona fide belief - If party did not pay tax due to bona fide belief, it
cannot be said that it acted deliberately in defiance of law or that its conduct is dishonest or
that it had acted in conscious disregard of its obligation. Imposition of penalty in such case
is not justified. - EID Parry v. ACCT 2000 AIR SCW 86 = 117 STC 457 = AIR 2000 SC 551.
45.7 Detention, seizure and release of goods and conveyances in transit
Provisions in respect of detention, seizure and release of goods and conveyances in transit
are contained in section 129 of CGST Act. These are discussed in chapter on eway bill in para
38.11. These provisions are proposed to be significantly changed vide Finance Act, 2021. The
proposed changes are discussed in para 38.12. These are not repeated here for sake of
brevity.
 960

45.8 Confiscation of goods or conveyances and levy of penalty in other than goods in
transit
Provisions in respect of detention, seizure and release of goods and conveyances in transit
are contained in section 129 of CGST Act. Provisions in respect of confiscation of goods or
conveyances and levy of penalty in other cases are contained in section 130 of CGST Act,
which are discussed below.
Where any person - (i) supplies or receives any goods in contravention of any of the
provisions of this Act or rules made thereunder with intent to evade payment of tax or (ii)
does not account for any goods on which he is liable to pay tax under this Act or (iii) supplies
any goods liable to tax under this Act without having applied for the registration or (iv)
contravenes any of the provisions of this Act or rules made thereunder with intent to evade
payment of tax or (v) uses any conveyance as a means of transport for carriage of goods in
contravention of the provisions of this Act or the rules made thereunder unless the owner
of the conveyance proves that it was so used without the knowledge or connivance of the
owner himself, his agent, if any, and the person in charge of the conveyance, - - then, all
such goods and/or conveyance shall be liable to confiscation and the person shall be liable
to penalty under section 122 of CGST Act (penalty for certain offenses) - section 130(1) of
CGST Act. [The words were 'Notwithstanding anything contained in this Act, if'. These have
been replaced by 'Where', vide section 118 of Finance Act, 2021 from date to be notified].
Redemption fine in lieu of confiscation - Whenever confiscation of any goods is authorized
by CGST Act, the officer adjudging it shall give to the owner of the goods an option to pay in
lieu of confiscation such fine as the said officer thinks fit - section 130(2) of CGST Act.
Such fine shall not exceed the market price of the goods confiscated, less the tax chargeable
thereon - first proviso to section 130(2) of CGST Act.
Fine plus penalty not less than tax payable - Aggregate of such fine and penalty leviable
shall not be less than penalty equal to 100% of the tax payable on such goods- second proviso
to section 130(2) of CGST Act as amended vide section 118 Finance Act, 2021 from date to
be notified [The words in italics were as follows - the amount of penalty leviable under
section 129(1) of CGST Act].
These words have been changed as section 129 of CGST Act in respect of detention, seizure
and release of goods and conveyances in transit has been de-linked from provisions relating
to section 67(6) of CGST Act [provisional release under bond and security] and section 130
of CGST Act [Confiscation of goods and conveyances and levy of penalty].
Confiscation after notice and adjudication order - No order of confiscation of goods or
conveyance or imposition of penalty shall be issued without giving the person a reasonable
opportunity of being heard - section 130(4) of CGST Act.
Goods or conveyance belong to Government after confiscation - Where any goods or
conveyance are confiscated under this Act, the title of such goods or conveyance shall
thereupon vest in the Government - section 130(5) of CGST Act.
Proper Officer to take possession with help of police officer - The proper officer adjudging
confiscation shall take and hold possession of the things confiscated and every officer of
 961

Police, on the requisition of such proper officer, shall assist him in taking and holding such
possession - section 130(6) of CGST Act.
Deputy/Assistant Commissioner of Central Tax has been designated as 'proper officer' for
the purpose of section 130(6) and 130(7) for adjudicating confiscation and disposal of
confiscated goods - CBI&C circular No. 3/3/2017-GST dated 5-7-2017 [State Government will
prescribe 'proper officer' for purpose of SGST in the respective State].
Disposal of confiscated goods and conveyance - The proper officer may, after satisfying
himself that the confiscated goods or conveyance are not required in any other proceedings
under this Act and after giving reasonable time not exceeding three months to pay fine in
lieu of confiscation, dispose of such goods or conveyance and deposit the sale proceeds
thereof with the Government - section 130(7) of CGST Act.
45.8-1 Confiscation does not prevent imposition of other punishment
Without prejudice to the provisions contained in the Code of Criminal Procedure, 1973, no
confiscation made or penalty imposed under the provisions of this Act or the rules made
thereunder shall prevent the infliction of any other punishment to which the person affected
thereby is liable under the provisions of this Act or under any other law for the time being
in force - section 131 of CGST Act.
45.8-2 Detention, seizure and confiscation
'Detention' means the goods are temporarily detained by officers to check whether there is
any violation of law. If there is any violation, goods are seized. Otherwise, goods are
released. Often 'detention' is only by verbal instructions and goods can be released without
any formality, if the documents etc. are found to be in order.
'Seizure' means goods are taken in custody by the department. 'Confiscation' means the
goods become property of Government and Government can deal with it as it wants. On the
other hand 'seizure' means goods are in custody of Government, but the property of goods
remains with the owner.
Contravening goods are liable to confiscation. Conveyance involved in offense is also liable
to confiscation.
Goods confiscated by Government can be taken back on payment of redemption fine.
45.9 Confiscation of conveyances
Any conveyance used as a means of transport for carriage of taxable goods in contravention
of the provisions of this Act or Rules made thereunder is liable for confiscation and penalty
on person under section 122, unless the owner of the conveyance proves that it was so used
without the knowledge or connivance of the owner himself, his agent, if any, and the person
in charge of the conveyance - section 130(1)(v) of CGST Act.
Where any such conveyance is used for the carriage of the goods or passengers for hire, the
owner of the conveyance shall be given an option to pay in lieu of the confiscation of the
conveyance a fine equal to the tax payable on the goods being transported thereon - third
proviso to section 130(2) of CGST Act.
Of course, if the owner proves his innocence, conveyance cannot be confiscated.
 962

Penalty on driver/transporter - Often the vehicle carrying the goods is also seized and
penalty is sought to be imposed on driver/transporter. Usually, the drivers are not (in fact
they cannot be) conversant with customs or GST formalities and are not aware what
documents are required for customs and GST purposes.
In Bhimraj Rathor v. CCE 1994 (74) ELT 810 (MP HC), it was held that a transporter or driver
cannot be expected to know technical nature of goods or had 'reason to believe' that the
goods they were transporting were liable to confiscation. Thus, seizure of the vehicle was
held illegal and bonds and security furnished by transporter for release of vehicle was
discharged. In this judgment, the MP High Court followed the decision in B R Sule v. UOI -
1990 (48) ELT 343 (Bom HC).
In Harbans Singh Narula v. CC 1998(100) ELT 282 (CEGAT), it was held that penalty cannot
be imposed on transporter for contraband goods found in his godown, if the goods were
received in normal course of his business for transport. Transporter is not expected to know
contents of all the packages. There is no legal requirement that name and address of
consignor and consignee must be mentioned on packages received by transporter - quoted
and followed in Surender Kumar v. CC (2014) 309 ELT 545 (CESTAT).
Transporter being not aware of tainted character of goods, imposition of penalty on him is
not justified. - M Dutta Agency v. CC 2001(128) ELT 531 (CEGAT) * Binder Singh Gorcha v.
CCE (2001) 138 ELT 309 (CEGAT) * Dasmesh Road Service v. CCE (2001) 138 ELT 393 (CEGAT)
* Sudhangsu Sekhar Ghosh v. CC (2003) 151 ELT 151 (CEGAT) * Swem Industries v. CCE 2003
(154) ELT 417 (CEGAT) * Bombay Bangalore Freight Carriers v. CCE 2004 (163) ELT 213
(CESTAT) * Vikas Road Carriers v. CC 2004 (164) ELT 298 (CESTAT) * CCE v. Al Matheswara
Lorry Service (2004) 171 ELT 421 (CESTAT) * Jaykrishna Bala v. CCE (2004) 170 ELT 574
(CESTAT) * Shree Shyam Overseas v. CC 2005 (179) ELT 102 (CESTAT SMB) * Vijay Transport
Co. v. CCE (2008) 230 ELT 154 (CESTAT) * Ahmedabad Roadways v. CCE (2008) 222 ELT 223
(CESTAT) * A N Waghbakriwala v. CC (2009) 236 ELT 147 (CESTAT SMB) * Hi-Speed Carriers
v. CC (2009) 241 ELT 466 (CESTAT SMB) * CC v. National Star goods Carriers (2010) 255 ELT
561 (CESTAT SMB) * TCC Carriers P Ltd. v. CCE (2013) 295 ELT 689 (CESTAT SMB).
If owner is not aware of transport of illicit goods, penalty cannot be imposed on him -
Kamlakant Mishra v. CCE 2006 (202) ELT 841 (CESTAT SMB) * BOB Corporation v. CCE (2007)
215 ELT 219 (CESTAT).
A driver is not expected to go into legalities of acquisition and possession of goods. If goods
are freely available in India, there is no reason for driver to entertain any doubt. No penalty
can be imposed on him and truck cannot be confiscated. - Upendra Singh v. CC 2002(145)
ELT 111 (CEGAT SMB) * Joynarayan Dutta v. CC 2002(145) ELT 141 (CEGAT SMB) * Sandeep
v. CCE 2002(146) ELT 707 (CEGAT) * Inland Road Service v. CCE 1992 (60) ELT 571 (CEGAT) *
Gagan Freight Carriers v. CCE (2003) 151 ELT 633 (CEGAT) * Shree Shyam Overseas v. CC
2005 (179) ELT 102 (CESTAT SMB).
A taxi is a public vehicle. A taxi driver cannot check the luggage and satisfy himself about
legal character of the same, unless he entertains some doubt. - Lal Saheb Yadav v. CCE (2001)
138 ELT 805 (CEGAT). If there is no evidence that taxi driver had knowledge about smuggled
goods, taxi cannot be confiscated and penalty cannot be imposed - Amrutbhai Dhudhabhai
Prajapati v. CC 2004 (166) ELT 390 (CESTAT).
 963

45.10 Procedure for imposition of penalty

The proper officer shall serve, along with the (a) notice issued under section 52 or section
73 or section 74 or section 76 or section 122 or section 123 or section 124 or section 125 or
section 127 or section 129 or section 130, a summary thereof electronically in form GST DRC-
01 (b) statement under section 73(3) of section 74(3), a summary thereof electronically in
FORM GST DRC-02, specifying therein the details of the amount payable - rule 142(1) of CGST
Rules inserted w.e.f. 1-4-2019.
The proper officer may, before service of notice to the person chargeable with tax, interest
and penalty, under section 73(1) or sub-section (1) of Section 74(1), as the case may be,
communicate the details of any tax, interest and penalty as ascertained by the said officer,
in Part A of FORM GST DRC-01A - rule 142(1A) of CGST Rules as amended on 15-10-2020.
[Till 15-10-2020, the word was 'shall'. It has been replaced by 'may'].
Where, before the service of notice or statement, the person chargeable with tax makes
payment of the tax and interest in accordance with the provisions of section 73(5) or, as the
case may be, tax, interest and penalty in accordance with the provisions of section 74(5), or
where any person makes payment of tax, interest, penalty or any other amount due in
accordance with the provisions of the Act he shall inform the proper officer of such payment
in form GST DRC-03 and the proper officer shall issue an acknowledgement, accepting the
payment made by the said person in form GST DRC-04 - rule 142(2) of CGST Rules inserted
w.e.f. 1-4-2019.
Where the person chargeable with tax makes payment of tax and interest under section
73(8) or, as the case may be, tax, interest and penalty under section 74(8) within thirty days
of the service of a notice under rule 142(1), or where the person concerned makes payment
of the amount referred to in section 129(1) within fourteen days of detention or seizure of
the goods and conveyance, he shall intimate the proper officer of such payment in form GST
DRC-03 and the proper officer shall issue an order in form GST DRC-05 concluding the
proceedings in respect of the said notice - rule 142(3) of CGST Rules inserted w.e.f. 1-4-2019.
The representation referred to in section 73(9) or section 74(9) or section 76(3) or the reply
to any notice issued under any section whose summary has been uploaded electronically in
form GST DRC-01 under rule 142(1) shall be furnished in form GST DRC-06 - rule 142(4) of
CGST Rules inserted w.e.f. 1-4-2019.
A summary of the order issued under section 52 or section 62 or section 63 or section 64 or
section 73 or section 74 or section 75 or section 76 or section 122 or section 123 or section
124 or section 125 or section 127 or section 129 or section 130 shall be uploaded
electronically in form GST DRC-07, specifying therein the amount of tax, interest and penalty
payable by the person chargeable with tax - rule 142(5) of CGST Rules inserted w.e.f. 1-4-
2019.
The order referred to in rule 142(5) shall be treated as the notice for recovery - rule 142(6)
of CGST Rules inserted w.e.f. 1-4-2019.
Where a rectification of the order has been passed in accordance with the provisions of
section 161 or where an order uploaded on the system has been withdrawn, a summary of
 964

the rectification order or of the withdrawal order shall be uploaded electronically by the
proper officer in form GST DRC-08 - rule 142(7) of CGST Rules inserted w.e.f. 1-4-2019.
Rule 142 is constitutionally valid - Rule 142 of 2017 Rules, made in exercise of power
exercised by Central Government under section 164, is constitutionally valid - Mahavir
Enterprise v. Assistant Commissioner of State Tax [2020] 117 taxmann.com 471 (Gujarat HC
DB).
 965

First Appeal and revision in GST

46.1 Appeal against adjudication order
Appeal Provision in GST

CGST and SGST makes provisions in respect of appeals against orders passed by adjudicating
authority.
The CGST Act makes provisions of first appeal before 'Appellate Authority'.
Appellate Authority will be departmental officer. Pre-deposit of 10% tax is required to be
made before filing appeal before Appellate Authority.
The second appeal will be before National Bench or Regional Bench of Appellate Tribunal if
one of the issue relates to 'place of supply'.
If issue does not relate to 'place of supply', appeal will lie before State/Area Bench of
Appellate Tribunal.
The Appellate Tribunal will be common for CGST, IGST, UTGST and SGST. The Appellate
Tribunal will have Member (Judicial), Member (Centre) and Member (State). Thus, Appellate
Tribunal will have a three member bench.
However, President and State President can entrust matters to division bench consisting of
two members.
 966

Small matters upto Rs 5 lakhs can be decided by single member bench of Appellate Tribunal.
There is provision of mandatory pre-deposit for filing appeal. For first appeal, it is equal to
10% of disputed liability of tax.
For appeal before Appellate Tribunal, further 20% of disputed tax liability is payable.
Appeal against order of Appellate Tribunal can be before High Court only if substantial
question of law is involved.
If the matter involves interpretation of 'place of supply', appeal lies before Supreme Court
and not before High Court.
National Bench of GST Appellate Tribunal has been created at New Delhi w.e.f. 13-3-2019 -
Notification No. SO 1359(E) dated 13-3-2019.
Revision by Revisional Authority - The order of adjudicating authority can be revised by
revisional authority.
Jurisdiction of Civil Court Barred - Save as provided in sections 117 and 118, no civil court
shall have jurisdiction to deal with or decide any question arising from or relating to anything
done or purported to be done under this Act - section 162 of CGST and SGST Act.
Section 117 of CGST and SGST Act makes provision for appeal to High Court. Section 118 of
CGST and SGST Act makes provision for appeal to Supreme Court. Excluding that, civil court
has no jurisdiction in GST matters.
Thus, appeal cannot be filed in civil court.
Appeal Provisions in GST
46.1-1 Department cannot file appeal if amount is below specified monetary limit
National Litigation Policy formulated by Government of India aims to reduce Government
litigation. The Policy lays down following policy in respect of revenue matters - (a) Appeals
should not be filed where revenue involvement is not high (b) Appeals should not be filed if
the matter is covered by a series of judgments of the Tribunal and High Courts which have
held the field and have not been challenged before Supreme Court (c) No appeal shall be
filed when the assessee has acted in accordance with the long standing practice and also
merely because of change of opinion on the part of the jurisdictional officers.
Corresponding provisions have been made in GST law.
The Board(CBEC) may, on the recommendation of the GST Council, from time to time, issue
orders or instructions or directions fixing such monetary limits, as it may deem fit, for the
purposes of regulating the filing of appeal or application by the tax officer under the
provisions of this Chapter - section 120(1) of CGST Act [under section 120(1) of SGST Act, the
powers will be exercised by Commissioner of State Tax].
It shall not preclude such GST officer from filing appeal or application in any other case
involving the same or similar issues or questions of law.
No person, being a party in appeal or application shall contend that the GST officer has
acquiesced in the decision on the disputed issue by not filing an appeal or application.
Thus, non-filing of appeal by department cannot be used as precedent.
 967

The Appellate Tribunal or court hearing such appeal or application shall have regard to the
circumstances under which appeal or application was not filed by the GST Officer in
pursuance of the orders or instructions or directions - section 120(4) of CGST Act.
Monetary Limits for filing appeal - Following monetary limits have been specified, vide
CBI&C (Judicial Cell) Instruction No. 300/Misc/116/2017-JC dated 11-7-2018 for excise and
service tax [presently no limit for GST cases as law is new]—
(a) Appeal before Tribunal shall not be filed if duty involved is Rs. twenty lakhs.
(b) Appeal before High Court shall not be filed if duty involved is Rs. fifty lakhs
(c) Appeal or SLP before Supreme Court - No appeal if duty involved less than Rs. one crore.

These limits apply only to legacy issues of central excise and service tax (and not to GST).
The limit is not applicable if substantial question of law, as described in CBI&C Instruction
No. 390/Misc/163/2010-JC, exists.
46.1-2 Non-Appealable decisions and orders
As per section 121 of CGST and SGST Act, no appeal shall lie against any decision taken or
order passed by a GST officer if such decision taken or order passed relates to any one or
more of the following matters -
(a) An order of the Commissioner or other authority for transfer of proceeding from one
officer to another officer; or
(b) An order pertaining to the seizure or retention of books of account, register and other
documents; or
(c) An order sanctioning prosecution under the Act; or
(d) An order passed under section 80 [order granting or not granting instalments for
payment of taxes].

These are overriding provisions.

Of course writ jurisdiction of High Court and Supreme Court is not affected.
46.1-3 Interest on delayed refund of pre-deposit
Where an amount deposited by the appellant under section 107(6) or 112(8) is required to
be refunded consequent to any order of the Appellate Authority or of the Appellate Tribunal,
interest at the rate specified under section 56 shall be payable in respect of such refund from
the date of payment of the amount till the date of refund of such amount - section 115 of
CGST Act.
46.1-4 Bar of jurisdiction of civil courts
Save as provided by sections 117 and 118 (Appeal before High Court and Supreme Court),
no civil court shall have jurisdiction to deal with or decide any question arising from or
relating to anything done or purported to be done under this Act - section 162 of CGST and
SGST Act.
46.1-5 Production of additional evidence before the Appellate Authority or the Appellate
Tribunal
 968

All evidence should be normally submitted at the original hearing only. Additional evidence
is normally allowed only in very genuine cases. Appellate court should not travel outside the
record of lower court.
Any party cannot submit additional evidence (either oral or documentary) before Tribunal
as a matter of right. Parties can be permitted to produce such evidence if Tribunal is of the
opinion that on sufficient cause, such opportunity should be given - IVES Drugs v. CCE (2011)
264 ELT 73 (CESTAT) * Bhola Plastic Industries v. CCE (2011) 269 ELT 411 (CESTAT).
The appellant shall not be allowed to produce before the Appellate Authority or the
Appellate Tribunal any evidence, whether oral or documentary, other than the evidence
produced by him during the course of the proceedings before the adjudicating authority or
the Appellate Authority.
However, additional evidence shall be permitted in the following circumstances [Rule 112(1)
of CGST and SGST Rules, 2017].
(a) where the adjudicating authority or the Appellate Authority has refused to admit
evidence which ought to have been admitted; or
(b) where the appellant was prevented by sufficient cause from producing the evidence
which he was called upon to produce by the adjudicating authority or the Appellate
Authority; or
(c) where the appellant was prevented by sufficient cause from producing before the
adjudicating authority or the Appellate Authority any evidence which is relevant to
any ground of appeal; or
(d) where the adjudicating authority or the Appellate Authority has made the order
appealed against without giving sufficient opportunity to the appellant to adduce
evidence relevant to any ground of appeal.

Additional evidence shall be admitted only after the Appellate Authority or the Appellate
Tribunal records in writing the reasons for its admission - Rule 112(2) of CGST and SGST
Rules, 2017.
Notice to departmental officer if additional evidence is produced - The Appellate Authority
or the Appellate Tribunal shall not take any additional evidence produced as above, unless
the adjudicating authority or an officer authorised in this behalf by the said authority has
been allowed a reasonable opportunity - (a) to examine the evidence or document or to
cross-examine any witness produced by the appellant or (b) to produce any evidence or any
witness in rebuttal of the additional evidence produced by the appellant - Rule 112(3) of
CGST and SGST Rules, 2017.
Powers of Appellate Authority or Tribunal to call for documents or evidence - Nothing
contained in the aforesaid shall affect the power of the Appellate Authority or the Appellate
Tribunal to direct the production of any document, or the examination of any witness, to
enable it to dispose of the appeal - Rule 112(4) of CGST and SGST Rules, 2017.
46.1-6 Additional grounds in appeal
 969

As a general rule, all legal points must be agitated before original adjudicating authority.
Similarly, all evidence should to be produced before original adjudicating authority.
Additional grounds of appeal and additional evidence is not permissible as a matter of
routine.
However, Appellate Authority, on its own, can call for any document or examine any witness
or ask for filing of affidavit.
No restrictions under the Act in accepting additional grounds - The Act does not provide
any restrictions on accepting additional grounds at appellate stage. In this regard, following
observations of Apex Court are very relevant. Though the case is in respect of Income Tax,
the observations should apply in all appeals.
"The Act does not contain any express provision debarring an assessee from raising an
additional ground in appeal. In absence of statutory provision, the general principle relating
to amplitude of appellate authority's power being co-terminus with that of initial authority
should normally apply. There may be several factors justifying raising of a new plea, and each
case has to be considered on its own facts. Of course, while permitting assessee to raise an
additional ground, the authority should exercise his discretion in accordance with law and
reason. He must be satisfied that the ground raised was bona fide and that the same could
not be raised earlier for good reasons. The satisfaction of appellate authority depends upon
facts and circumstances of each case and no rigid principles or any hard and fast rule can be
laid down. - Jute Corporation of India Ltd. v. CIT - AIR 1991 SC 241 = 1991 (51) ELT 176 = 53
Taxman 85 = 187 ITR 688 (SC 3 member bench). - quoted with approval in National Thermal
Power Co Ltd. v. CIT (1998) 97 Taxman 358 = 132 STC 566 = 229 ITR 383 = 99 ELT 200 (SC 3
member bench).
In CIT v. Mahalaxmi Textiles Mills Ltd. (1967) 66 ITR 710 (SC) also, it was held that there are
no restrictions on powers of Tribunal in relation to questions that can be determined. All
questions, whether of law or of fact, which relate to assessment may be raised before the
Tribunal.
46.2 First Appeal before Appellate Authority
Any person aggrieved by any decision or order passed against him under CGST Act or SGST
Act or UTGST Act or IGST Act by an adjudicating authority, may appeal to such Appellate
Authority as may be prescribed within three months from the date on which such decision
or order is communicated to him - section 107(1) of CGST and SGST Act.
Limitation period starts only when adjudication order uploaded on portal - Even if physical
copy of adjudication order is handed over to assessee, limitation period to file appeal would
start only when adjudication order is uploaded on GST portal - Gujarat State Petronet Ltd. v.
UOI [2021] 124 taxmann.com 98 (Gujarat HC DB).
Adjudicating Authority - "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
National Appellate Authority for advance Ruling, the Appellate Authority for Advance Ruling,
the Appellate Authority, the Appellate Tribunal and the Authority referred to in section
 970

171(2) of CGST Act - section 2(4) of CGST Act. The words in italics inserted vide Finance (No.
2) Act, 2019 with effect from date to be notified.
Section 171(2) of CGST Act provides for Anti Profiteering Authority. Thus, appeal against
order of Anti Profiteering Authority cannot be filed before Appellate Authority or Appellate
Tribunal.
Adjudicating Authority can be of rank of Additional/Joint Commissioner or Deputy/Assistant
Commissioner.
Appellate Authority - "Appellate Authority" means an authority appointed or authorised to
hear appeals as referred to in section 107 - section 2(8) of CGST Act.
If the adjudication order is passed by Superintendent, Deputy/Assistant Commissioner, the
appeal lies before any officer not below the rank of Joint Commissioner (Appeals). If the
adjudication order is passed by Additional/Joint Commissioner, appeal lies before
Commissioner (Appeals) - rule 109A (1) of CGST Rules, 2017 amended on 30-10-2018.
The Appellate Authorities are as follows - FAQ on GST Chapter 16 Q No. 5 issued by CBI&C
on 15-12-2018.
Adjudicating Appeal when order under CGST Act Appeal when order under
Authority SGST Act

Additional Commissioner (Appeals) (-)

Commissioner
Joint Commissioner Commissioner (Appeals) Additional Commissioner
Deputy Commissioner Officer not below rank of Joint Commissioner Joint Commissioner (Appeals)
(Appeals)
Assistant Officer not below rank of Joint Commissioner Deputy Commissioner
Commissioner (Appeals) (Appeals)

Departmental appeal before Appellate Authority - The Commissioner may, of his own
motion, or upon request from Commissioner of SGST or UTGST, call for and examine the
record of any proceeding in which an adjudicating authority has passed any decision or order
under CGST/SGST/UGST/IGST Act, for the purpose of satisfying himself as to the legality or
propriety of the said decision or order and may, by order, direct any officer subordinate to
him to apply to the Appellate Authority within six months from date of communication of
the said decision or order for the determination of such points arising out of the said decision
or order as may be specified by the Commissioner in his order - section 107(2) of CGST Act.
This will be considered as departmental appeal before Appellate Authority.
Departmental appeal against adjudication order of adjudicating authority will be filed before
Appellate Authority [Commissioner (Appeals) or officer not below the rank of Joint
Commissioner (Appeals) as applicable] by officer directed under section 107(2) of CGST Act,
within six months from date of communication of the decision or order of Adjudicating
Authority - rule 109A(2) of CGST Rules, 2017 amended w.e.f. 30-10-2018.
Appeal in prescribed form and verified - Every appeal under this section shall be in the
prescribed form and shall be verified in the prescribed manner- section 107(5) of CGST Act.
 971

Condonation of delay in filing appeal - Appellate Authority can condone delay upto one
month beyond 3 months for appellant/6 months for department if he is satisfied that the
appellant was prevented by sufficient cause from presenting the appeal within the aforesaid
period of three months or six months - section 107(4) of CGST Act.
Authorities created by statute cannot apply Limitation Act, 1963. They cannot condone delay
unless empowered by Statute - Om Prakash v. Ashwini Kumar Bassi (2010) 258 ELT 5 (SC).
Extension of time limit for filing appeal when Appellate Tribunal is not constituted - In
some States/areas, there is/was delay in constitution of Appellate Tribunal. In that case,
appeal can be filed (a) within three months/six months (three months in case of appeal by
aggrieved person and six months in case of departmental appeal) from date on which the
President/State President enter office after of constitution of Appellate Tribunal (b) within
three months/six months (as applicable) from date of order, whichever is later - Order No.
09/2019-CT dated 3-12-2019.
Delay beyond aforesaid period can be condoned if assessee was pursuing remedy bona
fide in wrong forum - In Ketan V Parekh v. Directorate of Enforcement (2011) 110 SCL 724 =
16 taxmann.com 221 = 275 ELT 3 (SC). It was held that though section 5 of Limitation Act
does not apply to appeals before other authorities, section 14 of Limitation Act (of
condoning delay when appeal fine bona fide in wrong forum) can apply in an appropriate
case.
This view has been confirmed in M P Steel Corporation v. CCE (2015) 57 taxmann.com 399 =
319 ELT 373= 80 VST 402(SC) * Gilco Exports v. UOI (2015) taxmann.com 443 (P&H HC).
These decisions apply to appeal before Appellate Authority.
In Cairn Energy India v. CCE (2008) 221 ELT 440 (CESTAT), assessee file appeal with Tribunal
against order of Joint Commissioner. It was held that delay due to filing of appeal in wrong
forum is condonable.
This view has been confirmed in CCE v. Cairn Energy India P Ltd. (2015) 49 GST 395 = 52
taxmann.com 371 = 316 ELT 612 (AP HC DB), where it was observed that there is difference
between 'condonation of delay' and 'exclusion of period'. Section 5 of Limitation Act is
available to assessee as a matter of right.- same view in Sonia Overseas P Ltd. v. UOI (2015)
316 ELT 578 (P&H HC DB) *M P Steel Corporation v. CCE (2015) 57 taxmann.com 399 = 319
ELT 373 = 80 VST 402(SC) * Gilco Exports v. UOI (2015) 317 ELT 229 (P&H HC DB).
Mandatory pre-deposit 10% of tax demand before filing appeal before appellate authority
- Appeal cannot be filed unless the appellant has deposited a sum in full of tax, interest, fee
and penalty arising out of order, as admitted by him and 10% of remaining amount of tax in
dispute arising from the said order (subject to maximum Rs. 25 crores), in relation to which
the appeal has been filed - section 107(6) of CGST Act. The words in italics inserted vide CGST
(Amendment) Act, 2018 w.e.f. 1-2-2019.
Thus, entire admitted dues are required to be paid.
In addition, 10% of remaining amount of tax in dispute is required to be paid. For this limit
is Rs. 25 crores of CGST plus Rs. 25 crores of SGST or Rs 50 crores of IGST [In addition to
entire admitted tax liability] [what a mercy !]
 972

Pre-deposit can be made through CGST Credit (even of arrears of excise duty and service
tax) - Dell International Services v. CCT (2019) 365 ELT 813 (CESTAT).
Pre-deposit of 25% of penalty if goods are seized in transit under section 129 of CGST Act -
Section 129 of CGST Act makes provisions for detention and seizure of goods in transit.
Penalty equal to 200% of tax payable can be imposed under section 129(3) of CGST Act, if
goods are transported in contravention of provisions of CGST Act and Rules. If appeal is filed
against order imposing penalty, no appeal shall be filed unless a sum equal to 25% of the
penalty has been paid by the appellant - proviso to section 107(6) of CGST Act inserted vide
Section 116 of Finance Act, 2021 w.e.f. date to be notified.
There is provision for release of seized goods on furnishing security (mere bond is not
sufficient). Hence, it may be advisable to pay 25% penalty and give security of balance
amount, as security in form of bank guarantee costs money in form of bank charges. Banks
often insist on deposit also.
Opportunity of hearing - The Appellate Authority shall give an opportunity to the appellant
of being heard - section 107(8) of CGST Act.
Personal Hearing through video conferencing only - There will be no physical hearing.
Personal hearing will be through video conferencing only. The procedure has been
prescribed in Instruction F. No. 390/MISC/3/2019-JC dated 21-8-2020.
E-mail address should be informed. Vakalatnama or authorisation letter should be filed
through e-mail. Submissions will be reduced in writing as 'record of personal hearing'. Its
soft copy will be sent in pdf format to appellant. The appellant can modify the record.
Scanned copies of documents can be submitted electronically within three days of virtual
hearing. In very rare cases, personal hearing may be done.
Upto three Adjournment of hearing - The Appellate Authority may, if sufficient cause is
shown at any stage of hearing of an appeal, grant time, from time to time, to the parties or
any of them and adjourn the hearing of the appeal for reasons to be recorded in writing.
However, no such adjournment shall be granted more than three times to a party during
hearing of the appeal - section 107(9) of CGST Act.
Additional grounds at the time of hearing - The Appellate Authority may, at the hearing of
an appeal, allow an appellant to go into any ground of appeal not specified in the grounds
of appeal, if he is satisfied that the omission of that ground from the grounds of appeal was
not wilful or unreasonable - section 107(10) of CGST Act.
Order by Appellate Authority - The Appellate Authority shall, after making such further
inquiry as may be necessary, pass such order, as he thinks just and proper, confirming,
modifying or annulling the decision or order appealed against, but shall not refer the case
back to the adjudicating authority that passed the said decision or order - section 107(12) of
CGST Act.
Thus, Appellate Authority cannot remand the matter to adjudicating authority.
An order enhancing any fee or penalty or fine in lieu of confiscation or confiscating goods of
greater value or reducing the amount of refund or input tax credit shall not be passed unless
the appellant has been given a reasonable opportunity of showing cause against the
proposed order.
 973

Enhancing fee, fine or penalty only after issuing notice - Appellate Authority can enhance
fee, fine or penalty after giving show cause notice and opportunity of hearing - first proviso
to section 107(11) of CGST Act.
Order confirming additional tax or disallowing input tax credit only after issuing notice -
Appellate Authority has powers to enhance tax demanded or disallow further input tax
credit. However, this can be done only after issue of notice.
Where the Appellate Authority is of the opinion that any tax has not been paid or short-paid
or erroneously refunded, or where input tax credit has been wrongly availed or utilised, no
order requiring the appellant to pay such tax or input tax credit shall be passed unless the
appellant is given notice to show cause against the proposed order and the order is passed
within the time limit specified under section 73 or section 74 - second proviso to section
107(11) of CGST Act.
Order in writing with reasons - The order of the Appellate Authority disposing of the appeal
shall be in writing and shall state the points for determination, the decision thereon and the
reasons for the decision - section 107(12) of CGST Act.
Time limit for passing order - The Appellate Authority shall, where it is possible to do so,
hear and decide every appeal within a period of one year from the date on which it is filed.
If the issuance of order is stayed by an order of a Court or Tribunal, the period of such stay
shall be excluded in computing the period of one year - section 107(13) of CGST Act.
Distribution of copies of order - The Appellate Authority shall communicate the order
passed by him to the appellant, respondent and to the adjudicating authority - section
107(14) of CGST Act.
A copy of the order passed by the Appellate Authority shall also be sent to the jurisdictional
Commissioner or the authority designated by him in this behalf and the jurisdictional
Commissioner of SGST/UTGST or the authority designated by him - section 107(15) of CGST
Act.
Order final if not appealed against - Every order passed under this section shall, subject to
the provisions of section 108, 113, 117 or 118 be final - section 107(16) of CGST Act.
46.2-1 Procedure for appeal by aggrieved person to the Appellate Authority
An appeal to the Appellate Authority under section 107(1) of the Act shall be filed in form
GSTAPL-01, either electronically or otherwise as may be notified by the Commissioner. A
provisional acknowledgement shall be issued to the appellant immediately - Rule 108(1) of
CGST and SGST Rules, 2017.
The grounds of appeal and the form of verification as contained in form GST APL-01 shall be
signed in the manner specified in rule 26 of CGST Rules - Rule 108(2) of CGST and SGST Rules,
2017.
A hard copy of the appeal in form GST APL-01 shall be submitted in triplicate to the Appellate
Authority. It shall be accompanied by a certified copy of the decision or order appealed
against along with the supporting documents within seven days of filing of the appeal as
above. Final acknowledgement, indicating appeal number shall be issued thereafter in form
GST APL-02 by the Appellate Authority or an officer authorized by him - Rule 108(3) of CGST
and SGST Rules, 2017.
 974

Where the hard copy of the appeal and documents are submitted within seven days from
the date of filing the form GST APL-01, the date of filing of the appeal shall be the date of
issue of provisional acknowledgement. Where the hard copy of the appeal and documents
are submitted after seven days, the date of filing of the appeal shall be the date of
submission of documents - proviso to Rule 108(3) of CGST and SGST Rules, 2017.
The appeal shall be treated as filed only when the final acknowledgement, indicating the
appeal number is issued - Explanation to Rule 108(3) of CGST and SGST Rules, 2017.
46.2-2 Departmental application to the Appellate Authority
An application by department to the Appellate Authority under section 107(2) of the Act
shall be made in form GST APL-03 either electronically or otherwise as may be notified by
the Commissioner - Rule 109(1) of CGST and SGST Rules, 2017.
A hard copy of the application in form GST APL-03 shall be submitted in triplicate to the
Appellate Authority. It shall be accompanied by a certified copy of the decision or order
appealed against along with the supporting documents within seven days of filing the
application as above. An appeal number shall be generated by the Appellate Authority or an
officer authorised by him in this behalf - Rule 109(2) of CGST and SGST Rules, 2017.
46.2-3 Order of Appellate Authority
The Appellate Authority shall, along with its order under section 107(11) of the Act, issue a
summary of the order in form GST APL-04 clearly indicating the final amount of demand
confirmed - Rule of 113(1) CGST and SGST Rules, 2017.
The jurisdictional officer shall issue a statement in form GST APL-04 clearly indicating the
final amount of demand confirmed by the Appellate Tribunal - Rule 113(2) of CGST and SGST
Rules, 2017 [The words used are 'Appellate Tribunal'. Hence, it seems such statement is not
required in case of order of Appellate Authority].
46.3 Revision by Revisional Authority
Provisions relating to revision of order of adjudicating authority were available in many State
Vat Laws. However, these powers were not available in Central Excise and service tax.
Now, such powers have been provided in GST Law, though with some restrictions.
"Revisional Authority" means an authority appointed or authorised for revision of decision
or orders as referred to in section 108 - section 2(99) of CGST Act.
Principal Commissioner/Commissioner/Additional/Joint Commissioner named as
revisional authority - Principal Commissioner/Commissioner will be revisional authority for
decisions or orders passed by Additional/Joint Commissioner of Central Tax. Additional/Joint
Commissioner will be revisional authority for decisions or orders passed by Deputy/Assistant
Commissioner/Superintendent - Notification No. 5/2020-CT dated 13-1-2020.
Powers of revision - Subject to the provisions of section 121(non-appealable orders) and
any rules made thereunder, the Revisional Authority may on his own motion, or upon
information received by him or on request from the Commissioner of SGST/UTGST, call for
and examine the record of any proceeding, and if he considers that any decision or order
passed under CGST Act or under the SGST/UTGST/IGST Act by any officer subordinate to him
is erroneous in so far as it is prejudicial to the interest of the revenue and is illegal or
 975

improper or has not taken into account certain material facts, whether available at the time
of issuance of the said order or not or in consequence of an observation by the Comptroller
and Auditor General of India, he may, if necessary, stay the operation of such decision or
order for such period as he deems fit and after giving the person concerned an opportunity
of being heard and after making such further inquiry as may be necessary, pass such order,
as he thinks just and proper, including enhancing or modifying or annulling the said decision
or order - section 108(1) of CGST Act.
Thus, Revisional Authority can act suo motu or at request of State/Union Territory
Authorities but not on request of taxable person (appellant).
Record includes all records relating to proceedings - 'Record' shall include all records
relating to any proceedings under this Act available at the time of examination by the
Revisional Authority - section 108(6)(i) of CGST Act.
Thus, Revisional Authority can consider records generated or made available even after
passing of adjudication order.
Decision includes intimation also - For the purposes of this section, 'decision' shall include
intimation given by any officer lower in rank than Revisional Authority - section 108(6)(ii) of
CGST Act.
When Revisional cannot revise order - The Revisional Authority shall not exercise any power
under section 108(1), if.—
(a) the order has been subject to an appeal under section 107 or under section 112 or
under section 117 or under section 118. [However, issue not covered in appeal can
be taken in revision] or
(b) the period specified under section 107(2) has not yet expired or more than three
years have expired after the passing of the decision or order sought to be revised.
(c) the order has already been taken for revision under this section at any earlier stage
or
(d) the order has been passed in exercise of powers under section 108(1) [i.e. once
Revisional order is passed, further revision is not permissible] - section 108(2) of
CGST Act.

Thus, Revisional Authority can take action after period of appeal (three months) is over but
before three years of date of passing of order.
Issue not covered in appeal can be taken in revision - Revisional Authority may pass an order
under section 108(1) on any point which has not been raised and decided in an appeal
referred to in section 108(2)(a), before the expiry of a period of one year from the date of
the order in such appeal or before the expiry of a period of three years referred to in section
108(2)(b), whichever is later - proviso to section 108(2) of CGST Act.
Order in revision final subject to further appeal - Every order passed in revision under sub-
section (1) shall, subject to the provisions of section 113, 117 or 118, be final and binding on
all parties- section 108(3) of CGST Act.
 976

Exclusion of certain time spent in appeal - If the said decision or order involves an issue on
which the Appellate Tribunal or the High Court has given its decision which is prejudicial to
the interest of revenue in some other proceedings and an appeal to the High Court or the
Supreme Court against such decision of the Appellate Tribunal or as the case may be, the
High Court is pending, the period spent between the date of the decision of the Appellate
Tribunal and the date of the decision of the High Court or as the case may be, the date of
the decision of the High Court and the date of the decision of the Supreme Court shall be
excluded in computing the period referred to in section 108(2)(b) where proceedings for
revision have been initiated by way of issue of a notice under this section - section 108(4) of
CGST Act.
Period for which stay was in operation to be excluded - Where the issuance of an order
under section 108(1) is stayed by the order of a Court or Tribunal, the period of such stay
shall be excluded in computing the period referred to in section 108(2)(b) - section 108(5) of
CGST Act.
Procedure for revision - If Revisional Authority decides to pass an order of revision, notice
shall be served on the person in form GST RVN-01. Opportunity of hearing shall be given.
Summary of order shall be issued in form GST APL-04 clearly indicating the final amount of
demand confirmed - rule 109B of CGST Rules inserted w.e.f. 31-12-2018.
46.4 Appeal Provisions at a glance
Description Appellate Authority Revisional Appellate Tribunal
Authority

Appeal against order of Adjudicating Autho-rity - Suo motu action by Appellate Authority or
section 107(1) Authority under Revisional Authority -
section 108 - (taxable section 112(1)
person himself
cannot apply for
revision)
Are fees payable while No No question arises Yes - section 112(7)
filing appeal
Can department file Yes - section 107(2) and No question Yes - section 112(3) and
appeal 107(3) 112(4)
Time limit for filing Three months from date Revisional Authority Three months from date
appeal of communication of can initiate action of communication of
order - section 107(1) - after three months order - section 112(1) -
can be extended by one but within three can be extended by
month - section 107(4) years from date of further three months -
order, if no appeal section 112(6)
was filed before
Appellate Authority
 977

If issue relates to place of Can be filed Can be taken up National/Regional bench

supply of Appellate Tribunal
If issue does not relate to Can be filed Can be taken up State/Area bench of
place of supply Appellate Tribunal
Pre-deposit of tax 10% of tax in dispute and No question of pre- 20% of tax in dispute and
100% of tax, interest, deposit 100% of tax, interest,
penalty or fine that is not penalty or fine that is not
in dispute - section in dispute - section
107(6) 112(6) [20% of tax in
dispute payable in
addition to 10% paid
earlier]
Is interest payable to Yes - section 115 Question does not Yes - section 115
taxable person if pre- arise
deposit refunded if he
wins appeal?
Can person appear Yes - section 116(1) Yes - section 116(1) Yes - section 116(1)
through Authorised
Representative
Can matter be remanded No - section 107(11) Question does not Yes - section 113(1)
to lower authority arise
Can authority rectify Yes - within six months - Yes - within six Yes - within three
mistake in order section 161 months - section 161 months - section 113(3)
apparent from record
Further Appeal before No - as appeal to be filed No - as appeal to be Against the order of
High Court before Appellate filed before State/Area bench of
Tribunal Appellate Tribunal Appellate Tribunal only
on substantial question
of law - section 117(1)
Further Appeal before No - as appeal to be filed No - as appeal to be (a) against the order of
Supreme Court before Appellate filed before National/Regional bench
Tribunal Appellate Tribunal of Appellate Tribunal or
(b) if High Court certifies
it as fit case to further
appeal - section 118(1)
 978

Appeal before Appellate Tribunal

47.1 Background
Appeal against order of Appellate Authority or Revisional Authority lies before Appellate
Tribunal. Appellate Tribunal is a quasi judicial authority.
There will be National Bench and Regional Benches of Appellate Tribunal, which will hear
appeals where one of the issues involved relates to place of supply [i.e. inter-state
transactions]. These will be under supervision of President.
State Bench and Area benches of Appellate Tribunal will hear appeals where issue relating
to place of supply is not involved i.e. transaction is intra-state. These will be under
supervision of State President.
47.2 Constitution of the Appellate Tribunal
The Central Government shall on the recommendation of the GST Council constitute an
Appellate Tribunal known as Goods and Services Tax Appellate Tribunal for hearing appeals
against the orders passed by Appellate Authority or Adjudicating Authority - section 109(1)
of CGST Act.
The powers of the Appellate Tribunal shall be exercisable by the National Bench and Benches
thereof (referred to as "Regional Benches"), State Bench and Benches thereof (referred to
as "Area Benches") - section 109(2) of CGST Act.
National Bench of GST Appellate Tribunal has been created at New Delhi w.e.f. 13-3-2019 -
Notification No. SO 1359(E) dated 13-3-2019.
47.2-1 National Bench and Regional Benches
The National Bench of the Appellate Tribunal shall be situated at New Delhi which shall be
presided over by the President and shall consist of one Technical Member (Centre) and one
Technical Member (State) - section 109(3) of CGST Act.
This provision has been held invalid in Revenue Bar Association v. Union of India [2019] 109
taxmann.com 375 (Madras HC DB), as it gives more weightage to technical members than
judicial members. The reason is that technical members outnumber judicial members.
The interim stay order continues - Mad HC DB order dated 17-8-2020.
In Rojer Mathew v. South Indian Bank Ltd. (2020) 6 SCC 1 (SC 5 member constitution bench),
some provisions in rules relating to Tribunals as made under section 184 of Finance Act, 2017
have been held invalid. It was held that the rules have an effect of dilution of judicial
character in adjudicatory posts (the issue not related to GST Tribunal, but can affect
provisions of GST Tribunal also). The issue whether the provisions relating to Tribunal can be
included in Finance Act, 2017 (which is a money bill) has been referred to large bench.
Subsequently, on 27-11-2020, in Madras Bar Association v. Union of India [2020] 121
taxmann.com 345 (SC 3 member bench), validity of rules under Finance Act, 2017 have been
upheld but with many changes, which have to be incorporated in the Rules.
In my view, the changes suggested will have to be included in GST Tribunal Rules also and
then the validity of Rules may be upheld.
The Government shall, on the recommendations of the Council, by notification, constitute
such number of Regional Benches as may be required and such Regional Benches shall
 979

consist of a Judicial Member, one Technical Member (Centre) and one Technical Member
(State) - section 109(4) of CGST Act.
The National Bench or Regional Benches of the Appellate Tribunal shall have jurisdiction to
hear appeals against the orders passed by the Appellate Authority or the Revisional
Authority in the cases where one of the issues involved relates to the place of supply - section
109(5) of CGST Act.
National Bench of Tribunal will be headed by a President, who will distribute, by general or
special order, the business or transfer cases among Regional Benches - section 109(8) of
CGST Act.
47.2-2 State Bench and Area Benches
The Central Government shall, by notification, specify for each State or Union territory, (*)
a Bench of the Appellate Tribunal (hereafter in this Chapter, referred to as "State Bench")
for exercising the powers of the Appellate Tribunal within the concerned State or Union
territory - Section 109(6) of CGST Act amended w.e.f. 8-7-2017. [* - The words 'Except J&K'
have been removed vide Finance Act, 2020, w.e.f. 30-6-2020].
In case of J&K, first proviso to section 109(6) of CGST Act provided that State Bench of GST
Appellate Tribunal constituted under CGST Act shall be the State Appellate Tribunal
constituted under the Jammu and Kashmir Goods and Services Tax Act, 2017. This proviso
has been omitted vide Finance Act, 2020 w.e.f. 30-6-2020 [as now J&K is Union Territory and
UTGST Act applies w.e.f. 31-10-2019
Within a State, number of Area Benches can be constituted on recommendation of GST
Council - second proviso to section 109(6) of CGST Act, renumbered w.e.f. 8-7-2017.
A State Bench can act as Appellate Tribunal for another State or union Territory - third
proviso to section 109(6) of CGST Act, renumbered w.e.f. 8-7-2017.
The State Bench or Area Benches shall have jurisdiction to hear appeals against the orders
passed by the Appellate Authority or the Revisional Authority in the cases involving matters
other than those referred to in section 109(5) - section 109(7) of CGST Act.
Each State Bench and Area Benches of the Appellate Tribunal shall consist of a Judicial
Member, one Technical Member (Centre) and one Technical Member (State) and the State
Government may designate the senior most Judicial Member in a State as the State
President - section 109(9) of CGST Act.
This provision has been held invalid in Revenue Bar Association v. Union of India [2019] 109
taxmann.com 375 (Madras HC DB), as it gives more weightage to technical members than
judicial members. The reason is that technical members outnumber judicial members.
The interim stay order continues - Mad HC DB order dated 17-8-2020.
Every State GST Tribunal will be headed by a State President, who will distribute, by general
or special order, the business or transfer cases among Area Benches - section 109(8) of CGST
Act.
Constitution of State Benches and Area Benches - Various State Benches and Area Benches
have been constituted vide MF(DR) Notification No. SO 3009(E) dated 21-8-2019.
 980

Determination of location of State Bench of Tribunal is in domain of Central Government.

State Government is confined to determine place of area bench - Torque Pharmaceuticals v.
UOI (2019) 108 taxmann.com 216 (All HC DB).
47.2-3 Division Benches
In the absence of a Member in any Bench due to vacancy or otherwise, any appeal may, with
the approval of the President or, as the case may be, the State President, be heard by a
Bench of two Members - section 109(10) of CGST Act.
Thus appeals can be heard by division bench. There is no specific provision that one of
member of bench should be a judicial member.
47.2-4 Single member bench where amount involved is upto Rs five lakh and question of
law not involved
Any appeal where the tax or input tax credit involved or the difference in tax or input tax
credit involved or the amount of fine, fee or penalty determined in any order appealed
against, does not exceed five lakh rupees and which does not involve any question of law
may, with the approval of the President and subject to such conditions as may be prescribed
on the recommendations of the Council, be heard by a bench consisting of a single member
- proviso to section 109(10) of CGST Act.
47.2-5 Decision by majority, reference to third member if bench equally divided
If the Members of the National Bench, Regional Benches, State Bench or Area Benches differ
in opinion on any point or points, it shall be decided according to the opinion of the majority,
if there is a majority, but if the Members are equally divided, they shall state the point or
points on which they differ, and the case shall be referred by the President or as the case
may be, State President for hearing on such point or points to one or more of the other
Members of the National Bench, Regional Benches, State Bench or Area Benches and such
point or points shall be decided according to the opinion of the majority of Members who
have heard the case, including those who first heard it - section 109(11) of CGST Act.
47.2-6 Transfer of members from one bench to another
The members can be transferred from National Bench to Regional Bench, State Bench or
Area Bench. Vice versa is also permissible. Thus, there is complete flexibility in transfers -
section 109(11) and 109(12) of CGST Act.
47.3 Qualifications, selection, appointment and removal of members of Appellate Tribunal
Provisions in respect of qualifications, selection, terms of appointment and removal of
members of Appellate Tribunal have been specified in section 110 of CGST Act.
On ceasing to hold office, the President, the State Presidents or other Members of the
Appellate Tribunal shall not be entitled to appear, act or plead before the Appellate Tribunal,
where he was President or member. This is subject to Article 220 of Constitution- section
110(17) of CGST Act.
Thus, he can appear in benches where he was not a member.
Similar restriction is on permanent judges of High Court under Article 220 of Constitution of
India.
 981

Appointment of member of Indian Legal Service as judicial member invalid, but exclusion
of Advocates for appointment as judicial member held valid - In Revenue Bar Association v.
Union of India [2019] 109 taxmann.com 375 (Madras HC DB), appointment of member of
Indian Legal Service as judicial member has been held invalid, but exclusion of Advocates for
appointment as judicial member has been held as valid.
The interim stay order continues - Mad HC DB order dated 17-8-2020.
47.3-1 Conditions of Service of Members of Appellate Tribunal
Conditions of service of President and members of National Bench, Members of National
Bench, Regional Bench, State Bench and Area bench have been notified vide GST Appellate
Tribunal (Appointment and Conditions of Service of President and Members) Rules, 2019
have been notified on 21-8-2019, specifying method of recruitment, salary, allowances,
pension, leave etc.
47.4 Powers of Appellate Tribunal
Appellate Tribunal is not bound by Code of Civil Procedure but will be guided by principles
of natural justice - section 111(1) of CGST Act.
Appellate Tribunal has same powers as civil court in specified matters - section 111(2) of
CGST Act.
Order of Appellate Tribunal can be enforced as if it is a decree made by court in suit - section
111(3) of CGST Act.
All proceedings before Appellate Tribunal are judicial proceedings - section 111(4) of CGST
Act.
47.5 Appeal to Appellate Tribunal
Any person aggrieved by an order passed against him under section 107 or 108 of CGST Act
or SGST Act or UTGST Act may appeal to the Appellate Tribunal against such order within
three months from the date on which the order sought to be appealed against is
communicated to the person preferring the appeal - section 112(1) of CGST Act.
Appeal within three/six months from date when President of Appellate Tribunal enters
office - Appellate Tribunal has not been constituted as provisions in respect of Appellate
Tribunal have been held invalid Revenue Bar Association v. Union of India [2019] 109
taxmann.com 375 (Madras HC DB). Hence, it has been provided that the appeal to tribunal
can be made within three months (six months in case of appeals by the Government) from
the date of communication of order or date on which the President or the State President,
as the case may be, of the Appellate Tribunal enters office, whichever is later. Hence,
Appellate Authorities may decide issues on merit without waiting for constitution of
Appellate Tribunal - Ninth Removal of Difficulties order dated 3-12-2019, explained in CBI&C
Circular No. 132/2/2020 - GST dated 18-3-2020.
Refusal of petty appeals - The Appellate Tribunal may, in its discretion, refuse to admit any
such appeal where the tax or input tax credit involved or the difference in tax or input tax
credit involved or the amount of fine, fee or penalty determined by such order, does not
exceed Rs 50,000 - section 112(2) of CGST Act.
 982

Really if the amount is less than Rs 50,000, it will be cheaper to pay as cost of appeal is likely
to be more than that.
The word used is 'or'. Hence, even if total demand exceeds Rs 50,000, if individual amounts
are less than Rs 50,000, appeal cannot be refused.
Departmental appeal - The Commissioner can direct any officer subordinate to him to apply
to Appellate Tribunal within six months for determination of such points arising out of the
order - section 111(3) of CGST Act. This will be considered as appeal against decision of
Appellate Authority - section 112(4) of CGST Act.
Cross objection - On receipt of notice that an appeal has been preferred under this section,
the party against whom the appeal has been preferred may, within forty-five days of the
receipt of the notice, file a memorandum of cross-objections, verified in the prescribed
manner. Cross objection can be filed even if he has not have appealed against such order.
This will be considered as if it is an appeal filed by party under section 112(1) of CGST Act-
section 112(5) of CGST Act.
Condonation of delay in filing appeal upto three months/45 days - Appellate Tribunal can
condone delay in filing of appeal (by taxable person, applicant or departmental officer) upto
three months and cross objection upto 45 days, if it is satisfied that there was sufficient
cause for not presenting it within specified period - section 112(6) of CGST Act.
Appeal in prescribed form with fees - An appeal to the Appellate Tribunal shall be in the
prescribed form and shall be verified in the prescribed manner and shall be accompanied by
a prescribed fee. - - However, no fee is payable in case of departmental appeal - section
112(7) of CGST Act.
Mandatory pre-deposit before filing appeal before Appellate tribunal - No appeal shall be
filed under section 112(1), unless the appellant has paid-- (a) in full, such part of the amount
of tax, interest, fine, fee and penalty arising from the impugned order, as is admitted by him,
and (b) a sum equal to 20% of the remaining amount of tax in dispute (subject to a maximum
of fifty crore rupees) in addition to the amount paid under section 107(6), arising from the
said order, in relation to which the appeal has been filed - section 112(8) of CGST Act. The
words in italics inserted vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019.
Thus, entire admitted dues are required to be paid.
In addition, 20% of remaining amount of tax in dispute is required to be paid. For this limit
is Rs. 50 crores of CGST plus Rs. 50 crores of SGST or Rs. 100 crores of IGST [In addition to
entire admitted tax liability]. [what a mercy !]
This pre-deposit should be in addition to pre-deposit of 10% of tax amount made while filing
appeal before Appellate Authority under section 107(6) of CGST Act.
Pre-deposit can be made through CGST Credit (even of arrears of excise duty and service
tax) - Dell International Services v. CCT (2019) 365 ELT 813 (CESTAT).
Stay for further recovery once pre-deposit paid - Once the appellant has paid the amount
as per section 112(8), the recovery proceedings for the balance amount shall be deemed to
be stayed till the disposal of the appeal - section 112(9) of CGST Act.
 983

Interest if pre-deposit is required to be refunded - Where an amount paid by the appellant

under section 107(6) or section 112(8) is required to be refunded consequent to any order
of the Appellate Authority or of the Appellate Tribunal, interest at the rate specified under
section 56 shall be payable in respect of such refund from the date of payment of the amount
till the date of refund of such amount - section 115 of CGST Act.
Fee for filing miscellaneous applications - Every application made before the Appellate
Tribunal for (a) in an appeal for rectification of mistake or for any other purpose; or (b) for
restoration of an appeal or an application, shall be accompanied by a prescribed fee. -
section 112(10) of CGST Act.
No fee is payable if application is filed by department.
47.5-1 Appeal by aggrieved person to the Appellate Tribunal
An appeal by aggrieved person to the Appellate Tribunal under section 112(1) of the Act shall
be filed electronically, in form GST APL-05 on the common portal and a provisional
acknowledgement shall be issued to the appellant immediately - Rule 110(1) of CGST and
SGST Rules, 2017.
A memorandum of cross-objections to the Appellate Tribunal under section 112(6) of the
Act shall be filed in quintuplicate to the Registrar in form GST APL-06 - Rule 110(2) of CGST
and SGST Rules, 2017.
The appeal and the memorandum of cross objections shall be signed in the manner specified
in Rule 26 of CGST Rules - Rule 110(3) of CGST and SGST Rules, 2017.
A certified copy of the decision or order appealed against shall be filed along with the
supporting documents and fees as specified within seven days of filing of the appeal as
above. A final acknowledgement, indicating the appeal number shall be issued thereafter in
form GST APL-02 by the Registrar - Rule 110(4) of CGST and SGST Rules, 2017.
If the certified copy of order appealed against and documents are submitted within seven
days from the date of filing the form GST APL-05, the date of filing of the appeal shall be the
date of issue of provisional acknowledgement. If the copy and documents are submitted
after seven days, the date of filing of the appeal shall be the date of submission of documents
- proviso to Rule 110(4) of CGST and SGST Rules, 2017.
The appeal shall be treated as filed only when the final acknowledgement indicating the
appeal number is issued - Explanation to Rule 110 of CGST and SGST Rules, 2017.
47.5-2 Fees payable by taxable person for filing appeal before Appellate Tribunal
The fees for filing and restoration of appeal by taxable person shall be Rs 1,000 for every one
lakh rupees of tax or input tax credit involved or the difference in tax or input tax credit
involved or the amount of fine, fee or penalty determined in the order appealed against,
subject to maximum of Rs 25,000 - Rule 110(5) of CGST and SGST Rules, 2017
There will be no fee for application made before the Appellate Tribunal for rectification of
errors referred to in section 112(10) of the Act - Rule 110(6) of CGST and SGST Rules, 2017.
It is not clear what would be fees payable for restoration of an appeal or an application.
47.5-3 Application by department to the Appellate Tribunal
 984

An application to the Appellate Tribunal under section 112(3) of the Act (departmental
appeal) shall be made electronically, in form GST APL-07, on the common portal - Rule 111(1)
of CGST and SGST Rules, 2017.
A certified copy of the decision or order appealed against shall be submitted to the Registrar,
along with supporting documents within seven days of filing the application and an appeal
number shall be generated by the Registrar - Rule 111(2) of CGST and SGST Rules, 2017.
47.6 Orders of Appellate Tribunal
The Appellate Tribunal may, after giving the parties to the appeal an opportunity of being
heard, pass such orders thereon as it thinks fit, confirming, modifying or annulling the
decision or order appealed against or may refer the case back to the Appellate Authority or
to Revisional Authority or to the original adjudicating authority, with such directions as it
may think fit, for a fresh adjudication or decision, as the case may be, after taking additional
evidence, if necessary - section 113(1) of CGST Act.
The order is final and binding save as sections 117 and 118 - section 113(6) of CGST Act.
Section 117 provides for appeal to High Court and section 118 provides for appeal to
Supreme Court.
Thus, Appellate Tribunal can remand the matter to lower authority.
Adjournments - Appellate Tribunal can give upto three adjournments - section 113(3) of
CGST Act.
Time limit for deciding appeal - The Appellate Tribunal shall, where it is possible to do so,
hear and decide every appeal within a period of one year from the date on which it is filed -
section 112(4) of CGST Act.
Distribution of copies of order of Appellate Tribunal - The Appellate Tribunal shall send a
copy of every order passed under this section to the Appellate Authority, or the Revisional
authority or to the original adjudicating authority, as the case may be, the appellant, the
jurisdictional Commissioner of CGST and the jurisdictional Commissioner or Commissioner
of SGST/UTGST - section 113(1) of CGST Act.
47.6-1 Appellate Tribunal can rectify error apparent on face of records
The Appellate Tribunal may amend any order passed by it under section 113(1), so as to
rectify any error apparent on the face of record, if such error is noticed by it on its own
accord, or is brought to its notice by the Commissioner or the other party to the appeal
within a period of three months from the date of the order - section 113(3) of CGST Act.
Amendment which has the effect of enhancing an assessment or reducing a refund or input
tax credit or otherwise increasing the liability of the other party, shall not be made, unless
the other party has been given an opportunity of being heard- proviso to section 113(3) of
CGST Act.
47.7 Appearance by authorised representative
Any person who is entitled or required to appear before an officer appointed under this Act,
or the Appellate Authority or the Appellate Tribunal in connection with any proceedings
under the Act, may appear by an authorized representative, otherwise than when required
 985

under this Act to appear personally for examination on oath or affirmation - section 116(1)
of CGST Act.
47.7-1 Who can be authorized representative
"Authorised representative" can be any of following —
(a) his relative or regular employee; or
(b) an advocate who is entitled to practice in any court in India, and who has not been
debarred from practicing before any court in India; or
(c) any chartered accountant, a cost accountant or a company secretary, who holds a
valid certificate of practice and who has not been debarred from practice; or
(d) a retired officer of the Commercial Tax Department of any State Government or
Union Territory or of the Central Board of Excise and Customs, Department of
Revenue, who, during his service under the Government, had worked in a post not
below the rank than that of a Group-B gazetted officer for a period of not less than
two years. He cannot appear for one year from date of resignation or retirement; or
(e) any person who has been authorized to act as GST Practitioner on behalf of
concerned registered person - section 116(2) of CGST Act.

47.7-2 Who cannot be appointed as authorized representative

Following cannot be appointed as authorized representative.
(a) who has been dismissed or removed from government service (cannot be appointed
for all times);
(b) who is convicted of an offence connected with any proceeding under CGST, IGST,
SGST, UTGST, Central Excise, State Vat, Customs (cannot be appointed for all times);
(c) who is found guilty of misconduct by the prescribed authority (cannot be appointed
for all times); or
(d) who has become an insolvent, cannot be appointed for the period during which the
insolvency continues - section 106(3) of CGST Act.

47.7-3 Disqualification for misconduct

Where an authorised representative, other than those referred to in section 116(2)(b) or (c)
of the Act is found, upon an enquiry into the matter, guilty of misconduct in connection with
any proceedings under the Act, the Commissioner may, after providing him an opportunity
of being heard, disqualify him from appearing as an authorised representative - Rule 116 of
CGST and SGST Rules, 2017.
 986

Appeals before High Court and Supreme Court

48.1 Appeal to the High Court
Any person aggrieved by any order passed by the State Bench or Area Benches of the
Appellate Tribunal may file an appeal to the High Court and the High Court may admit such
appeal, if it is satisfied that the case involves a substantial question of law - section 117(1)
of CGST Act.
Time limit for filing appeal - An appeal under section 117(1) shall be filed within one
hundred and eighty days from the date on which the order appealed against is received by
the aggrieved person. It should be in form and manner as prescribed - section 117(2) of CGST
Act.
The High Court may admit an appeal after the expiry of the period of one hundred and eighty
days, if it is satisfied that there was sufficient cause for not filing the same within that period
- proviso to section 117(2) of CGST Act.
High Court can formulate the question - Where the High Court is satisfied that a substantial
question of law is involved in any case, it shall formulate that question.
The appeal shall be heard only on the question so formulated, and the respondents shall, at
the hearing of the appeal, be allowed to argue that the case does not involve such question.
Court can hear, for reasons to be recorded, the appeal on any other substantial question of
law not formulated by it, if it is satisfied that the case involves such question - section 117(3)
of CGST Act.
Judgment by High Court on question of law - The High Court shall decide the question of
law so formulated and deliver such judgment thereon containing the grounds on which such
decision is founded and may award such cost as it deems fit - section 117(4) of CGST Act.
High Court can determine any other issue - The High Court may determine any issue which
- (a) has not been determined by the State Bench or Area Benches; or (b) has been wrongly
determined by the State Bench or Area Benches, by reason of a decision on such question
of law as herein referred to in section 117(3) of CGST Act - section 117(5) of CGST Act.
Appeal to be heard by bench of at least two judges - When an appeal has been filed before
the High Court, it shall be heard by a bench of not less than two Judges of the High Court,
and shall be decided in accordance with the opinion of such Judges or of the majority, if any,
of such Judges - section 117(6) of CGST Act.
Where there is no such majority, the Judges shall state the point of law upon which they
differ and the case shall, then, be heard upon that point only, by one or more of the other
Judges of the High Court and such point shall be decided according to the opinion of the
majority of the Judges who have heard the case including those who first heard it - section
117(7) of CGST Act.
Code of Civil Procedure applies - Except aforesaid specific provisions, the provisions of the
Code of Civil Procedure, 1908, relating to appeals to the High Court shall, as far as may be,
apply in the case of appeals under this section - section 117(9) of CGST Act.
 987

Action on basis of certified copy of High Court - Where the High Court delivers a judgment
in an appeal filed before it under this section, effect shall be given to such judgment by either
side on the basis of a certified copy of the judgment - section 117(8) of CGST Act.
48.1-1 Procedure for filing Appeal before the High Court
An appeal to the High Court under section 117(1) of the Act shall be filed in form GST APL-
08. The grounds of appeal and the form of verification as contained in form GST APL-08 shall
be signed in the manner specified in rule 26 of CGST Rules - Rule 114 of CGST and SGST Rules,
2017.
The jurisdictional officer shall issue a statement in form GST APL-04 clearly indicating the
final amount of demand confirmed by High Court - Rule 115 of CGST and SGST Rules, 2017.
48.2 Appeal to the Supreme Court
An appeal shall lie to the Supreme Court-(a) from any order passed by the National Bench or
Regional Benches of the Appellate Tribunal; or (b) from any judgment or order passed by the
High Court in an appeal made under section 117 in any case which, on its own motion or on
an application made by or on behalf of the party aggrieved, immediately after passing of the
judgment or order, the High Court certifies to be a fit one for appeal to the Supreme Court -
section 118(1) of CGST Act.
48.2-1 Hearing before Supreme Court
The provisions of the Code of Civil Procedure, 1908, relating to appeals to the Supreme Court
shall, so far as may be, apply in the case of appeals under section 118 as they apply in the
case of appeals from decrees of a High Court - section 118(2) of CGST Act.
The costs of the appeal shall be at the discretion of the Supreme Court.
Where the judgment of the High Court is varied or reversed in the appeal, effect shall be
given to the order of the Supreme Court in the manner provided in section 117 in the case
of a judgment of the High Court i.e. on basis of certified copy - section 118(3) of CGST Act.
48.3 Sums due to be paid notwithstanding appeal before High Court or Supreme Court
Notwithstanding that an appeal has been preferred to the High Court or the Supreme Court,
sums due to the Government as a result of an order passed by the National or Regional
Benches of the Appellate Tribunal under sub-section (1) of section 113 or an order passed
by the State Bench or Area Benches of the Appellate Tribunal under sub-section (1) of section
113 or an order passed by the High Court under section 117, as the case may be, shall be
payable in accordance with the order so passed - section 119 of CGST Act.
Of course, High Court and Supreme Court can grant stay in appropriate cases, in their
inherent powers.
48.4 Constitutional remedies in GST
Our Constitution has maintained a balance between powers of Legislature, Judiciary and
Executive. All actions of Government are subject to judicial scrutiny of Supreme Court and
High Courts, irrespective of provisions of any particular statute. These judicial powers are
conferred by Constitution itself and hence cannot be curtailed by any legislation. Declaration
in any Statute that the order shall be final does not affect writ jurisdiction.
 988

Powers of Supreme Court - Article 136 authorises Supreme Court to grant special leave to
appeal from any judgment, decree or order in any cause or matter passed or made by any
court or Tribunal in India. This is at the discretion of the Supreme Court and applications
under this Article are termed as Special Leave Petitions (SLP) as these can be admitted only
with special leave (permission) of Supreme Court.
Powers of High Court - High Court, within the territory of its jurisdiction, has powers, vide
Article 226 of constitution, to issue orders or writs for enforcement of any fundamental right
and for any other purpose. Article 227 confer powers on High Court of superintendence over
all courts and Tribunals in the territory in which the High Court has jurisdiction. Thus,
Tribunals in a State are subordinate to the High Court of that State and decisions of the High
Court are binding on the Tribunal bench sitting in that State. - - In Suprabhat Steels v. CEGAT
2002(144) ELT 500 (Cal HC), it was held that even if Tribunal Bench is located at Kolkata, the
Kolkata High Court will not have territorial jurisdiction, when entire cause of action arose
outside jurisdiction of Kolkata. [In this case, property was attached in Bihar].
In Kusum Ingots v. UOI 2004 AIR SCW 2766 = AIR 2004 SC 2321 = 168 ELT 3 (SC 3 member
bench), it was held that Delhi High Court will not have jurisdiction simply because Parliament
has passed Act in Delhi. Unless part of cause of action arises in Delhi, the Delhi High Court
will not have jurisdiction. It was also held that if original adjudicating authority is at one place
while appellate authority is at other place, both High Courts will have writ jurisdiction. The
reason is that original order merges with appellate order and that order is also required to
be set aside.
In West Coast Ingots v. CCE (2007) 209 ELT 343 (Del HC DB), it was held that High Court will
not exercise writ jurisdiction only because Tribunal has passed order from bench in Delhi, if
significant part of action has taken place outside the jurisdiction - same view in Brinda
Beverages v. CCE (2009) 237 ELT 658 (Del HC DB).
Norms for invoking special powers - Powers to issue high prerogative writs are
extraordinary discretionary powers and hence are to be exercised sparingly and in fit case,
on sound principles of law. Courts will invoke writ jurisdiction only in exceptional cases. Thus,
when alternate remedy like departmental appeal or ordinary civil suit is available, writ
jurisdiction will not be normally invoked.
Appeal should be filed even if writ/SLP is filed - Even if writ petition/SLP is filed, it is highly
advisable to file appeal. The reason is that if SLP/writ is dismissed for any reason, the remedy
of appeal might become time barred by that time. It is true that in UOI v. West Coast Paper
Mills 2004 AIR SCW 838 = 135 STC 265 = 164 ELT 375 (SC 3 member bench), it was held that
if SLP/writ is admitted, correctness of order appealed against is wide open. In this case,
doctrine of merger applies. In this case, it was held that if SLP is admitted, limitation for filing
appeal against order of Tribunal would start after writ was dismissed by High Court. - -
However, the risk is not worth taking and filing of appeal in time is a must.
High Court can review its orders on merits - High Courts are courts of record under article
215 of Constitution of India. Hence, powers of review. Even under Article 226 of Constitution
of India (writ powers), there is no restriction on powers of review by High Court - CIT v.
Meghalaya Steels (2015) 377 ITR 112 (SC).
989
 990

Prosecution and compounding

49.1 Civil and criminal liabilities for Offences
Law without provisions for punishment is like lion without teeth. Like any other law, GST Law
provide for penalties and punishments for violation of law.
The word 'Offence' is not defined in Excise law. It is not defined in the Constitution, but
Article 367 of the Constitution says that unless the context otherwise provides for, words
not defined in Constitution, the meaning assigned in the General Sections Act, 1897 may be
given.
Section 3(8) of General Sections Act defines Offence as any act or omission made punishable
by any law for the time being in force. Section 2(n) of Criminal Procedure Code defines
'offence' as any act or omission made punishable by any law for the time being in force.
49.1-1 Simultaneous Civil and criminal punishment
The GST Law envisages two types of punishments. These can be simultaneous and
concurrent.
Civil Liability - Penalty for violation of statutory provisions involving a penalty of money and
confiscation of goods. This is a civil penalty and can be adjudged in departmental
adjudication. This penalty can be imposed by departmental authorities
In Indo-China Steam Navigation v. Jaswant Singh 1983(13) ELT 1392 = AIR 1964 SC 1140 =
1964(6) SCR 594 (SC - 5 member Constitution Bench), it was held that the adjudicating officer
is not a Tribunal or Court, though he has to act in a quasi-judicial manner.
Criminal Liability - Criminal punishment is of imprisonment and fine; which can be granted
only in a criminal court after prosecution. These are provided in GST law.
49.1-2 Penalty and punishment for same offence
Article 20(2) of Constitution of India provides that no person can be prosecuted and
punished twice for the same offence.
In Shiv Dutt Rai Fateh Chand v. UOI (1983) 53 STC 289 (SC) = AIR 1984 SC 1194= (1984) 145
ITR 664 (SC), it was observed that the word 'offence' as mentioned in Article 20 relates to
persons who are charged with a crime before criminal court. - - It does not include 'penalty'
levied under tax laws imposed by departmental authorities. A penalty imposed by tax
authorities is only a civil liability.
In Maqbool Hussain v. State of Bombay AIR 1953 SC 325 = 1953 SCR 730 reproduced in 1983
(13) ELT 1284 (SC Constitution Bench) that proceedings before revenue authorities are in the
nature of administrative enquiries. These are different from the proceedings in a criminal
court where the enquiry is on the basis of evidence tendered on oath. -. - Proceedings before
adjudicating authority is not 'prosecution' and the order of confiscation is not a
'punishment'. -. - Hence simultaneous punishments through departmental adjudication and
prosecution in a court of law would not amount to double punishment for the same offence
and is not hit by Article 20(2) of the Constitution. Thus, these two types of punishments are
independent of each other and both can be imposed simultaneously. In other words, a
person can be prosecuted in criminal court and at the same time penalty can be imposed by
departmental authorities for the same offence - quoted with approval in Director of
 991

Enforcement v. MCT M Corporation (P.) Ltd. AIR 1996 SC 1100 = 1996 AIR SCW 636 = 88
Comp. Cas. 449 = (1996) 2 SCC 471 also followed in Assistant Collector of Customs v. L R
Malwani - 110 ELT 317 (SC 5 member bench) - similar views in Tiwari Kanhayalal v. CIT -
(1975) 100 ITR 5 (SC) * State of Karnataka v. Sir Janakusa J Bakale 1999(113) ELT 375 (SC 3
member bench) * Thomas Dana v. State of Punjab AIR 1969 SC 375 = 110 ELT 63 (SC 5
member bench) * Standard Chartered Bank v. Directorate of Enforcement (2006) 67 SCL 2 =
197 ELT 18 (SC 3 member bench) * Bharjatiya Steel Industries v. CST (2008) 11 SCC 514 = 13
VST 514 (SC)..
In P. Jayappan v. S.K. Perumal, First ITO - AIR 1984 SC 1693 = 1984 Supp SCC 437 = 19 Taxman
1= 149 ITR 696 (SC), it was held that pendency of reassessment proceedings cannot act as
bar to the institution of criminal prosecution. The criminal court has no doubt to give due
regard to the result of departmental proceedings and in appropriate case, it may drop the
criminal proceedings in light of an order passed in departmental adjudication. However, the
decision in departmental adjudication is not binding on the criminal court and the criminal
court has to judge the case independently on the evidence placed before it. (In this case, it
was also observed that even if penalty is upheld in departmental adjudication, conviction in
criminal court for the same offence will not automatically follow) - followed in Madura Chit
and Investments (P.) Ltd. v. ITO - (1995) 83 Taxman 85 (Mad HC).
In KTMS Mohammed v. UOI - 75 Comp Cas 321 = 65 Taxman 130 = AIR 1992 SC 1831 = (1992)
3 SCC 178 = 197 ITR 196 = 1992 AIR SCW 2062 (SC), it was held that though criminal court
has to judge the case independently, there is no legal bar to give due regard to departmental
proceedings. -. - If the departmental authority absolves the party, the very basis of
prosecution may be nullified. -. - Criminal case may be kept pending at the discretion of
magistrate.
49.1-3 Departmental adjudication and criminal proceedings independent
Pending criminal matter is not impediment to proceed with the civil suit - State of Rajasthan
v. Kalyan Sundaram - (1996) 86 Comp Cas 433 (SC). * Guru Granth Saheb Sthan Meerghat v.
Ved Prakash (2013) 7 SCC 622.
Departmental adjudication can proceed even when criminal case is pending as both are
independent of each other. - Maniklal Pokhraj Jain v. CC (Preventive), Bombay - 1986 (26)
ELT 689 (Bom HC) - followed in Satyanarayan v. CCE - 1987 (29) ELT 450 (CEGAT). Same view
in Sri Ambal Mills Ltd. v. ACCE - 1995 (76) ELT 517 (Mad HC).
Departmental Adjudication can continue even if a person is acquitted in criminal court - CCE
v. K Ranganathan - 1995 (76) ELT 261 (Mad HC) also in K P Abdul Majeed v. CCE - (1995) 79
ELT 554 (Mad HC DB) * Rekhi Road Liners v. CC - (1999) 113 ELT 413 (Mad HC DB) * Radha
Govind v. CC 2002(142) ELT 338 (CEGAT).
Even if accused is exonerated in departmental proceedings, criminal proceedings on same
charges can continue - State (NCT of Delhi) v. Ajay Kumar Tyagi (2012) 9 SCC 685.
Adjudication and prosecution under GST can be started simultaneously - Tejas Pravin Dugad
v. UOI (2021) 123 taxmann.com 327 (Bom HC).
49.2 Prosecution for Offences under GST Law
 992

As per section 132(1) of CGST Act, whoever commits, or causes to commit and retain the
benefits arising out of, any of the following offences [The words in italics inserted vide
Finance Act, 2020, from 1-1-2021. Earlier, the words were 'whoever commits any of the
following offences']-
[The purpose of the amendment is that person who avails ineligible ITC on basis of offence
committed by supplier can also be punished. Similar provision has been made in section 122
of CGST Act in respect of penalties also].
(a) supplies any goods or services or both without issue of any invoice, in violation of the
provisions of this Act or the rules made thereunder, with the intention to evade tax;
(b) issues any invoice or bill without supply of goods or services or both in violation of
the provisions of this Act, or the rules made thereunder leading to wrongful
availment or utilisation of input tax credit or refund of tax;
(c) avails input tax credit using the invoice or bill referred to in clause (b) or fraudulently
avails input tax credit without any invoice or bill [The words in italics inserted vide
Finance Act, 2020, w.e.f. 1.1.2021].
(d) collects any amount as tax but fails to pay the same to the Government beyond a
period of three months from the date on which such payment becomes due.
(e) evades tax, (*) or fraudulently obtains refund and where such offence not covered
under clauses (a) to (d) [* - The words were - fraudulently avails input tax credit.
These have been omitted vide Finance Act, 2020, w.e.f. 1.1.2021. This omission is
because this offence now gets covered in opening para of section 132(1) of CGST Act
itself].
(f) falsifies or substitutes financial records or produces fake accounts or documents or
furnishes any false information with an intention to evade payment of tax due under
this Act;
(g) obstructs or prevents any officer in the discharge of his duties under this Act;
(h) acquires possession of, or in any way concerns himself in transporting, removing,
depositing, keeping, concealing, supplying, or purchasing or in any other manner
deals with, any goods which he knows or has reason to believe are liable to
confiscation under this Act or the rules made thereunder;
(i) receives or is in any way concerned with the supply of, or in any other manner deals
with any supply of services which he knows or has reason to believe are in
contravention of any provisions of this Act or the rules made thereunder;
(j) tampers with or destroys any material evidence or documents;
(k) fails to supply any information which he is required to supply under this Act or the
rules made thereunder or (unless with a reasonable belief, the burden of proving
which shall be upon him, that the information supplied by him is true) supplies false
information; or
 993

(l) attempts to commit, or abets the commission of, any of the offences mentioned in
clauses (a) to (k) of this section;

shall be punishable -
(i) in cases where the amount of tax evaded or the amount of input tax credit wrongly
availed or utilized or the amount of refund wrongly taken exceeds five hundred lakh
rupees, with imprisonment for a term which may extend to five years and with fine.
(ii) in cases where the amount of tax evaded or the amount of input tax credit wrongly
availed or utilized or the amount of refund wrongly taken exceeds two hundred lakh
rupees but does not exceed five hundred lakh rupees, with imprisonment for a term
which may extend to three years and with fine.
(iii) in the case of any other offence where the amount of tax evaded or the amount of
input tax credit wrongly availed or utilized or the amount of refund wrongly taken
exceeds one hundred lakh rupees but does not exceed two hundred lakh rupees, with
imprisonment for a term which may extend to one year and with fine;
(iv) in cases where he commits or abets in the commission of an offence specified in
clause (f), (g) or (j), with imprisonment for a term which may extend to six months or
with fine or with both.

49.2-1 Repeat conviction

If any person convicted of an offence under this section is again convicted of an offence
under this section, then, he shall be punishable for the second and for every subsequent
offence with imprisonment for a term which may extend to five years and with fine - section
132(2) of CGST Act.
49.2-2 Minimum punishment for certain offences
In the absence of special and adequate reasons to the contrary to be recorded in the
judgment of the Court, the imprisonment referred to in clauses (i), (ii) and (iii) of sub-section
(1) and sub-section (2) shall not be for a term of less than six months.
49.2-3 Offence cognizable and non-bailable only in specified cases
The offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1)
and punishable under clause (i) of that sub-section shall be cognizable and non-bailable -
section 132(5) of CGST Act.
Notwithstanding anything contained in the Code of Criminal Procedure, 1973, all offences
under this Act, except the offences referred to in section 132(5) (above) shall be non-
cognizable and bailable - section 132(4) of CGST Act.
Thus, only offences relating to intentionally evading tax and collecting tax but not paying
and where amount exceeds Rs 500 lakhs will be cognizable and non-bailable.
49.2-4 Prosecution only with previous sanction of Commissioner
A person shall not be prosecuted for any offence under this section except with the previous
sanction of Commissioner - section 132(5) of CGST Act.
49.2-5 No time limit for launch of prosecution under GST Laws
 994

Following Acts have been inserted in Schedule to Economic Offences (Inapplicability of

Limitation) Act, 1974, vide section 152 Finance Act, 2021, from date to be notified. Thus,
time limit for filing criminal prosecution shall not apply to offenses under these Acts.
The Prohibition of Benami Property Transactions Act, 1988
The Central Goods and Services Tax Act, 2017

The Integrated Goods and Services Tax Act, 2017

The Union Territory Goods and Services Tax Act, 2017
The Goods and Services (Compensation to States) Act, 2017.

49.3 Cognizance of offences by Magistrate of First Class

No Court shall take cognizance of any offence punishable except with the previous sanction
of the Commissioner, and no Court inferior to that of a Magistrate of the First Class, shall try
any such offence - section 134 of CGST Act.
49.4 Presumption of culpable mental state
In any prosecution for an offence under this Act which requires a culpable mental state on
the part of the accused, the Court shall presume the existence of such mental state but it
shall be a defence for the accused to prove the fact that he had no such mental state with
respect to the act charged as an offence in that prosecution - section 135 of CGST Act.
"Culpable mental state" includes intention, motive, knowledge of a fact, and belief in, or
reason to believe, a fact.
For the purposes of this section, a fact is said to be proved only when the Court believes it
to exist beyond reasonable doubt and not merely when its existence is established by a
preponderance of probability.
49.5 Offences by Companies and certain other persons
Where an offence committed by a person under this Act is a company, every person who, at
the time the offence was committed was in charge of, and was responsible to, the company
for the conduct of business of the company, as well as the company, shall be deemed to be
guilty of the offence and shall be liable to be proceeded against and punished accordingly -
- section 137(1) of CGST Act.
Notwithstanding anything contained in section 137(1), where an offence under this Act has
been committed by a company and it is proved that the offence has been committed with
the consent or connivance of, or is attributable to any negligence on the part of, any director,
manager, secretary or other officer of the company, such director, manager, secretary or
other officer shall also be deemed to be guilty of that offence and shall be liable to be
proceeded against and punished accordingly - section 137(2) of CGST Act.
Company includes firm and director includes partner -(a) "company" means a body
corporate and includes a firm or other association of individuals; and(b) "director", in
relation to a firm, means a partner in the firm.
Liability of partner, karta or managing trustee - Where an offence under this Act has been
committed by a taxable person being a partnership firm or a Limited Liability Partnership or
 995

a Hindu Undivided Family or a trust, the partner or karta or managing trustee, as the case
may be, shall be deemed to be guilty of that offence and shall be liable to be proceeded
against and punished accordingly and the provisions of section 137(2) shall apply mutatis
mutandis to such persons - section 137(3) of CGST Act.
No punishment if offence without knowledge or when due diligence exercised - Nothing
contained in this section shall render any such person liable to any punishment provided in
this Act, if he proves that the offence was committed without his knowledge or that he had
exercised all due diligence to prevent the commission of such offence - section 137(4) of
CGST Act.
49.6 Compounding of offences
Any offence under the Act may, either before or after the institution of prosecution, be
compounded by the Competent Authority on payment, by the person accused of the
offence, to the Central Government or the State Government, as the case be, of such
compounding amount in such manner as may be prescribed - section 138(1) of CGST Act.
Compounding does not affect proceedings under other law - Any compounding allowed
under the provision of this section shall not affect the proceedings if any, instituted under
any other law - second proviso to section 138(1) of CGST Act.
Compounding only after tax, interest and penalty paid - Compounding shall be allowed only
after making payment of tax, interest and penalty involved in such offences - third proviso
to section 138(1) of CGST Act.
49.6-1 What is compounding ?
Fine and imprisonment can be imposed only by competent criminal Court. However, instead
of going to Court, the offender may agree to pay composition amount. Order for paying
composition money can be made by quasi-judicial authorities. This is called 'compounding
of offences'.
'Compounding' is essentially a compromise arrangement between administrator of the
enactment and person committing an offence. Compounding crime consists of receipt of
some consideration (termed as compounding fees) in return for an agreement not to
prosecute one who has committed an offence - Reliance Industries, In re - (1997) 24 CLA 214
(CLB).
'Compounding' means that the accused and the complainant have come to terms and the
dispute between the parties has been settled amicably or adjusted by agreement and the
complainant agrees not to prosecute the accused. If the case is pending, the accused and
the complainant then make a joint application to the Court that the parties have come to
terms and the case may not be proceeded with.
Thus, in compounding, there is a compromise or agreement, while in case of imposition of
fine under provisions of an Act, there is no agreement as such. Section 320 of Criminal
Procedure Code permits compounding of various offences under Indian Penal Code.
Such compounding can be done either before or after institution of prosecution. After
payment of such composition amount, prosecution will not be launched, or if it was
launched, it will be withdrawn.
 996

Full and bona fide disclosure required for compounding of offence - In UOI v. Anil Chanana
(2008) 4 SCC 175 = 222 ELT 481 (SC), it was held that compounding of offences is based on
the principle of disclosure. If there are demonstrable contradictions or inconsistencies or
incompleteness, application for compounding cannot be entertained. Applicant cannot
hoodwink the authority. Applicant has to be a one-time evader. He has to make a clean
breast of his affairs. Otherwise, offence should not be compounded. Compounding should
be allowed only in case of doubtful benefit to the Revenue and to prevent needlessly
proliferating litigation and holding up of collection.
Compounding means acquittal - As per section 320 of Cr PC, composition will have the
effect of acquittal of accused. It is not mere discharge. Thus, if offence is compounded, the
person is deemed to be acquitted, and hence does not become ineligible to be appointed as
a director. [confirmed in circular No. 5/23 dated 28-4-1993 of Department of Company
Affairs].
In Maharashtra Power Development Corpn Ltd. v. Dabhol Power Company (2004) 52 SCL 224
(Bom HC DB), it was held that if offence is compounded, it is as if no offence had even been
committed in the first place.
49.6-2 Following offences cannot be compounded
As per first proviso to section 138(1) of CGST Act, offences cannot be compounded in respect
of following persons.
(a) a person who has been allowed to compound once in respect of any of the offences
specified in clauses (a) to (f) of sub-section (1) of section 132 and the offences
specified in clause (l) which are relatable to offences specified in clauses (a) to (f) of
the said sub-section;
(b) a person who has been allowed to compound once in respect of any offence, other
than those in clause (a), under this Act or under the provisions of any State Goods
and Services Tax Act or the Union Territory Goods and Services Tax Act or the
Integrated Goods and Services Tax Act in respect of supplies of value exceeding one
crore rupees;
(c) a person who has been accused of committing an offence under this Act which is also
an offence under any other law for the time being in force;
(d) a person who has been convicted for an offence under this Act by a court;
(e) a person who has been accused of committing an offence specified in clause (g) or
clause (j) or clause (k) of sub-section (1) of section 132; and
(f) any other class of persons or offences as may be prescribed.

49.6-3 Compounding fees payable

The amount for compounding of offences under this section shall be such as may be
prescribed, subject to the minimum amount not being less than rupees ten thousand or fifty
per cent of the tax involved, whichever is greater, and the maximum amount not being more
 997

than rupees thirty thousand or one hundred and fifty per cent of the tax, whichever is
greater - section 138(2) of CGST Act.
49.6-4 Discharge after paying compounding fees
On payment of such compounding amount as may be determined by the competent
authority, no further proceedings shall be initiated under the Act against the accused person
in respect of the same offence and any criminal proceedings, if already initiated in respect
of the said offence, shall stand abated- section 138(3) of CGST Act.
Thus, compounding can be after initiation of criminal proceedings also.
49.6-5 Procedure for compounding
Application for compounding shall be made in form GST CPD-01. The Commissioner shall call
for report and issue order in form GST CPD-02 if full and true disclosure has been made - rule
162(3) of CGST Rules, 2017.
Opportunity of personal hearing should be given. Order cannot be passed unless full
payment of tax, interest and penalty has been made - rule 162(5) of CGST Rules, 2017.
If compounding fee is not paid within 30 days, the order becomes void - rule 162(7) of CGST
Rules, 2017.
Immunity can be withdrawn if the person had concealed any material particulars or given
false evidence. Then he can be tried in Court of Law - rule 162(8) of CGST Rules, 2017.
 998

Provisions relating to evidence

GST Law makes specific provisions relating to evidence in various cases.
50.1 Relevancy of statements under certain circumstances
Section 136 of CGST Act provides as follows -
A statement made and signed by a person on appearance in response to any summons
issued under section 70 during the course of any inquiry or proceedings under this Act shall
be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the
truth of the facts which it contains -
(a) when the person who made the statement is dead or cannot be found, or is incapable
of giving evidence, or is kept out of the way by the adverse party, or whose presence
cannot be obtained without an amount of delay or expense which, under the
circumstances of the case, the Court considers unreasonable; or
(b) when the person who made the statement is examined as a witness in the case
before the Court and the Court is of the opinion that, having regard to the
circumstances of the case, the statement should be admitted in evidence in the
interests of justice.

Interestingly, this section states that the statement is relevant only in prosecution of offence.
Thus, the statement is not a relevant evidence before Appellate Authority and Appellate
Tribunal also.
Validity of similar provision in excise and customs [section 9D of Central Excise Act and
section 138B of Customs Act] has been upheld in J&K Cigarettes v. CCE (2009) 242 ELT 189
(Del HC DB) [The challenge was provision for admitting evidence even without cross
examination of witness].
In Takshila Spinners v. CCE 2001(131) ELT 568 (CEGAT), it was held that statements of witness
who are not cross examined cannot be relied upon and demand on basis of such statement
without any corroboration is not sustainable. - same view in Nu-Trend Business Machines v.
CCE 2002(141) ELT 119 (CEGAT) * Metro (India) Wood Crafts v. CCE (2016) 333 ELT 418
(CESTAT) * Jindal Drugs v. UOI (2016) 340 ELT 67 (P&H HC DB) * CCE v. Kuber Tobacco (2016)
338 ELT 113 (CESTAT) * Alliance Alloys v. CCE (2016) 338 ELT 749 (CESTAT) * Ambika
International v. UOI (2016) 56 GST 499 = 71 taxmann.com 53 (P&H HC DB).
Statement not signed by officer who took the statement has no value - In State v. Yakub
Ahmed A 2000(125) ELT 113 (Bom), it was held that statement not recorded by gazetted
officer of customs is not admissible as evidence - followed in D M Gears v. CCE 2002(141)
ELT 514 (CEGAT), where it was held that if a statement is not signed by an empowered officer
nor disclosing identity of officer who recorded the statement, has no evidentiary value -
followed in Satpushp Steels v. CCE 2006 (196) ELT 105 (CESTAT).
Collecting cheques by force during search - Often departmental authorities collect cheques
from assessee by force by threatening at time of preventive checks. In Abhishek Fashions v.
UOI (2008) 15 STT 291 (Guj HC DB), it was held that there is no provision to collect such
cheques and department was asked to return the cheques forthwith.
50.1-1 Person is not 'accused' when he is giving statement
 999

As per Article 20(3) of Constitution "No person accused of an offence shall be compelled to
be a witness against himself". It was contended that in view of this, statement made before
excise/customs authorities cannot be admitted as evidence. However, it was held that at the
time of enquiry, the person is not 'accused of an offence' at that stage. Hence, his statements
are not protected under Article 20(3) and it is admissible as evidence - Romesh Chandra
Mehta v. State of West Bengal - AIR 1970 SC 940 = 1969 (2) SCR 461 = 110 ELT 324 (SC 5
member Constitution bench) - affirmed in Poolpandi v. Superintendent, C Ex. 62 Taxman 447
= AIR 1992 SC 1795 = 60 ELT 24 (SC) = 75 Comp. Cas. 504 = (1992) 3 SCC 259 = 1992(3) SCR
247 = 1992 AIR SCW 2012 (3 member bench) * K L Pavunny v. ACCE (1997) 3 SCC 721 = 18
RLT 641 = 90 ELT 241 (SC 3 member bench) * Bhana Khalpa Bhai Patel v. ACC 96 ELT 211 (SC)
= AIR 1998 SC 1487 * ACCE v. Duncan Agro 2000 AIR SCW 3150 = 2000(7) SCC 53 = AIR 2000
SC 2901 = 120 ELT 280 (SC) * Gulam Hussain Shaikh v. S Reynolds, Superintendent of Customs
(2002) 1 SCC 155 = 134 ELT 3 = 2001 taxmann.com 132 (SC) * UOI v. Padam Narain Aggarwal
(2008) 231 ELT 397 (SC) * IVRCL Infrastructure v. CC (2015) 51 GST 335 = 57 taxmann.com
409 (SC).
However, once FIR (First Information Report) is lodged, the person becomes a 'person
accused' and hence the constitutional protection is available to a subsequent statement,
even if the person is not specifically mentioned in FIR. However, in this case, the Court held
that though an accused person is not required to be witness against himself, this does not
mean that he need not give information regarding matters which do not tend to incriminate
him. -. - Ramanlal Bhogilal Shah v. D K Guha - 1973 (1) SCC 696 = AIR 1973 SC 1196.
Really, the issue is not free from doubt. In Nandini Satpathy v. P L Dani (1978) 2 SCC 424, it
was held that protection under Article 20(3) extends even at investigation stage - quoted
with approval in Selvi v. State of Karnataka (2010) 7 SCC 263 (SC 3 member bench).
50.1-2 Tax officer is not a police officer
A statement made before police officer cannot be admitted as an evidence. However, tax
officer is not 'police officer' though he is invested with some powers of a police officer.
Hence, statement made before customs/excise officer can be admitted as evidence - Illias v.
CC - 1969 2 SCR 613 = 1983 (13) ELT 1427 = AIR 1970 SC 1065 - (SC 5 member Constitution
Bench) * State of Punjab v. Barkat Ram - AIR 1962 SC 276.* Romesh Chandra Mehta v. State
of West Bengal - AIR 1970 SC 940 = 1969 (2) SCR 461 = 110 ELT 324 (SC 5 member
Constitution bench) * Surjeet Singh Chhabra v. UOI 1997 AIR SCW 2507 = AIR 1997 SC 2560
= 17 RLT 331 = 89 ELT 646 (SC) * Badku Joti Savant v. State of Mysore - 1966 (3) SCR 698 =
AIR 1966 SC 1746 = 2 ELT (J 323) (SC 5 member bench) * Jethmal v. UOI 110 ELT 379 (SC) *
Hazari Singh v. UOI 110 ELT 406 (SC).
In Percy Rustomji Basta v. State of Maharashtra AIR 1971 SC 1087 = 13 ELT 1443 = 1971(1)
SCC 847, it was held that excise officers are not police officers and the person making a
statement is not 'accused' since the statement is recorded before issue of show cause notice
etc. and hence there is no bar in using the statement as evidence in excise adjudication and
other legal proceedings - same view in K.T. Advani v. The State - 1987 (3) ELT 390 * Surjeet
Singh Chhabra v. UOI 1997 AIR SCW 2507 = AIR 1997 SC 2560 = 17 RLT 331 = 89 ELT 646
(SC)]. In Raj Kumar Karwal v. UOI (1990) 2 SCC 409 = AIR 1991 SC 45 = 48 ELT 496 (SC) also,
it was held that excise officer cannot be termed as police officer unless he has power to
 1000

lodge report under section 173 of Code of Criminal Procedure. In State of Gujarat v.
Anirudhsing 1997 AIR SCW 2758, Supreme Court has gone a step ahead and has decided that
reserve police officer, though in charge of police station, is not a 'police officer' for provision
of Chapter XII of CrPC and statement before him is admissible.
50.1-3 Statement must be voluntary as well as true
It must not only be established that statement is voluntary but also it must be established
that the statement is true. For purpose of establishing the truth, it is necessary to examine
the confession and compare it with rest of the evidence on record - Sarwan Singh v. State of
Punjab - AIR 1957 SC 637. Confession, before relied upon, must be established to have been
made voluntarily and true - Mohabir Biswas v. State of WB - (1995) 2 SCC 25 (3 member
bench).
If a statement is not true, that cannot be used even if the same were confessional in nature
because the settled law is that for a confession to be used against the maker in criminal case,
the same has to be both true and voluntary. - State of Haryana v. Rajinder Singh - (1996) 2
SCALE 488. In K L Pavunny v. ACCE 1997(3) SCC 721 = 18 RLT 641 = 90 ELT 241 (SC 3 member
bench) also, it was held that the statement must be voluntary and true. In Sahib Singh v.
State of Haryana 1997 AIR SCW 3306 = 1997(7) SCC 231 = AIR 1997 SC 3247, it was observed
- 'Before a conviction can be based on 'confession', it has to be shown that it was truthful'.
Statement must be voluntary - Statement should be voluntary. If it appears to be by
inducement, threat or coercion, it has to be outright rejected - KTMS Mohammed v. UOI AIR
1992 SC 1831 = (1992) 3 SCC 178 = 197 ITR 196 = 1992 AIR SCW 2062 = 65 Taxman 130 (SC)
* Vinod Solanki v. UOI (2009) 92 SCL 157 = 233 ELT 157 (SC) * Galaxy Indo Fab v. CCE (2010)
258 ELT 254 (CESTAT).
Statement made must be voluntary and true. It may not be relied upon if it is untrue on
material particulars. Similarly, statement obtained under inducement, threat or promise is
hit by section 24 of Evidence Act and is not admissible. - Sevantilal Karsondas Modi v. State
of Maharashtra - AIR 1979 SC 705 = 109 ELT 41, followed in Sajjan Kumar Poddar v. CC (Prev)
- 1992 (58) ELT 283 (CEGAT). * Debu Saha v. CC (Prev) - 1992 (59) ELT 442 (CEGAT).
Statement should be accepted after scrutiny - In Haroon Haji Abdulla v. State of Maharashtra
AIR 1968 SC 832 = (1968) 2 SCR 641 = 110 ELT 309, Hon. Supreme Court had held that the
statement is not made subject to safeguards under which confessions are recorded by
Magistrate. Hence, these must be specially scrutinised to find if they were voluntary.
50.1-4 Retraction of Statement
If a person alleges that his statement is obtained by coercion or force or inducement, he can
retract his statement, but the statement should be retracted as early as possible. Retracted
statement does not become a nullity.
Apex Court in KTMS Mohammed v. UOI AIR 1992 SC 1831 = (1992) 3 SCC 178 = 197 ITR 196
= 1992 AIR SCW 2062 = 65 Taxman 130, have held that merely because a statement is
retracted, it cannot be recorded as involuntary or unlawfully obtained. It is for the maker of
statement who alleges inducement, threat, promises etc. to establish his allegations of
inducement, threat etc. against the officer who recorded the statement. However, even if
he fails to establish his allegations of inducement, threat etc., the authority should at least
 1001

subjectively apply its mind to the retraction to hold that the inculpatory statement was not
extorted........ He should consider the retraction and record his opinion before accepting the
inculpatory statement........ The retraction should be rejected in writing.
A person accused of omission of offence is not expected to prove to the hilt that confession
has been obtained from him by inducement, threat or promise by a person in authority.
Initial burden to prove that confession was voluntary is on department. However, mere
retraction of confessions is not sufficient to make the statement irrelevant. Court has to
consider implications of both confession and retraction. If confession is retracted, it must be
corroborated by other independent and cogent evidences - Vinod Solanki v. UOI (2009) 92
SCL 157 = 233 ELT 157 = 13 STR 337 (SC).
In Surjeet Singh Chhabra v. UOI 1997 AIR SCW 2507 = AIR 1997 SC 2560 = 17 RLT 331 = 89
ELT 646 (SC), a confession made before customs officer was held binding even if retracted
later. It was also held that in case of confessional statement, non-tendering of witnesses for
cross-examination is not violation of principles of natural justice - followed in Chandra Impex
v. CC (2008) 224 ELT 583 (CESTAT).
Conviction can be based on confession itself, even if retracted later. However, Court would
require some corroboration in the confessional statement - Sarwan Singh Rattan Singh v.
State of Punjab - AIR 1957 SC 637 = 1957 SCR 953 - quoted with approval in Mohabir Biswas
v. State of WB - (1995) 2 SCC 25 (3 member bench) * State of Maharashtra v. Damu Gopinath
2000 AIR SCW 1625 = (2000) 6 SCC 269 = AIR 2000 SC 1691.
If a statement is retracted, the same should be corroborated on material particulars -
Parmananda Pegu v. State of Assam (2004) 7 SCC 779 = 2004 AIR SCW 4930 * State of
Maharashtra v. Hasmukh Hargovind Shah - 1993 Cr LJ 1953 (Bom HC) * Elex Knitting v. CCE
2003 (158) ELT 499 (CESTAT) * Pascoal Das v. CC 2003 (157) ELT 132 (Bom HC) * Opel Alloys
v. CCE 2005 (182) ELT 64 (CESTAT) * Hunsoor Plywood Works v. CCE 2006 (201) ELT 239
(CESTAT).
Supreme Court in Haroon Haji Abdulla v. State of Maharashtra - AIR 1968 SC 832 = (1968) 2
SCR 641 = 110 ELT 309, has held that statement must be voluntary and if statement appears
to have been obtained by coercion, inducement or threat, it must be rejected. However,
merely because a statement is retracted, it cannot be recorded as involuntary or unlawfully
obtained. Authority should apply its mind to retraction and record its opinion before it is
accepted (as voluntary). In Pyare Lal Bhargava v. State of Rajasthan - AIR 1963 SC 1094 (SC
4 member bench) also, it has been held that a retracted confession may form the legal basis
of conviction if the court is satisfied that it was true and voluntarily made. However, though
not a rule of law, as a rule of prudence, conviction on such retracted confession should not
be made without corroboration in material particulars.
50.2 Presumption as to documents in certain cases
This is rule of evidence.
Where any document- (i) is produced by any person under the Act or any other law, or (ii)
has been seized from the custody or control of any person under the Act or any other law
for the time being in force, and such document is tendered by the prosecution in evidence
 1002

against him or any other person who is tried jointly with him, the court shall presume that
document as true and signature and hand writing is genuine. - section 144 of CGST Act.
This is rebuttable presumption. The accursed can produce evidence to establish that the
document is not genuine and cannot be accepted as evidence.
"Document" includes written or printed record of any sort and electronic record as defined
in section 2(t) of the Information Technology Act, 2000 - section 2(41) of CGST Act.
50.3 Admissibility of micro films, facsimile copies of documents and computer printouts as
documents and as evidence
(a) micro film of a document or the reproduction of the image or images embodied in such
micro film (whether enlarged or not); or (b) a facsimile copy of a document; or (c) a
statement contained in a document and included in a printed material produced by a
computer, subject to such conditions as may be prescribed or (d) any information stored
electronically in any device or media, including any hard copies made of such information
shall be 'deemed' to be a 'document' for purpose of this Act and rules made thereunder and
shall be accepted in any proceedings thereunder, without further proof or production of the
original or any fact state therein of which direct evidence would be admissible - section
145(1) of CGST Act.
50.4 Expert opinion and report of testing of samples
Often department obtains test report of a sample or gets expert opinion. Report of Cost
Accountant or Chartered Accountant in special audit is also an 'expert opinion'.
Expert Evidence under Evidence Act - As per section 45 of Indian Evidence Act, 'expert' is a
person specially skilled in particular filed like foreign law, science or art or identity of
handwriting or finger expressions. As per section 45 of Evidence Act, opinion of an expert is
a 'relevant fact'. Thus, opinion of Cost Accountant or Chemical Examiner in his report can be
considered while adjudicating an issue.
In State of Himachal Pradesh v. Jail Lal AIR 1999 SC 3318, it was held that it has to be shown
that an expert has made a special study of the subject or acquired a special experience
therein, or in other words that he is skilled and has adequate knowledge of the subject. -. -
The credibility of expert depends on the reasons stated in support of his conclusions and the
data and materials furnished which form the basis of his conclusions. -. - Expert has to be
examined as a witness in Court and has to face cross examination. -. - Court can decline to
place reliance upon evidence of witness (expert) unsupported by any reasons.
Cost Accountants are experts authorized by law to do costing of production of goods. Their
duly certified statements can be acted upon by their clients (assessees). It cannot be said
that assessee has mis-declared value - CCE v. Asarwa Mills (2015) 319 ELT 216 (SC).
Basis of Report should be given - In Skanan Hardware (P.) Ltd. v. CC - 1992 (57) ELT 306
(CEGAT), it was observed : "A bald reference to the value in show cause notice (without
showing the basis on which expert valued the goods) does not give any effective opportunity
to assessee to rebut or challenge the same. This is in violation of principles of natural justice."
Expert should not give his opinion - Chief Chemist has only to give test report and not
express opinions to guide or bind assessing officers - Pushpanjali Floriculture Ltd. v. CC 2005
(179) ELT 47 (CESTAT).
 1003

An expert (chemical examiner in this case) has to furnish the result of his tests. It is not his
province to give opinion on tariff classification - N P Venkataraman Iyer- 1986 (23) ELT 471
(CEGAT) * Danmet Chemicals v. CC 1999(112) ELT 844 (CEGAT) * Rane Brake Linings v. CCE
(2007) 215 ELT 144 (CESTAT) * CCE v. Dhariyal Chemicals (2014) 309 ELT 727 (CESTAT).
Chemical examiner has only to state his expert opinion and not to suggest classification
under any particular heading - Triton Synthetic Fibres v. CCE 1999(106) ELT 557 (CEGAT) *
Warren Laboratories v. CCE 1999(114) ELT 447 (CEGAT).
The chemical examiner has to give test report, but he cannot give his opinion about
classification of a product - Bakelite Hylam Ltd. - 1991 (56) ELT 685 (CEGAT) * CC v. East West
Exporters - 1991 (52) ELT 66.
Cross-examination of expert may be permitted - When reliance is placed on the opinion of
expert and a plea is made for cross-examination of the expert, the expert should be made
available normally for cross-examination. - Tulsyan NEC v. CC 2003 (157) ELT 627 (Mad HC)
* Vijayalakshmi v. CCE - 1993 (68) ELT 696 (CEGAT) * Ultra Fine Filters v. CCE 2004 (167) ELT
331 (CESTAT).
In Shalimar Agencies v. CC 2000(120) ELT 166 (CEGAT), it was held that if expert does not
appear for cross examination, either his appearance should be forced or evidence tendered
by him should be discarded.
 1004

Electronic Commerce
51.1 Background
Electronic commerce is growing at a fast pace. Amazon, Flipkart, Uber, Ola etc. are doing e-
commerce business in big scale.
This is a new challenge to tax authorities.
In e-commerce, order for supply of goods or services is placed through portal. The e-
commerce companies pass on these orders to actual suppliers of goods and services. Supply
of goods or services is done by third party unknown to the person placing order.
So far, e-commerce companies supplying goods were not liable to pay Vat or CST as they
were not selling goods.
Recently, the services provided through portal were brought under service tax net.
Now, e-commerce companies selling goods on portal are being made liable to collect 1% GST
at source.
Provision of Tax Collected at Source (TCS) has been introduced w.e.f. 1-10-2018. The Tax
Collected at Source (TCS) is mainly for control purposes, as balance GST will be paid by the
actual supplier of goods or services.
The instructions are summarized in FAQ on GST Chapter 8 issued by CBI&C on 15-12-2018.
The rate for TCS is 1% for IGST for inter-state taxable supply - Notification No. 02/2018-IT
dated 20-9-2018.
In case of taxable supply of goods within the State, the CGST rate is 0.5% - Notification No.
52/2018-CT dated 20-9-2018. The SGST/UTGST rate will also be 0.5%. Thus, total tax
collected at source will be 1%.
The actual supplier can take credit of this TCS paid by e-commerce operator.
Thus, effectively, there is no increase in tax liability. However, in case of goods on which GST
is not payable (like agricultural produce, fruits, books), the 1% tax collected by the e-
commerce will be cost as the actual supplier of such goods will not be able to take credit of
this TCS paid by e-commerce companies.
In case of supply of specified services (like taxi and hotel booking), the e-commerce operator
himself will be liable to pay entire IGST/CGST/SGST on such services- section 5(5) of IGST Act
and section 9(5) of CGST Act.
Thus, Uber and Ola will be liable to pay entire GST. Even today, they are liable to pay service
tax and hence there is no increase in GST liability.
'Electronic commerce' means supply of goods or services or both including digital products
over digital or electronic network - section 2(44) of CGST Act.
'Electronic commerce operator' means any person who owns, operates or manages digital
or electronic facility or platform for electronic commerce - section 2(45) of CGST Act.
No TCS if you are selling your own products on web - There is no TCS if you are selling your
own products through electronic portal - FAQ on GST Chapter 8 Q No. 34 issued by CBI&C
on 15-12-2018.
51.1-1 Various models of e-commerce business
 1005

There are various models of e-commerce business. New models will get added as new ideas
will emerge.
Business to consumer [B2C] - These e-commerce models connect business and an individual
customers who are end-users. The examples are flipkart, amazon, snapdeal, Paytm,
shopclues etc.
Consumer to consumer - Here consumers interact with each other. These cover sale of
second hand goods. The examples are eBay, olx, Ola, Uber etc.
Business to Business (B2B) - The goal of these e-commerce models is to connect businesses
to their suppliers, distributors and other parts of supply chain. These are indiamart.com,
tradeindia.com, sulekha.com, truckers.com etc.
51.1-2 How e-commerce business operates
There are different types of e-commerce models.
Market Place Model - In this model, the e-commerce operator does not maintain his own
inventory. The goods are supplied directly by participating manufacturer or wholesaler
directly to customer. Payment is routed through e-commerce operator, who pays to the
selling manufacturer/wholesaler after deducting their commission. Amazon, Flipkart etc.
work on this model. After introduction of GST, these e-commerce operators are maintaining
warehouses at various strategic locations in country. However, goods kept in these
warehouses are owned by the manufacturers/wholesalers. When goods are despatched,
invoice is issued in name of the retailers/wholesalers, with their GSTN. Practically, these
invoices are generated by e-commerce operator himself from those godowns.
Aggregator model - The aggregator model operates when e-commerce operator intends to
supply goods or services under his brand. The e-commerce operator procures goods from
manufacturers and sales under his own invoice. This model is used for supplier of service like
Uber and Ola.
Inventory Model - The e-commerce operator himself procures and stores the goods and
then sales them under his own invoice.
51.2 Tax Collection at Source (TCS) by electronic commerce operator
The provisions relating to Tax Collection at Source (TCS) are notified and made effective from
1-10-2018.
Law Committee of GST Council has issued FAQ on 28-9-2018 clarifying provisions relating to
TCS. These are discussed at appropriate places below.
Electronic Commerce Operator liable to collect tax at source - Notwithstanding anything to
the contrary contained in the Act, every electronic commerce operator (hereinafter referred
to in this section as the "operator"), not being an agent, shall collect an amount calculated
at such rate not exceeding one per cent, as may be notified by Government, of the net value
of taxable supplies made through it by other suppliers where the consideration with respect
to such supplies is to be collected by the operator.
Registration by electronic commerce operator - Every electronic commerce operator,
irrespective of his turnover, is mandatorily required to obtain GSTIN Registration. This
registration is in addition to and separate from GST registration obtained as normal supplier.
 1006

If electronic commerce operator has suppliers in different States, he is required to obtain

GST Registration in each State. However, he can indicate his head office as place of business,
if he does not have place of business in that State. Thus, all returns can be filed through HO
- Sr Nos 5 to 7 of FAQ released by Law Committee of GST Council on 28-9-2018.
If a person is required to collect tax at source in a State or Union Territory where he does
not have physical person, he shall mention name of that State in Part A of application form
GST REG-07 and mention name of State on Union territory where he has principal place of
business in part B in form GST REG 07. This may be different from State/Union Territory
specified in part A - rule 12(1A) of CGST Rules inserted w.e.f. 31-12-2018.
The proper officer may grant registration after due verification and issue a certificate of
registration in form GST REG-06 within a period of three working days from the date of
submission of the application - rule 12(2) of CGST Rules.
The registration can be cancelled after notice, enquiry and hearing. The cancellation shall be
communicated to the said person electronically in form GST REG-08 - rule 12(3) of CGST
Rules.
Superintendent of Central Tax has been specified as 'proper officer' for this purpose - CBI&C
circular No. 1/1/2017 dated 26-6-2017.
Registration of foreign electronic commerce operator - Foreign Electronic Commerce
Operator is required to obtain registration under GST. Such foreign e-commerce operator
would be liable to collect TCS on such supply and would be required to obtain registration
in each State/UT. If the foreign e-commerce operator does not have physical presence in a
particular State/UT, he may appoint an agent on his behalf - Sr No 8 of FAQ released by Law
Committee of GST Council on 28-9-2018.
Registration of supplier who is supplying goods or services through e-commerce operator
- Registration of supplier who is supplying goods or services through e-commerce operator
is mandatory irrespective of his annual turnover (except in case of supply of services). The
supplier cannot supply under composition scheme. He must supply goods or services
through normal scheme only - Sr Nos 6 and 16 of FAQ released by Law Committee of GST
Council on 28-9-2018.
Supplier cannot pay GST under composition scheme - Taxable person supplying goods or
services through electronic commerce operator is required to pay tax under normal scheme
and not under composition scheme - Sr No. 16 of FAQ released by Law Committee of GST
Council on 28-9-2018.
Tea Board is electronic commerce operator - Tea board operates electronic auction system
for trading of tea including for collection and settlement of payments. It is liable for TCS. The
Tea Board receives amounts from buyers and then pays value of goods to sellers of tea and
service charges to auctioneers. In that case, Tea Board should pay TCS on net value of supply
of goods to sellers and on net value of services (i.e. brokerage charges) to auctioneers -
CBI&C circular No. 74/48/2018-GST dated 5-11-2018.
Meaning of 'Net value of taxable supplies' - For the purposes of this sub-section [i.e. section
52(1) of CGST Act], the expression "net value of taxable supplies" shall mean the aggregate
value of taxable supplies of goods or services or both, other than services notified under
 1007

section 9(5) of CGST Act, made during any month by all registered taxable persons through
the operator reduced by the aggregate value of taxable supplies returned to the suppliers
during the said month - Explanation to section 52(1) of CGST Act.
The Net Value of Taxable supplies will be calculated at GSTIN level and not at gross level. In
other words, net supplies are to be calculated for each supplier separately - Sr Nos 10 and
11 of FAQ released by Law Committee of GST Council on 28-9-2018.
No TCS if net value Nil - calculation for each supplier to be made separately - no provision
to carry forward negative figures - If in a particular month, the sale returns are more than
supplies made, there will be no TCS for that month. However, such negative figure will not
be carried forward. Hence, such shortage cannot be adjusted in next month - Sr No 20 of
FAQ released by Law Committee of GST Council on 28-9-2018.
TCS on billing basis and not on collection basis - The TCS by electronic commerce operator
shall be on billing basis and not on collection basis - Sr No 11 of FAQ released by Law
Committee of GST Council on 28-9-2018.
When TCS provisions do not apply - TCS provisions are not applicable where GST is payable
under reverse charge. TCS provisions also do not apply in case of exempt supply - Sr Nos 14
and 15 of FAQ released by Law Committee of GST Council on 28-9-2018.
TCS provisions do not apply on import of goods or services - Sr No 17 of FAQ released by Law
Committee of GST Council on 28-9-2018.
Supplier can take credit of TCS paid by e-commerce operator - The supplier who has
supplied the goods or services or both through the electronic commerce operator shall claim
credit, in his electronic cash ledger, of the amount collected and reflected in the statement
of the operator furnished under section 52(4), in the manner as may be prescribed - section
52(7) of CGST Act.
Rate of collection of tax at source - The rate of TCS are as follows - (a) for supplies within
the State - 0.5% of CGST plus 0.5% of SGST/UTGST (b) for inter-state supplies - 1% IGST - Sr
No 4 of FAQ released by Law Committee of GST Council on 28-9-2018 - Notification Nos.
52/2018-CT and 02/2018-IT both dated 20-9-2018.
Amount collected by e-commerce operator to be paid to Government - The amount
collected by e-commerce operator under section 52(1) shall be paid to the credit of the
Government by the operator within ten days after the end of the month in which such
collection is made, in the manner prescribed - section 52(3) of CGST Act.
Payment of TCS by cash and not through ITC - The payment of tax collected at source is to
be made through electronic cash ledger only within 10 days from close of month. Payment
of TCS amount cannot be made through electronic credit ledger - Sr No 19 of FAQ released
by Law Committee of GST Council on 28-9-2018.
TCS in case of multiple e-commerce model - In multiple e-commerce model, Customer books
service (e.g. a Hotel) via ECO-1 who in turn is integrated with ECO-2 who has agreement with
the supplier of service (e.g. hotelier). In this case, ECO-1 will not have any GST information
of the supplier of service (hotelier in this case). Under such circumstances, liability of TCS
will be of e-Commerce operator who is making payment to the supplier for the particular
 1008

supply happening through it, which is in this case will be ECO-2 - Sr No 28 of FAQ released
by Law Committee of GST Council on 28-9-2018.
Place of supply for e-commerce operator for recharge of talk time of the Telecom
Operator/recharge of DTH/in relation to convenience fee charged from the customers on
booking of air tickets, rail supplied through its online platform - Place of supply in case of
as per section 12(11) of the IGST Act, 2017, the address on record of the customer with the
supplier of services is the place of supply - Sr No 27 of FAQ released by Law Committee of
GST Council on 28-9-2018.
E-commerce Operator to submit statement of TCS to Government every month in form
GSTR-8 - Every operator shall, furnish a statement, electronically, of all amounts collected
towards outward supplies of goods or services or both effected through it, including supplies
of goods or services or both returned to it, and the amount collected under section 52(1) of
CGST Act during a calendar month, within ten days after the end of such calendar month -
section 52(4) of CGST Act.
The statement can be rectified by e-commerce operator. He is required to pay tax with
interest in such case. However, such rectification is not possible after due date of furnishing
statement for the month of September following the end of financial year or the actual date
of furnishing relevant annual statement, whichever is earlier - section 52(6) of CGST Act.
The Commissioner of CGST can extend the time limit for furnishings the statement for such
class of registered persons as may be specified - first proviso to section 52(4) of CGST Act
inserted vide Finance (No. 2) Act, 2019 with effect from 1-1-2020.
Extension of date by Commissioner of State or Union Territory shall be deemed to be notified
by Commissioner of CGST also - second proviso to section 52(4) of CGST Act inserted vide
Finance (No. 2) Act, 2019 with effect from 1-1-2020.
Every electronic commerce operator required to collect tax at source under section 52 shall
furnish a statement in form GSTR-8 electronically through the Common Portal, containing
details of supplies effected through such operator and the amount of tax collected as
required under section 52(1) of CGST and SGST Act - Rule 67(1) of CGST and SGST Rules,
2017.
The details furnished by the operator under rule 67(1) shall be made available electronically
to each of the suppliers on the Common Portal after filing of form GSTR-8 for claiming the
amount of tax collected in his electronic cash ledger after verification - Rule 67(2) of CGST
and SGST Rules, 2017 amended w.e.f. 28-6-2019.
TCS statement by electronic commerce operator in form GSTR-8 under section 52 of CGST
Act for October, November and December 2018 to be filed on or before 7-2-2019 -
Explanation to section 52(4) of CGST Act inserted vide Removal of Difficulties Order No.
04/2018 dated 31-12-2018 as amended vide Removal of Difficulties Order No. 1/2019-CT
dated 1-2-2019.
Extension of time limit to file GSTR-8 return during 20-3-2020 to 30-8-2020 due to COVID-
19 (Corona Virus) - Where, any time limit for filing return under TCS falls during the period
from the 20-3-2020 to 30-8-2020, the due date automatically gets extended to 31-8-2020 -
Notification No. 35/2020-CT dated 3-4-2020 as amended.
 1009

Credit of TCS paid by electronic commerce operator to supplier - The amount reflected in
GSTR-8 in respect of each supplier will be reflected in credit of each supplier. The supplier
can utilize that credit for payment of his tax dues. He can also claim refund of that amount -
Sr No 24 of FAQ released by Law Committee of GST Council on 28-9-2018
Annual Statement by e-commerce operator - The e-commerce operator is required to file
Annual Statement before 31st December of following financial year, giving specified details
- section 52(5) of CGST Act.
Every e-commerce operator required to collect tax at source under section 52 of CGST Act
shall furnish annual statement in Form GSTR-9B - Rule 80(2) of CGST and SGST Rules, 2017.
The Commissioner of CGST can extend the time limit for furnishing the annual statement for
such class of registered persons as may be specified - first proviso to section 52(5) of CGST
Act inserted vide Finance (No. 2) Act, 2019 with effect from 1-1-2020.
Extension of date by Commissioner of State or Union Territory shall be deemed to be notified
by Commissioner of CGST also - second proviso to section 52(5) of CGST Act inserted vide
Finance (No. 2) Act, 2019 with effect from 1-1-2020.
Matching of statement of e-commerce operator and credit taken by supplier - The details
of supplies and the amount collected furnished by e-commerce operator shall be matched
with the corresponding details of outward supplies furnished by the concerned supplier
registered under CGST, in prescribed manner- section 52(8) of CGST Act.
Discrepancy between the details of operator and supplier - Where the details of outward
supply, on which the tax has been collected, as declared by the operator do not match with
the corresponding details declared by the supplier under section 37 or section 39, the
discrepancy shall be communicated to both persons in prescribe manner- section 52(9) of
CGST Act. The words in italics inserted vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019.
If the discrepancy is not rectified, it shall be added to the output liability of the said supplier
for the calendar month succeeding the calendar month in which the discrepancy is
communicated.
The concerned supplier shall be liable to pay the tax payable in respect of such supply along
with interest on the amount so added from the date such tax was due till the date of its
payment - section 52(10) of CGST Act.
The concerned supplier shall pay the tax payable with interest on the amount added to his
turnover under section 52(10) - section 52(11) of CGST Act.
'Concerned supplier' shall mean the supplier of goods or services or both making supplies
through the e-commerce operator - Explanation to section 52 of CGST Act.
51.2-1 Matching of details furnished by the e-Commerce operator with the details
furnished by the supplier
The following details relating to the supplies made through an e-Commerce operator, as
declared in form GSTR-8, shall be matched with the corresponding details declared by the
supplier in form GSTR-1- (a) State of place of supply and (b) net taxable value - Rule 78 of
CGST and SGST Rules, 2017.
 1010

Where the time limit for furnishing form GSTR-1 under section 37 of CGST Act has been
extended, the date of matching of the above mentioned details shall be extended
accordingly.
51.2-2 Communication and rectification of discrepancy in details furnished by the e-
commerce operator and the supplier
Any discrepancy in the details furnished by the operator and those declared by the supplier
shall be made available to the supplier electronically in form GST MIS-5 and to the e-
commerce portal electronically in form GST MIS-6 through the Common Portal on or before
the last date of the month in which the matching has been carried out - Rule 79(1) of CGST
and SGST Rules, 2017.
A supplier to whom any discrepancy is made available under rule 79(1) may make suitable
rectifications in the statement of outward supplies to be furnished for the month in which
the discrepancy is made available - Rule 79(2) of CGST and SGST Rules, 2017.
An operator to whom any discrepancy is made available under rule 79(1) may make suitable
rectifications in the statement to be furnished for the month in which the discrepancy is
made available - Rule 79(3) of CGST and SGST Rules, 2017.
Where the discrepancy is not rectified, an amount to the extent of discrepancy shall be
added to the output tax liability of the supplier in his return in form GSTR-3 for the month
succeeding the month in which the details of discrepancy are made available and such
addition to the output tax liability and interest payable thereon shall be made available to
the supplier electronically on the Common Portal in form GST MIS -3 - Rule 79(4) of CGST
and SGST Rules, 2017.
51.3 Persons supplying services through e-commerce operator not required to register if
aggregate turnover less than Rs 20/10 lakhs
Persons who are suppliers of service and supplying services through e-commerce operator
are not required to register under GST if their aggregate turnover is less than Rs. 20 lakhs
per annum (Rs. 10 lakhs in case of special category states as specified in first proviso to
section 22(1) of CGST Act read with Explanation (iii) to section 22(1) of CGST Act - Notification
No. 65/2017-CT dated 15-11-2017 [The words in italics inserted w.e.f. 1-2-2019].
This relaxation is not applicable to supplier of goods.
51.4 E-commerce operator to furnish details when called for
Any authority not below the rank of Deputy Commissioner may, by notice, either before or
during the course of any proceeding under this Act, require the operator to furnish such
details relating to—(a) supplies of goods or services or both effected through such operator
during any period, or (b) stock of goods held by the suppliers making supplies through such
operator in the godowns or warehouses, by whatever name called, managed by such
operators and declared as additional places of business by such suppliers as may be specified
in the notice - section 52(12) of CGST Act.
Every operator on whom a notice has been served shall furnish the required information
within five working days of the date of service of such notice - section 52(13) of CGST Act.
 1011

Penalty for not furnishing information - Any person who fails to furnish the information
required by the notice shall, without prejudice to any action that is or may be taken under
section 66, be liable to a penalty which may extend to rupees twenty-five thousand - section
52(14) of CGST Act.
Procedure for imposing penalty has been prescribed in rule 142 of CGST Rules, as inserted
w.e.f. 1-4-2019 [See details of procedure under 'Penalties'].
51.5 Payment by tax by e-commerce operators providing taxi house keeping and hotel
booking services
In case of supply of services, the electronic commerce operators can be made liable to pay
GST under section 9(5) of CGST and SGST Act and section 5(5) of IGST Act, by issuing a
notification.
The Central Government may, on the recommendations of the Council, by notification,
specify categories of services, the tax on inter-State supplies of which shall be paid by the
electronic commerce operator if such services are supplied through it. All the provisions of
the CGST/IGST Act shall apply to such electronic commerce operator as if he is the supplier
liable for paying the tax in relation to the supply of such services - section 5(5) of IGST Act
and section 9(5) of CGST Act.
Where entire tax is payable by e-commerce operator, persons who supply goods or services
or both, through such electronic commerce operator are not required to register under GST
- section 24(ix) of CGST Act.
Where an electronic commerce operator does not have a physical presence in the taxable
territory, any person representing such electronic commerce operator for any purpose in
the taxable territory shall be liable to pay tax - first proviso to section 5(5) of IGST Act and
section 9(5) of CGST Act.
Where an electronic commerce operator does not have a physical presence in the taxable
territory and also does not have a representative in the said territory, such electronic
commerce operator shall appoint a person in the taxable territory for the purpose of paying
tax and such person shall be liable to pay tax - second proviso to section 5(5) of IGST Act and
section 9(5) of CGST Act.
Applicability of the provisions - Provisions of sections 9(5) and 24(ix) of CGST Act and section
5(5) of IGST Act are effective from 1-7-2017 itself.
51.5-1 Tax on taxi, hotel booking, house keeping services by electronic commerce operator
Notification No. 17/2017-CT (Tax) dated 28-6-2017 has been issued under the aforesaid
provisions. As per the notification, e-commerce operator will be liable to pay entire GST on
following activities, w.e.f. 1-7-2017.
Service of transportation of passengers - Service by way of transportation of passengers by
radio-taxi, motorcab, maxicab and motor cycle.
Radio taxi means a taxi (including a radio cab), by whatever name called, which is in two-
way radio communication with a control office and is enabled for tracking using Global
Positioning System (GPS) or General Packet Radio Service (GPRS).
 1012

The GST rate is 5% (2.5% CGST and 2.5% SGST). Entire tax is payable by e-commerce operator
(like Ola, Uber etc.)
In Opta Cabs P Ltd. In re (2018) 69 GST 452 = 96 taxmann.com 248 (AAR-Karnataka), the
appellant was providing taxi aggregation services. He was doing billing on behalf of the
drivers. Amount of taxi fare was actually directly collected by the driver. It was held that the
appellant is liable to pay GST as the services are provided through him - view confirmed in
appeal in Opta Cabs P Ltd. In re (2018) 100 taxmann.com 250 (AAAR-Karnataka).
However, mere supplying driver through portal is manpower service and not transportation
of passenger service and hence no GST liability on e-commerce operator - Humble Mobile
Solutions P Ltd. In re (2019) 110 taxmann.com 234 (AAR - Karnataka).
Service of providing accommodation in hotels, inn, campsites - Service by way of providing
accommodation in hotels, inn, guest houses, clubs, campsites or other commercial places
meant for residential or lodging purposes.
However, if the person supplying such service (like hotel, guest house) is registered under
CGST and SGST Act, the e-commerce operator will not be liable to pay GST [Of course, the
e-commerce operators will be liable to pay GST on commission received by them from hotel,
guest houses etc.].
Homestay service or guest house service provided through e-commerce operator - If
Homestay or guest house service provided through e-commerce operator, the supplier of
service can claim exemption from tax if his annual turnover is below Rs 20 lakhs (Rs 10 lakhs
in some States). In that case, the supplier is not required to register and liability to pay tax
will be on e-commerce operator - CBI&C circular No. 27-1-2018 dated 4-1-2018.
House-keeping like plumbing, carpentering etc . - Services by way of house-keeping, such
as plumbing, carpentering etc., except where the person supplying such service through
electronic commerce operator is liable for registration under section 22(1) of CGST Act.
Thus, if the supplier of service has aggregate turnover exceeding Rs 20 lakhs (10 lakhs in
certain States), he himself is liable to get registered under GST and pay tax @ 18%.
Otherwise, the e-commerce operator will be liable to pay GST [This service included in e-
commerce services w.e.f. 22-8-2017].
The tax rate on house-keeping services like plumbing, carpentering etc. provided through e-
commerce operator is 5% (2.5% CGST ad 2.5% SGST/UTGST) w.e.f. 25-1-2018, subject to
non-availment of input tax credit - Sr N. 3(xi) of Notification No. 11/2017-CT (Rate) and No.
8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 25-1-2018. Till 25-1-2018, tax rate was
18% (9% CGST and 9% SGST/UTGST)
Service of providing service of booking pundits/brahmins by booking online on commission
basis - In Sadashiv Anajee Shete, In re [2018] 100 taxmann.com 291 (AAR - Maharashtra),
Applicant was engaged into the business of assisting believers, followers and devotees to
book pundits/Brahmins online for their religious ceremonies like pujas, abhisheks etc. The
said service was provided through applicant's own website. Consideration is first received
by him on online as a whole and thereafter major part of it, is given to Pundits who are
having an agreement with the applicant to provide their services as and when it is
requisitioned. The actual basic services like puja, abhishek etc. are performed by the pundits
 1013

or Brahmins are exempted by exemption notification issued under GST Act. The commission
portion is received by the applicant out of total consideration received online from the
service recipient. It was held that the commission is the supply of service and it would be
the value on which he would be liable for GST and not on total amount received.
51.5-2 Export through post by e-commerce operators
E-commerce operators can export goods through Foreign Post Office (FPO). These exports
will be zero rated. Declaration is to be filed in PBE-1 (Postal Bill of Export -I). Exports by e-
commerce operators can be from any foreign post office. However, exports under MEIS can
be only from Foreign Post Offices at Delhi, Mumbai and Chennai. Details procedure has been
specified in CBI&C circular No. 14/2018-Cus dated 4-6-2018.
In case of small value consignments, single payment is received by exporters from e-
commerce companies. In such cases, multiple shipments addressed to multiple consignees
are permitted under PBE-II (Postal Bill of Export-II) - MF(DR) circular No. 18/2018-Cus dated
13-6-2018.
 1014

Miscellaneous issues in GST

52.1 Anti-Profiteering Measure
Provision relating to anti-profiteering measure has been introduced vide section 171 of CGST
Act.
The idea is that the taxable person should pass on benefit of reduction in rate of tax on any
supply of goods or the benefit of input tax credit to the customer as reduction in prices -
section 171(1) of CGST Act.
The Central Government may, on recommendation of GST Council by notification, constitute
an Authority, or empower any existing Authority constituted under any law, to examine
whether input tax credits availed by any registered person or the reduction in the tax rate
actually have resulted in a commensurate reduction in the price of the said goods or services
or both supplied by him - section 171(2) of CGST Act.
The Authority referred to in section 171(1) shall exercise such functions and have such
powers as may be prescribed - section 171(3) of CGST Act.
Challenge to constitutional validity of section 171 of CGST Act and rule 126 - Many writ
petitions have been filed challenging constitutional validity of section 171 of CGST Act and
rule 126. Hence, all these writ petitions have been transferred to Delhi High Court, where 20
writ petitions are already pending - National Anti-Profiteering Authority v. Hardcastle
Restaurants [2020] 80 GST 53 = 115 taxmann.com 180 (SC).
No statutory provision for recovery of excess profit - Interestingly, there is no statutory
provision for recovering excess profit.
Rule 21(c) of CGST and SGST Rules, 2017 provides for cancellation of registration for violation
of provisions relating to anti profiteering. In my view, in absence of enabling provision under
section 171, validity of this rule can surely be challenged.
Even if profiteering is discovered, maximum penalty that could be imposed is residual
penalty of Rs. 25,000 under section 125 of CGST and SGST Act upto 1-1-2020. Provision of
penalty has been introduced w.e.f. 1-1-2020, but that provision cannot legally apply for past
offences.
Precautions to be taken during transition period - Though provisions relating to anti-
profiteering are like toothless tiger, it is advisable to take precautionary measures. Cost
sheets or earlier period and later period should be prepared to establish that there is no
significant change in margins. Wherever required and possible, prices should be reduced
after 1-7-2017 and then brought back to original level after some period. Such revision can
be justified on basis of cost rise.
In any case, compliance costs of GST are going to rise substantially and hence costs are
anyway going to increase.
Procedure to regulate Anti-Profiteering - An Authority will be constituted with Chairman
and four technical members - Rule 122 of CGST and SGST Rules, 2017. They will get salary
and allowances as specified in rule 124 of CGST and SGST Rules, 2017.
Standing Committee and Screening Committees will be constituted. State Level Screening
Committees will also be constituted - Rule 123 of CGST and SGST Rules, 2017.
 1015

Mr. Badri Narain Sharma (Mr B N Sharma) has been appointed as Chairman of the Anti-
Profiteering Authority w.e.f. 28-11-2017.
Standing Committee and Screening Committees will be constituted. State Level Screening
Committees will also be constituted - Rule 123 of CGST and SGST Rules, 2017.
The Central Government can terminate appointment of Chairman or technical member with
approval of Chairperson of GST Council - second proviso to rule 124(4) and 124(5) of CGST
Rules, as amended w.e.f. 15-11-2017.
The Authority will determine methodology and procedures to determine whether reduction
in rate of supply and benefit of ITC has been passed on to the recipient - Rule 126 of CGST
and SGST Rules, 2017.
Duties of Authority have been specified in rule 127 of CGST Rules, 2017.
Applications will be scrutinised by Standing Committee within two months. This period can
be extended for further one month as may be allowed by Authority for Anti-Profiteering.
Applications of local nature will be scrutinized by State Level Screening Committee and then
forwarded to Standing Committee for further action within two months. This period can be
extended by one month by Authority - Rule 128 of CGST and SGST Rules, 2017 amended
w.e.f. 28-6-2019.
The Standing Committee will scrutinize the cases. If prima facie evidence of profiteering is
found, the matter shall be referred to Director General of Anti-profiteering. The Director
General of Anti-profiteering will issue notice to interested parties who pay have information.
He will collect evidence and complete investigation within six months. He will submit his
report within three months to the Authority or such further period not exceeding three
months, as may be allowed by Authority - Rule 129 of CGST and SGST Rules, 2017 as
amended w.e.f. 28-6-2019.
Interested parties mean (a) suppliers of goods or services under the proceedings (b)
recipients of goods or services under the proceedings (c) any other person alleging, under
rule 128(1) of CGST Rules, that a registered person has not passed on the benefit of
reduction in the rate of tax on any supply of goods or services or the benefit of input tax
credit to the recipient by way of commensurate reduction in prices - Explanation (c) to rule
137 of CGST and SGST Rules, 2017 as amended on 23-3-2018.
Director General of Anti-profiteering can take assistance of other authorities - rule 131 of
CGST Rules
Authority, Director General of Safeguards or officer empowered by him have powers to
summon persons to give evidence and produce documents - Rule 132 of CGST and SGST
Rules, 2017 amended w.e.f. 28-6-2019.
Provisions of section 11 of RTI Act relating to disclosure of confidential information supplied
by third party will apply to information received by Director General of Safeguards - Rule 130
of CGST and SGST Rules, 2017.
On receipt of report of Director General of Safeguards, the Authority will give opportunity
of hearing to interested parties.
 1016

The Authority shall, within a period of six months from the date of the receipt of the report
from the Director General of Anti-profiteering determine whether a registered person has
passed on the benefit of the reduction in the rate of tax on the supply of goods or services
or the benefit of input tax credit to the recipient by way of commensurate reduction in prices
- Rule 133(1) of CGST and SGST Rules, 2017.
The time limit of six months is directory and not mandatory as no consequence of non-
adherence of said period of six months is prescribed either in CGST Act or rules framed
thereunder - Nestle India Ltd. v. Union of India [2020] 114 taxmann.com 488 (Delhi HC DB).
Authority can seek clarifications from Director General of Anti Profiteering on report
submitted by him under rule 129(6), during investigation under rule 133(1) - rule 133(2A) of
CGST Rules inserted w.e.f. 28-6-2019.
After investigation and hearings, the Authority can pass suitable order like (a) reduction in
price (b) return amount to recipient (c) deposit 50% amount in Central Consumer Welfare
Fund and balance 50% in State/Union Territory Consumer Welfare Fund along with interest
@ 18% from date of collection of higher amount to date of deposit of the amount (d) impose
penalty (which is maximum Rs. 25,000) (e) cancellation of registration under GST Act - Rule
133(3) of CGST and SGST Rules, 2017 as amended on 13-6-2018 and 28-6-2019.
If the report of the Director General of Anti-profiteering referred to in rule 129(6)
recommends that there is contravention or even non-contravention of the provisions of
section 171 of CGST Act or Rules, but the Authority is of the opinion that further investigation
or inquiry is called for in the matter, it may, for reasons to be recorded in writing, refer the
matter to the Director General of Anti-profiteering to cause further investigation or inquiry
in accordance with the provisions of the Act and these rules - Rule 133(4) of CGST and SGST
Rules, 2017 inserted w.e.f. 23-3-2018.
The Authority can order investigation in respect of other goods or services or both. This will
be treated as new investigation under rule 129 - rule 133(5) of CGST Rules inserted w.e.f.
28-6-2019.
Quorum of meeting is minimum three members. Decisions of Authority will be taken by
majority of members present and voting. In case of equality of votes, Chairman shall have
second or casting vote - rule 134 of CGST Rules.
If the taxable person does not comply, recovery proceedings can be initiated as per
provisions of CGST, SGST and UTGST Act - Rule 135 of CGST and SGST Rules, 2017.
Extension of time limit due to Covid-19 in case of anti-profiteering issue during 20-3-2020
to 30-3-2021 - Where, any time limit for completion or compliance of any action, by any
authority, has been specified in, or prescribed or notified under section 171 of CGST Act
(anti-profiteering), which falls during the period from the 20-3-2020 to 30-3-2021, and
where completion or compliance of such action has not been made within such time, then,
the time limit for completion or compliance of such action, shall be extended upto the 31-3-
2021 - proviso to Notification No. 35/2020-CT dated 3-4-2020 amended on 14-12-2020.
Role and functions of Director General - National Anti-Profiteering Authority has issued
letter No. Admn (NAA)/P&M/81/2019 dated 4-10-2019, how Director General of Anti-
 1017

Profiteering will carry out his functions. He will be reporting to National Anti-Profiteering
Authority.
Penalty for profiteering - If the Authority finds that there was profiteering, the person shall
be liable to pay penalty equivalent to 10% of the amount profiteered. If amount profiteered
is deposited within 30 days, penalty shall not be imposed - section 171(3A) of CGST Act,
inserted vide Finance (No. 2) Act, 2019 with effect from 1-1-2020.
For the purposes of section 171 of CGST Act, the expression "profiteered" shall mean the
amount determined on account of not passing the benefit of reduction in rate of tax on
supply of goods or services or both or the benefit of input tax credit to the recipient by way
of commensurate reduction in the price of the goods or services or both - Explanation to
section 171(3A) of CGST Act inserted vide Finance (No. 2) Act, 2019 with effect from 1-1-
2020.
Legally, penalty provisions can apply only for offences committed on or after 1-1-2020.
No penalty if offence committed before 1-1-2020 - In Diwakar Bansal v. Horizon Projects
(P.) Ltd. [2020] 119 taxmann.com 18 (NAA), it was held that if offence was committed prior
to 1-1-2020, penalty cannot be imposed as penalty provisions came into existence from 1-
1-2020 - same view in Saurabh Gahoi v. Pinky Sales [2020] 119 taxmann.com 333 (NAA)
Principal Commissioner, Central Tax & Central Excise v. Inox Leisure Ltd. [2020] 119
taxmann.com 197 (NAA).
Thus, penalty provisions can apply only for offences committed on or after 1-1-2020.
Anti-Profiteering provisions will cease after four years - Anti-profiteering has sunset clause
of four years. It will cease after four years i.e. on 30-6-2021 - Rule 137 of CGST and SGST
Rules, 2017 as amended on 18-7-2019.
Address of Standing committee at Central Level - The address is as follows - Standing
Committee on Anti-Profiteering, Second Floor, Bhai Vir Singh Sahitya Sadan, Bhai Vir Singh
Marg, Gole Market, New Delhi - 110 001. Tel - 011-2371537. Email - anti-
profiteering@gov.in.
Secretary to the Anti-Profiteering Authority - An officer not below the rank of Additional
Commissioner (working in the Directorate General of Safeguards) shall be the Secretary to
the Authority - Rule 125 of CGST Rules, 2017.
How to make application (really complaint) about profiteering by affected consumer -
Application (really complaint) should be filed by affected consumers before Standing
Committee on Anti-profiteering if the profiteering has all India character, or before State
Screening Committee if profiteering is of local nature.
Complaint can be filed online on website www.naa.gov.in. Complaint can be sent by mail at
sc.antiprofiteering@gov.in. Complaint can be sent by post to NAA or Director General Anti-
Profiteering New Delhi. Complaint should be in form APAF-01. The form contains
instructions to fill form APAF-01. - FAQ on GST Chapter 25 Q No. 8 issued by CBI&C on 15-
12-2018.
Orders passed by NAA are available on website of NAA.
 1018

If screening committee finds prima facie case, the matter will be forwarded to standing
committee.
The standing committee finds prima facie case, the issue will be referred to Director General
of Safeguards, CBI&C for investigating complaint of profiteering. The Director General will
report his findings to National Anti-Profiteering Authority to pass appropriate order to
ensure consumers benefit from reduced taxes.
Complaint once made cannot be withdrawn -Once complaint has been made, there is no
provision to withdraw the same - Ms Pallavi Gulati v. Puri Construction P Ltd. (2019) 74 GST
715 = 105 taxmann.com 250 (NAA).
Comparison of pre-GST and post-GST cost to determine whether taxable person was
indulging in profiteering - Part D of form APAF-1 indicates how profiteering should be
determined. Part D consists of the details of reduction in Tax rate/benefit of input tax credit.
Details of pre GST tax structure, post GST tax structure, Pre GST total tax per unit and post
GST tax unit are to be submitted. Post GST tax reduction in amount of tax per unit, benefit
of input tax credit i.e. details of input tax credit which was not available pre GST and available
now, transitional credit and post GST per unit value to be reduced is required to be indicated.
The instructions for filling Anti-profiteering application form, as annexed to the form give
guidelines about aspects to be considered while filling part D.
The form is expected to be completed by the applicant (complainant who is supplying
information about the taxable person. Really, it is impossible for the applicant to furnish
details as these details are available only with the taxable person against whom complaint
is being made.
In short, impact of pre GST and post GST taxes and input tax credit are required to be
considered, to determine whether taxable person was involved in profiteering.
No anti-profiteering if price rise was due to increase in tax rate - In Kumar Gandharv v.
KRBL Ltd. [2018] 93 taxmann.com 149 (NAA), it was found that increase in MRP of India Gate
Basmati Rice was due to imposition of GST and increase in purchase price of paddy. It was
held that there was no violation of provisions of anti-profiteering under section 171 by
respondent seller.
No appeal before Appellate Authority or Appellate Tribunal against order of Anti
Profiteering Authority - Section 2(4) of CGST Act states that "Adjudicating authority" does
not include the Authority referred to in section 171(2) of CGST Act - The words in italics
inserted vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019.
Section 171(2) of CGST Act provides for Anti Profiteering Authority. Thus, appeal against
order of Anti Profiteering Authority cannot be filed before Appellate Authority or Appellate
Tribunal. Only remedy is to file a writ petition.
Penalty for not passing of benefit of ITC to buyers - In Sukhbir Rohilla v. Pyramid Infratech
(P.) Ltd. [2018] 97 taxmann.com 379 (NAA), penalty was imposed on builder where the
builder had denied benefit of Input Tax Credit to flat buyers in contravention of provisions
of section 171(1), which is an offence under section 122 of CGST Act.
The respondent was asked to refund the amount with 18% interest and penalty was
proposed to be imposed - similar order in Sahil Mehta v. Salarpuria Real Estate (P.) Ltd.
 1019

[2019] 74 GST 301 = 105 taxmann.com 362 (NAA) * Deepak Kumar Khurana v. Sattva
Developers (2019) 74 GST 322 = 106 taxmann.com 184 (NAA) * Ms Pallavi Gulati v. Puri
Construction P Ltd. (2019) 74 GST 715 = 105 taxmann.com 250 (NAA). * Susheel Prasad Todi
v. Acme Housing India (P) Ltd. [2020] 113 taxmann.com 23 (NAA).
Penalty for Not passing benefit of reduced GST rate - In Pawan Sharma v. Sharma Trading
Company [2018] 97 taxmann.com 157 (NAA), the respondent was fully aware that rate of
GST on Vaseline VTM 400 had been reduced from 28 per cent to 18 per cent but had
deliberately not passed benefit of tax reduction in rate of tax to its customers. It was held
that respondent had indulged in anti-profiteering Act and penalty was to be imposed on it.
(RSP at which goods were sold was not reduced even if tax rate was reduced). Since the
recipients of goods were not identifiable, the respondent was asked to deposit the
differential amount in consumer welfare fund of State and Central Government with 18%
interest - similar order in Miss Neeru Varshney v. Lifestyle International (2018) 69 GST 786 =
97 taxmann.com 601 (NAA) - similar order in Ankuj Jain v. Kunj Lab Marketing (2018) 70 GST
486 = 98 taxmann.com 106 (NAA) in respect of sale of Maggi Noodles - similar order in Surya
Prakash Loonker v. Excel Rasayan (P.) Ltd. [2019] 72 GST 73 = 101 taxmann.com 243 (NAA),
in respect of price of detergents - similar order in Director General Anti-Profiteering v. Satya
Enterprises (2019) 72 GST 84 = 101 taxmann.com 475 (NAA).
Penalty for not passing benefit of reduced GST rate - In Pawan Sharma v. Sharma Trading
Company [2018] 70 GST 156 = 97 taxmann.com 157 (NAA), the respondent was fully aware
that rate of GST on Vaseline VTM 400 had been reduced from 28 per cent to 18 per cent but
had deliberately not passed benefit of tax reduction in rate of tax to its customers. It was
held that respondent had indulged in anti-profiteering act and penalty was to be imposed
on it (RSP at which goods were sold was not reduced even if tax rate was reduced). Since the
recipients of goods were not identifiable, the respondent was asked to deposit the
differential amount in consumer welfare fund of State and Central Government with 18%
interest - similar order in Miss Neeru Varshney v. Lifestyle International (2018) 69 GST 786 =
97 taxmann.com 601 (NAA) - similar order in Ankuj Jain v. Kunj Lab Marketing (2018) 70 GST
486 = 98 taxmann.com 106 (NAA) in respect of sale of Maggi Noodles. - similar order in Surya
Prakash Loonker v. Excel Rasayan (P.) Ltd. [2019] 72 GST 73 = 101 taxmann.com 243 (NAA),
in respect of price of detergents - similar order in Director General Anti-Profiteering v. Satya
Enterprises (2019) 72 GST 84 = 101 taxmann.com 475 (NAA).
In Rahul Sharma v. Samsung India Electronics (P.) Ltd. [2020] 115 taxmann.com 28 (NAA),
the company did not pass on benefit of reduced GST rate to customers. Since individual
customers were not identifiable, company was asked to deposit Rs 37.85 lakhs in consumer
welfare funds of different States as per turnover in each State. Company was asked to reduce
price to pass on benefit of reduced GST rate to customer.
Similar order in Pushpak Chauhan v. Harish Bakers & Confectioners (P.)Ltd. [2018] 100
taxmann.com 205 (NAA) in respect of Dairy Milk chocolates, in Director General of Anti-
Profiteering v. J.P. & Sons [2018] 100 taxmann.com 204 (NAA) in respect of Johnson Baby
shampoo and baby powder and Ravi Charaya v. Hardcastle Restau-rants (P.) Ltd. [2018] 99
taxmann.com 254 = 71 GST 85 (NAA) in case of McDonald's. - similar order in Surya Prakash
Loonker v. Excel Rasayan (P.) Ltd. [2019] 101 taxmann.com 243 (NAA), in respect of price of
 1020

detergents and Director General of Anti-Profiteering v. Raj & Company [2018] 100
taxmann.com 502 (NAA), in respect of Garnier Nat Shade.
In Kiran Chimirala v. Jubilant Food Work Ltd. [2019] 102 taxmann.com 87 (NAA), GST rate on
restaurant services was reduced from 18 per cent to 5 per cent w.e.f. 15-11-2017 but
Dominos increased base price of food items, i.e., Garlic Bread and Pizza, by more than what
was required to offset impact of denial of ITC and charged same prices which it was charging
before tax reduction, it was held that Dominos had indulged in profiteering by not passing
benefit of reduction in rate of tax to its recipients.
In Sandeep Puri v. Johnson & Johnson [2019] 111 taxmann.com 396 (NAA), imposition of
penalty, in addition to deposit of profiteered amount was proposed.
In Director General of Anti-Profiteering v. Krishna Trading Co. Ltd. [2019] 112 taxmann.com
276 (NAA), penalty was proposed, in addition to deposit of amount profiteered.
In Director General of Anti-profiteering v. Nestle India Ltd. [2019] 112 taxmann.com 202
(NAA), when reduction in GST rate was not passed on to customer, profiteering was
estimated at Rs. 90 crores and penalty was also proposed.
In Ankit Kumar Bajoria v. Hindustan Unilever Ltd. [2018] 100 taxmann.com 488 (NAA), it was
found that Hindustan Unilever Ltd. (HUL) has not passed on the benefit of Rs 383.35 crores
to customers on reduction of GST rate from 28% to 18%. HUL had deposited Rs 160.23 crores
with Central authorities. HUL was asked to deposit balance Rs 31.45 crores with Central
authorities and Rs 191.68 crores with State GST authorities.
No profiteering if base price increased for non-eligibility of ITC - In Jijrushu N Bhattacharya
v. NP Foods (2018) 70 GST 289 = 97 taxmann.com 633 (NAA), GST rate was reduced from
18% to 5% but input tax credit was made ineligible. Hence, base price was increased from
Rs 130 to Rs 145 to compensate for loss of ITC. It was held that this is not profiteering.
No profiteering if there was no reduction in GST rate after 1-7-2017 - There is no
profiteering if there was no reduction in GST rate after 1-7-2017 - State Level Screening
Committee on Anti-Profiteering, Kerala v. Zeba Distributors [2018] 100 taxmann.com 327
(NAA) * State Level Screening Committee on Anti-Profiteering, Kerala v. Sudarsans [2019] 72
GST 224 = 102 taxmann.com 86 (NAA) * Kerala State Level Screening Committee on Anti-
Profiteering, v. Emke Silks [2019] 72 GST 481 = 103 taxmann.com 28 (NAA) * * State Level
Screening Committee on Anti-Profiteering, Kerala v. Sudarsans [2019] 72 GST 493 = 103
taxmann.com 68 (NAA).
No profiteering if price rise was due to increase in GST rate and there was no change in
base price - In Kerala State Screening Committee on Anti-Profiteering v. Maruti Suzuki India
Ltd. [2019] 101 taxmann.com 64 (NAA), in respect of prices of cars sold by respondent, it
was observed that rate of tax was 15.63 per cent in pre-GST era which was increased to 28
per cent in post-GST era and that before discount base prices of all products had remained
same. Hence, it was held that provisions of section 171 were not attracted.
No profiteering if no change in base price - In State Level Screening Committee on Anti-
Profiteering, Kerala v. Ahuja Radios [2018] 100 taxmann.com 505 (NAA), there was no
increase in base price of PA Ceiling Speaker and Wall Speakers when GST rate was lowered.
It was held that there is no profiteering.
 1021

Profiteering when base price increased after reduction of GST rate - In Kerala State
Screening Committee v. VTWO Ventures (2019) 74 GST 444 = 105 taxmann.com 251 (NAA),
GST rate was reduced from 28% to 18%. The assessee increased base price, without reducing
final price. It was held that this is profiteering and penalty is imposable - similar order in
Kerala State Screening Committee v. TTK Prestige (2019) 74 GST 456 = 105 taxmann.com 95
(NAA) * Kumudchandra Atmaram Patel v. TTK Prestige (2019) 74 GST 475 = 105
taxmann.com 59 (NAA).
52.2 Tax deduction at source (GST TDS)
The provisions of GST TDS have been notified and made effective from 1-10-2018.
This TDS is different from TDS under Income-tax Act. If a transaction is covered under both
GST Act and Income-tax Act, both the decisions are required. Obviously, separate payments,
separate returns and separate TDS certificates are required.
Even earlier, they were expected to register under GST.
Section 51 of CGST Act make provisions for GST TDS.
Standard Operating Procedure for TDS - Law Committee of GST Council has issued
'Standard Operating Procedure' (SOP) on 27-12-2018 (earlier was issued on 20-9-2018] for
DDOs (Drawing and Disbursement Officers) and other deductors in GST.
Instructions are also given in FAQ on GST Chapter 7 issued by CBI&C on 15-12-2018.
The instructions are discussed below at appropriate places.
Registration as deductor - The deductor is required to register by applying online. He is
required to register as deductor even if he is registered separately as supplier. Legal name
to be indicated should be same as Income Tax TAN Detailed procedure has been described
in para 8 of the Standard Operating Procedure (SOP) issued by Law Committee of GST
Council.
The registration form requires some personal details of DDO or deductor. If the DDO is
transferred, details of new DDO should be submitted electronically on GSTN by amending
registration details [indeed herculean task in Government department].
The DDO (Drawing and Disbursement Officer) is supposed to be personally liable to comply
with TDS provisions.
Mobile number and e-mail address is required as OTP is sent on mobile and e-mail for
verification.
Applicability of TDS provisions - GST TDS provisions apply where total value of such supply,
under a contract, exceeds Rs. 2.50 lakhs (excluding GST) - section 51(1) of CGST Act.
The limit of Rs 2.50 lakhs is per contract (excluding GST). Thus, if contract is of value
exceeding Rs 2.50 lakhs, TDS is required even if an individual invoice is less than Rs 2.50
lakhs.
TDS if advance paid to supplier on or after 1-10-2018 or tax invoice is on or after 1-10-2018
- The TDS provisions apply when payment is made or credited to supplier. Thus, if advance
is paid on or after 1-10-2018, TDS provisions will apply.
Similarly, if supply is made before 1-10-2018 but invoice is issued after 1-10-2018, TDS
provisions will apply.
 1022

In SOP issued on 20-9-2018, it has been clarified that if tax invoice was issued by supplier
prior to 1-10-2018 but payment is made after 1-10-2018, TDS provisions do not apply.
Similarly, TDS is not required if supplier is unregistered.
When TDS not required - Para 4 of the Standard Operating Procedure (SOP) issued by Law
Committee of GST Council clarifies that TDS is not required in following cases -
(a) Total value of taxable supply ≤ Rs. 2.5 Lakh under a contract.
(b) Contract value >Rs. 2.5 Lakh for both taxable supply and exempted supply, but the
value of taxable supply under the said contract ≤ Rs. 2.5 Lakh.
(c) Receipt of services which are exempted. For example services exempted under
notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 as amended from time
to time.
(d) Receipt of goods which are exempted. For example goods exempted under
notification No. 2/2017-Central Tax (Rate) dated 28.06.2017 as amended from time
to time.
(e) Goods on which GST is not leviable. For example petrol, diesel, petroleum crude,
natural gas, aviation turbine fuel (ATF) and alcohol for human consumption.
(f) Where a supplier had issued an invoice for any sale of goods in respect of which tax
was required to be deducted at source under the VAT Law before 01.07.2017, but
where payment for such sale is made on or after 01.07.2017 [Section 142(13) refers].
(g) Where the location of the supplier and place of supply is in a State(s)/UT(s) which is
different from the State/UT where the deductor is registered.
(h) All activities or transactions specified in Schedule III of the CGST/SGST Acts 2017,
irrespective of the value.
(i) Where the payment relates to a tax invoice that has been issued before 01.10.2018.
(j) Where any amount was paid in advance prior to 01.10.2018 and the tax invoice has
been issued on or after 1.10.2018, to the extent of advance payment made before
01.10.2018.
(k) Where the tax is to be paid on reverse charge by the recipient i.e. the deductee.
(l) Where the payment is made to an unregistered supplier.
(m) Where the payment relates to "Cess" [GST Compensation Cess] component.

No TDS if service supplied is exempted -If service supplied is exempt, TDS is not required [In
this case, it was waste management service to Municipal Corporation] - Time Tech Waste
Solutions (P.) Ltd., In re [2019] 106 taxmann.com 382 (AAR-WEST BENGAL).
Same view in Mahalakshmi Mahila Sangha, In re [2020] 116 taxmann.com 862 (AAR - Karn).
[In this case, the service was for supply of food to educational institutes sponsored by
Government].
 1023

Supply of conservancy/solid waste management service is exempt and hence no TDS -

Supply of conservancy/solid waste management service to Municipal Corporation was
exempt from payment of GST under SI No. 3 of Notification No. 12/2017-Central Tax (Rate)
dated 28-6-2017. Thus, Notification No. 50/2018-Central Tax dated 13-9-2018 in respect of
TDS, did not apply to his supply - Mahendra Roy In re [2019] 109 taxmann.com 445 (AAR-
WB).
TDS in case of pure services, composite supply with material less than 25% and other
composite supply - TDS is as follows - (a) in case of pure services - Nil (b) composite supply
with material less than 25% - Nil (c) and other composite supply where supply of goods is
more than 25% of total value of supply - TDS applies - GST rate 12%/18% as applicable -
Municipal Corporation of Pratapgarh In re (2020) 82 GST 450 = 119 taxmann.com 107 (AAR-
Rajasthan).
Persons liable to deduct and pay GST TDS - Following persons are liable to deduct GST TDS
@ specified rate from the payment made or credited to the supplier (deductee) of taxable
goods or services or both from the payment made or credited to the supplier, w.e.f. 1-10-
2018 -
(a) a department or establishment of the Central or State Government, or
(b) Local authority, or
(c) Governmental agencies, or
(d) such persons or category of persons as may be notified, by the Central or a State
Government on the recommendations of the GST Council.

Persons liable to deduct and pay TDS under clause (d) - Under clause (d) above, following
are made liable to pay TDS
(a) an authority or a board or any other body, - (i) set up by an Act of Parliament or a
State Legislature; or (ii) established by any Government, with fifty-one per cent or
more participation by way of equity or control, to carry out any function; (b) Society
established by the Central Government or the State Government or a Local Authority
under the Societies Registration Act, 1860 (21 of 1860); (c) public sector
undertakings.

These authorities liable to deduct and pay GST TDS were earlier notified vide Notification
No. 33/2017-CT dated 15-9-2017.
Entity controlled by Government companies is liable to deduct tax at source under GST -
In WEBFIL Ltd., In re [2019] 101 taxmann.com 139 (AAR-WEST BENGAL), the applicant was a
joint venture between Government of West Bengal undertaking and a Central Government
undertaking. It was held that they 'control' the applicant within the meaning of section 2(27)
of the Companies Act, 2013 and hence liable for TDS under clause (a)(ii).
TDS provisions do not apply when transactions between persons specified in clauses (a) to
(d) - TDS provisions do not apply when supply of goods or services or both is between
persons specified in clauses (a) to (d) of Notification No. 51(1) of CGST Act - third proviso to
Notification No. 50/2018-CT dated 13-9-2018, inserted on 31-12-2018.
 1024

Thus, TDS provisions do not apply when transaction between Government or PSU or PSU
and Society of Government or Government to Government.
TDS provisions not applicable when supply is by one PSU to another - Provisions of TDS do
not apply when supply goods or services or both is made by one PSU (Public Sector
Undertaking) to another PSU - proviso to Notification No. 50/2018-CT dated 13-9-2018,
inserted on 5-11-2018 but with effect from 1-10-2018.
Specified authorities under Ministry of Defence exempt from TDS compliance under GST -
Authorities under Ministry of Defence (other than those specified in Annexure A of
Notification) are exempt from TDS compliance under GST - Notification No. 50/2018-CT
dated 13-9-2018 amended by Notification No. 57/2018-CT dated 23-10-2018.
Meaning of Local Authority and Governmental Agency - The term 'local authority' has been
defined. The definition is discussed in earlier chapter and hence not discussed here. The
term 'Governmental Agency' seems to be broad and its exact meaning is not clear.
Rate at which TDS is to be made - The rate of TDS is as follows - (a) in case of intra-State
(i.e. within the State) supply of taxable goods or services or both = 1% of CGST plus 1%
SGST/UTGST (total 2%) [section 51(1) of CGST Act and SGST Act] (b) in case of inter-state
supply of taxable goods or services or both - 2% of IGST [first proviso to section 20 of IGST
Act].
The deduction is from payment made or credited to the supplies exceeds Rs 2.50 lakhs per
contract.
No TDS if recipient is cooperative society - There is no TDS liability, if recipient is cooperative
society -Rajasthan Rajya Sahakari Kriya Vikraya Sangh Ltd. In re (2019) 74 GST 61 = 104
taxmann.com 415 (AAR - Rajasthan).
If recipient cooperative society is registered under Cooperative Societies Act (but not
established under Societies Registration Act) and not established by Government, the
recipient has no GST TDS liability - Jaipur Zilla Dugdh Utpadak Sangh Ltd. In re (2019) 75 GST
358 = 107 taxmann.com 278 (AAR-Rajasthan).
No TDS if goods or services are not taxable - TDS provisions are not applicable if goods or
services supplied by supplier (deductee) are not taxable.
No TDS if place of supply is in State different from State where deductor is registered -
Where the location of the supplier and place of supply is in a State(s)/Union Territory which
is different from the State/UT where the deductor (i.e. recipient of goods or services) is
registered - proviso to section 51(1) of CGST Act.
What is envisaged is that goods or services are not supplied to recipient where he is located
but at another State of Union Territory.
The illustration given in Para 5 of the Standard Operating Procedure (SOP) issued by Law
Committee of GST Council - Government of West Bengal engages a contractor of Delhi for
renovation of Bangla Bhawan in Delhi - In this case, TDS provisions will not apply as supplier
is required to pay CGST and SGST of Delhi State while Government of West Bengal is not
registered under GST in Delhi.
 1025

Deductor and deductee - Person deducting GST TDS will be termed as 'deductor'. Supplier
from whose invoice tax is deducted will be termed as 'deductee'.
TDS of CGST and SGST/UTGST for intra-state supply and IGST for inter-State supply - TDS
of GST will be of CGST and SGST/UTGST for intra-State supply and IGST for inter-State supply
- proviso to section 51(1) of CGST and SGST Act and first proviso to section 20 of IGST Act.
Value to be taken excluding GST - For the purpose of deduction of tax specified above, the
value of supply shall be taken as the amount excluding the tax (CGST, SGST or UTGST and
Compensation Cess) indicated in the invoice - Explanation to section 51(1) of CGST Act.
Thus, TDS is required to be on net value excluding CGST, SGST/UTGST and IGST.
Deductor to pay tax deducted to Government - The amount deducted as tax under this
section shall be paid to the credit of the Government by the deductor within ten days after
the end of the month, in the prescribed manner - section 51(2) of CGST Act.
Mode of payment of tax deducted under TDS - The deductor has to generate a challan in
the portal at www.gst.gov.in and deposit the tax so deducted through e-payment mode
[Net Banking/Debit-Credit card/NEFT-RTGS] or OTC Mode [Cash/Cheque/DD]. For further
details, circular No. 65/39/2018-DOR dated 14.09.2018 may be referred - Para 9 of the
Standard Operating Procedure (SOP) issued by Law Committee of GST Council.
Deductor to file monthly return electronically - Deductor is required to file return
electronically to Government. The return is to be filed in prescribed form and manner within
ten days after end of each month - section 39(3) of CGST Act.
The prescribed form of return is GSTR-7. Offline tool is available to submit GSTR-7 return.
If there is no transaction in a particular month, the deductor is not required to file return for
that month - ratio of section 39(8) of CGST Act.
Time limit for filing return can be extended by Commissioner by issuing notification - section
39(6) of CGST Act.
Extension of time limit for filing GSTR-7 return for October 2018 - July 2019 - GSTR-7 return
for October 2018 to July 2019 can be filed upto 31-8-2019 - Notification No. 26/2019-CT
dated 28-6-2019.
Extension of time limit to file GSTR-7 return during 20-3-2020 to 29-6-2020 due to COVID-
19 (Corona Virus) - Where, any time limit for filing return under TDS falls during the period
from 20-3-2020 to 29-6-2020, the due date automatically gets extended to 30-6-2020 -
Notification No. 35/2020-CT dated 3-4-2020.
Late fee for not filing GSTR-7 return within due date - Late fee payable is Rs. 100 per day
under CGST Act and Rs. 100 per day under SGST/UTGST Act (Maximum Rs. 5,000 under CGST
Act and Rs. 5,000 under SGST/UTGST Act i.e. total Rs. 10,000 per return) separately - (Section
47(1) of CGST and SGST Act).
There is no separate late fee under IGST Act as return is to be filed under CGST and
SGST/UTGST Act only.
Procedure for submission of return by a person required to deduct tax at source in form
GSTR-7 - Every registered person required to deduct tax at source under section 51 shall
furnish a return in form GSTR-7 electronically - Rule 66(1) of CGST and SGST Rules, 2017.
 1026

The details furnished by the deductor under rule 66(1) shall be made available electronically
to each of the deductees on the Common Portal - Rule 66(2) of CGST and SGST Rules, 2017
amended w.e.f. 28-6-2019.
The TDS certificate under section 51(3) of CGST Act shall be made available electronically to
the deductee on the Common Portal for claiming the amount of tax deducted in his
electronic cash ledger after verification, on the basis of the return furnished under rule 66(1)
of CGST and SGST Rules - Rule 66(3) of CGST and SGST Rules, 2017 amended w.e.f. 28-6-
2019.
Deductee can reject the details filed by deductor - The deductee may find that amount
deduced by deductor does not pertain to his supply. In that case he can (and indeed should)
reject the details appearing in his GSTR-2A or GSTR-4A [If he does no reject, the details as
appearing in his GSTR-2A or GSTR-4A will be treated as his supply and he will be liable to pay
GST on that value].
Certificate of TDS to deductee - A certificate of tax deduction at source shall be issued in
such form and in such manner as may be prescribed - section 51(3) of CGST Act, as amended
vide Finance Act, 2020, from 1-1-2021.
Earlier, the section 51(3) was reading as follows - The deductor shall, in the manner
prescribed, furnish to the deductee a certificate mentioning therein the contract value, rate
of deduction, amount deducted, amount paid to the appropriate Government and other
prescribed details.
The purpose of amendment seems to be to simplify process of issuing TDS certificate by
electronically issuing the same.
[Such certificate does not seem to have any use as deductee can claim credit of GST TDS only
when deductor files return with Government].
The certificate is in form GSTR-7A. The certificate is generated electronically on GSTN system
and cannot be issued manually by deductor.
Provision relating to Late fee if certificate not given omitted w.e.f. 1-1-2021 - section 51(4)
of CGST Act provided that If any deductor fails to furnish to the deductee the certificate in
form GSTR-7A, after deducting the tax at source, within five days of crediting the amount so
deducted to the appropriate Government, the deductor shall be liable to pay, by way of a
late fee, a sum of rupees one hundred per day from the day after the expiry of the five day
period until the failure is rectified (maximum Rs 5,000) -. Similar late fee was payable under
SGST/UTGST Act. Thus, total late fee was Rs 200 per day (CGST plus SGST/UTGST) with
maximum Rs 10,000 per return. This provision has been omitted w.e.f. 1-1-2021.
[In most of the cases, deductor is Government and hence not bothered about late fee at all.
In fact, often they collect money from contractor to upload their TDS certificate. It is good
that Government has realized that it is not correct to penalize itself for its own incompetency
and corruption]
Credit of TDS in electronic cash register of deductee - The deductee shall claim credit, in his
electronic cash ledger, of the tax deducted and reflected in the return of the deductor -
section 51(5) of CGST Act.
 1027

Thus, deductee can take credit in electronic cash register only when deductor files return
and not on the basis of TDS certificate.
Interest if deductor does not pay tax deducted to Government - If any deductor fails to pay
to the credit of the appropriate Government the amount deducted as tax, he shall be liable
to pay interest in accordance with the provisions of section 50(1), in addition to the amount
of tax deducted.
Determination of the amount in default under this section shall be made in the manner
specified in section 73 or 74 of CGST Act - section 51(7) of CGST Act.
Refund of tax to deductee - Refund to the deductor or the deductee, as the case may be,
arising on account of excess or erroneous deduction shall be dealt with in accordance with
the provisions of section 54 of CGST Act. Refund to deductor shall not be granted if the
amount deducted has been credited to the electronic cash ledger of the deductee - section
51(8) of CGST Act.
Accounting and records of TDS by DDO - Detailed instructions have been given in circular
No. 65/39/2018-DOR dated 14.09.2018, vide which Guidelines for Deductions and Deposits
of TDS by the DDO under GST have been given. The circular has been issued by Department
of Revenue. Records to be maintained by DDO have also been specified.
For payment process of Tax Deduction at Source under GST two options can be followed,
which are as under:
Option I: Generation of challan for every payment made during the month.
Option II: Bunching of TDS deducted from the bills on weekly, monthly or any periodic
manner.
To enable the DDOs to account for the TDS bunched together under option II, following sub-
head related to the GST-Major Head 8658.00.101, sub-head description- 08-GST TDS, Major
Head Serial Code (8-digit reduced accounting code) 86580344, SCCD Code - 367
[amendment dated 28-9-2018].
52.3 Advance Ruling
A businessman would like to be clear in his mind about various aspects of his venture and
risks involved, before he starts a new business or adventure. He would like to get clear
verdict about his doubts in respect of taxation matters, before he decides to venture in the
new business. Otherwise, he may be exposed to certain unexpected risks which may have
serious adverse consequences and his business may even fail. Hence, provisions of advance
ruling were made in 1993 in Income Tax Act vide sections 245N to 245R.
Advance ruling brings certainty in determining duty liability and it helps in avoiding long
drawn and expensive litigation at a later date.
Similar provision of 'advance ruling' in respect of indirect taxes was made in 1999 so that the
manufacturer/producer/importer/exporter is clear about legal aspects. The provisions were
extended to service tax in May 2003. The provisions are contained in sections 23A to 23H of
Central Excise Act, 1944, sections 28E to 28L of Customs Act, 1962 and sections 96A to 96-I
of Finance Act, 1994 (in respect of service tax).
Now, similar provision is made in GST also.
 1028

The Authority for Advance Ruling will give a decision on question raised before it. Such ruling
will be binding on the applicant and the department.
52.3-1 What is 'advance ruling'
"Advance ruling" means a written decision provided by the Authority or, as the case may be,
the Appellate Authority or the National Appellate Authority to an applicant on matters or on
questions specified in section 97(2) or section 100(1), as the case may be, in relation to the
supply of goods or services or both being undertaken or proposed to be undertaken by the
applicant - section 95(a) of CGST Act as amended vide Finance (No. 2) Act, 2019 with effect
from date to be notified.
Application for advance ruling can be made in respect of supply 'being undertaken'. Thus, a
person can apply even in respect of activity he is already doing, though really that is not the
idea of 'Advance Ruling'.
Application should be made by applicant with fees, stating the question on which advance
ruling is sought - section 97(1) of CGST Act.
52.3-2 Questions for which advance ruling can be sought
The question on which the advance ruling is sought shall be in respect of any of following
[section 97(2) of CGST Act]:
(a) classification of any goods or services or both under the Act.
(b) applicability of a notification issued under provisions of the Act having a bearing on
the rate of tax.
(c) determination of time and value of the goods or services or both.
(d) admissibility of input tax credit of tax paid or deemed to have been paid.
(e) determination of the liability to pay tax on any goods or services or both.
(f) whether applicant is required to be registered.
(g) whether any particular thing done by the applicant with respect to any goods or
services or both amounts to or results in a supply of goods or services or both, within
the meaning of that term.

AAR cannot take issue relating to place of supply? - In Utility Powertech Ltd. In re (2018)
68 GST 750 = 95 taxmann.com 88 (AAR - Chhattisgarh), it has been held that AAR cannot
take question relating to place of supply - same view in Esprit India P Ltd. In re (2018) 69 GST
285 = 95 taxmann.com 203 (AAR - Haryana) * Lambda Therepeutic Research Ltd. in re (2018)
70 GST 773 = 98 taxmann.com 138 (AAR-Gujarat) * Sandvik Asia (P.) Ltd., In re [2018] 100
taxmann.com 14 (AAR- Rajasthan) * Take Off Academy, In re [2018] 98 taxmann.com 134
(AAR-Gujarat) * Kandla Port Trust Deendayal Port Trust, In re [2018] 98 taxmann.com 141
(AAR-Gujarat). * Toshniwal Brothers (SR) In re [2019] 72 GST 185 - 102 taxmann.com 37
(AAAR - Karnataka). * Dagger Die Cutting In re (2019) 74 GST 127 = 105 taxmann.com 319
(AAR- Tamil Nadu). *Banyan Tree Advisors P Ltd. In re (2019) 111 taxmann.com 458 (AAR-
Karn) * Multiples Alternate Asset Management P Ltd. In re (2020) 78 GST 1 = 111
 1029

taxmann.com 133 (AAR - Maharashtra) * Parexel International Clinical Research P Ltd. In re

(2020) 78 GST 170 = 111 taxmann.com 457 (AAR-Karn).
AAR cannot decide whether supply is inter-state supply or intra-state -Fichtner Consulting
Engineers (I) P Ltd. In re (2018) 69 GST 839 = 97 taxmann.com 153 (AAR).
The decisions seem doubtful as liability to pay tax (whether IGST or CGST plus SGST/UTGST
or no tax payable) depends on determination of place of supply.
In fact, in Sutherland Mortgage Services INC. v. Principal Commissioner [2020] 115
taxmann.com 82 (Kerala HC), it has been held that AAR can determine issue relating to place
of supply as it would come within ambit of larger issue of 'determination of liability to pay
tax on any goods or services or both' as envisaged in section 97(2)(e) of CGST Act.
AAR cannot decide whether transaction is export? - AAR cannot decide whether
transaction is export - K Uttamlal Exports P Ltd. In re (2019) 102 taxmann.com 217 (AAR-
Maharashtra).
AAR cannot decide whether transaction is 'export of service' - Sutherland Mortgage Services
Inc. In re (2019) 74 GST 536/106 taxmann.com 235 (AAR - Kerala).
AAR cannot determine issue of transitional input tax credit - Transitional Input Tax Credit
is in respect of duties paid under other Acts. Hence, it is beyond jurisdiction of AAR - Sino
Resources, In re (2018) 68 GST 709 = 94 taxmann.com 138 (AAR-AP) * NSL Mining Resources
India (P.) Ltd., In re [2018] 99 taxmann.com 98 (AAR - ANDHRA PRADESH) * Kolte Patil
Developers Ltd., In re [2019] 73 GST 685 = 104 taxmann.com 421 (AAAR-MAHARASHTRA).
Query regarding GSTR-3B cannot be replied - Query regarding GSTR-3B cannot be replied -
Shambhu Traders (P.) Ltd., In re [2019] 73 GST 245 = 103 taxmann.com 375 (AAR-
RAJASTHAN).
No advance ruling on documentation for transportation of goods - Advance ruling cannot
be given on documentation required for transportation of goods - Alok Bhanuka, In re [2019]
73 GST 512 = 103 taxmann.com 433 (AAR-WEST BENGAL).
AAR cannot determine issue relating to Foreign Trade Policy - AAR cannot determine issue
relating to Foreign Trade Policy or procedure under Advance Authorisation - Spentex
Industries Ltd. In re (2018) 68 GST 876 = 96 taxmann.com 49 (AAR-AP).
Liability to deduct TDS cannot be decided by AAR - Issue as to 'whether applicant-port trust
is liable to deduct TDS under section 51' does not fall in category of section 97(2) of CGST
Act- Kandla Port Trust (Deendayal Port Trust), In re [2018] 98 taxmann.com 139 (AAR-
Gujarat).
No Advance Ruling in case of past transactions - Advance Ruling cannot be given in case of
past transactions, as advance ruling can be only in relation to the supply of goods or services
or both being undertaken or proposed to be undertaken - KEI Industries Ltd., In re (2019) 72
GST 666 = 103 taxmann.com 213 (AAAR- Rajasthan) [This was so even if AAR had given
decision on merit].
No advance ruling on issue relating to e-way bill and GSTR-1 - Applicability of e-way bill
procedure and GSTR-1 are outside purview of Advance ruling - Rajendrababu Ambika In re
(2019) 75 GST 284 = 107 taxmann.com 262 (AAR-TN).
 1030

Recipient of goods or services cannot apply for advance ruling - Recipient of goods or
services cannot apply for advance ruling where tax is payable by supplier and there is no
reverse charge - Visvesvaraya National Institute of Technology, Nagpur, In re (2018) 69 GST
621 = 97 taxmann.com 84 (AAR) * Dr Dathu Rao Memorial Charitable Trust In re (2018) 69
GST 899 = 97 taxmann.com 158 (AAR-TN) * Ramway Foods Ltd. In re (2018) 98 taxmann.com
460 (AAR-Uttarakhand) * Naga Ltd., In re [2018] 100 taxmann.com 15 (AAR - Tamil Nadu). *
Konkan LNG P Ltd. In re (2019) 75 GST 131 = 107 taxmann.com 225 (AAR - Maharashtra).
Recipient cannot apply for advance ruling - Barbeque Nation Hospitality Ltd., In re [2019]
112 taxmann.com 24 = 77 GST 515 (AAR-WEST BENGAL) * Municipal Corporation of Greater
Mumbai In re (2020) 114 taxmann.com 238 (AAR-Maharashtra).
Recipient of goods or services cannot apply for advance ruling, except when he is liable
under reverse charge - Telstra Telecommunications P Ltd. In re (2019) 103 taxmann.com 135
(AAR-Maharashtra).
No advance ruling if matter already pending or decided in any proceedings - Application
for advance ruling will not be admitted if matter is already pending or decided in any
proceedings in the case of applicant - proviso to section 98(2) of CGST Act - noted and
followed in Veeram Natural Products In re (2018) 69 GST 897 = 97 taxmann.com 159 (AAR-
TN) - same view in Sasan Power Ltd., In re [2018] 96 taxmann.com 551 = 69 GST 656 (AAR -
Madhya Pradesh). * Ashok Rubber Industries In re (2019) 72 GST 183 = 102 taxmann.com
323 (AAR-West Bengal) * A.M. Abdul Rahman Rowther & Co. In re [2020] 117 taxmann.com
560 (AAR - Tamil Nadu).
If writ petition has been filed on same issue, application for advance ruling is not admissible
- Crux Bio Tech India (P.) Ltd., In re [2018] 94 taxmann.com 126 = 68 GST 557 (AAR- Andhra
Pradesh).
If matter is pending with DGCI and enquiry is going on, application for advance ruling cannot
be admitted - Anik Milk Products (P.) Ltd., In re [2019] 111 taxmann.com 181 (AAR - Madhya
Pradesh).
If appeal is pending before Appellate Authority, advance ruling cannot be given - A M Abdul
Rahman Rowther & Co. In re (2019) 76 GST 555 = 110 taxmann.com 85 (AAR - TN).
If issue was pending investigation before department, as an Anti-Evasion investigation was
already under way against applicant, application for Advance Ruling by applicant, on same
issue, would not be maintainable as per proviso to section 98(2) - Sterlite Technologies Ltd.,
In re [2018] 97 taxmann.com 315 (AAR - Maharashtra). - same view in Karnataka Co-
operative Milk Producers Federation Ltd., In re [2020] 115 taxmann.com 59 (AAAR-Karn).
If AAR passes order even when investigation pending, it would be void ab-initio - In
Karnataka Co-operative Milk Producers Federation Ltd. In re (2020) 80 GST 199 = 115
taxmann.com 59 (AAAR-Karn), Advance Ruling Authority had passed order even though
issue was under investigation by Director General, GST. It was held that the order of AAR is
ab-initio void. - same view in ID Fresh Food (India) P Ltd. In re (2021) 83 GST 123 = 120
taxmann.com 80 (AAAR-Karn).
No advance ruling if applicant is not supplying the goods or services for which advance
ruling is sought - Advance ruling cannot be given if applicant is not supplying the goods or
 1031

services for which advance ruling is sought - Maharashtra Technip UK Ltd., In re (2019) 104
taxmann.com 231 (AAR - Maharashtra).
No advance ruling on documentation for transportation of goods - Advance ruling cannot
be given on documentation required for transportation of goods - Alok Bhanuka., In re
[2019] 73 GST 512 = 103 taxmann.com 433 (AAR-WEST BENGAL).
52.3-3 Authority for Advance Ruling
Authority for Advance Ruling will be constituted in each State/Union Territory - section 96
of CGST Act.
Procedure to be followed by Authority has been specified in section 98 of CGST Act. Advance
ruling should be pronounced in 90 days.
The Authority or Appellate Authority can amend the order to rectify an error apparent from
records, within six months from date of order.
Rectification Application filed beyond six months cannot be accepted - Sir J.J. College of
Architecture Consultancy Cell, In re [2019] 112 taxmann.com 288 (AAR - Maharashtra).
Address of AAR and AAAR - Addresses of AAR and AAAR are available on www. gstcouncil.
gov.in. - - FAQ on GST Chapter 17 Q No. 11 issued by CBI&C on 15-12-2018.
Orders passed by AAR and AAAR on website - The orders passed by AAR and AAAR are on
www. gstcouncil.gov.in.
Difference of opinion among members of AAR - If there is difference of opinion among
members of AAR, they refer the point/s to AAAR for hearing. If there is difference of opinion
at that level also, then it shall be deemed that no advance ruling can be given - FAQ on GST
Chapter 17 Q No. 19 issued by CBI&C on 15-12-2018. - same view in Vedika Export Tea P Ltd.
In re (2019) 74 GST 590 = 106 taxmann.com 144 (AAAR-West Bengal).
52.3-4 Qualification and appointment of members of the Authority for Advance Ruling
The Central Government and the State Government shall appoint an officer not below the
rank of Joint Commissioner as member of the Authority for Advance Ruling - Rule 103 of
CGST and SGST Rules, 2017.
52.3-5 Procedure for application to the Authority for Advance Ruling
An application for obtaining an advance ruling under section 97(1) of the Act shall be made
on the common portal in form GST ARA-1 and shall be accompanied by a fee of five thousand
rupees. It should be deposited in the manner specified in section 49 of the Act - Rule 104(1)
of CGST and SGST Rules, 2017.
The application for advance ruling, the verification contained therein and all relevant
documents accompanying such application shall be signed in the manner specified in rule 26
of CGST Rules - Rule 104(2) of CGST and SGST Rules, 2017.
Manual filing of Application as GSTN system not ready - Since GSTN portal is not ready,
application for advance ruling can be submitted manually. All provisions as applicable to
electronic filing will apply mutatis mutandis to manual filing also - Rule 107A of CGST Rules,
inserted w.e.f. 15-11-2017.
Procedure for manual filing has been prescribed in CBI&C circular No. 25/25/2017-GST dated
21-12-2017.
 1032

Application shall be made in form ARA-01 with fees of Rs 5,000 under CGST and 5,000 under
SGST (total Rs 10,000) deposited online on common portal. Then application, duly verified
shall be submitted manually.
Appeal can also be filed manually in form GST ARA-2 with payment of fees online.
If only Rs 5,000 are paid, application for advance ruling has to be rejected - Kreations Builders
and Developers, In re (2019) 72 GST 715 = 103 taxmann.com 367 (AAR- Maharashtra) [really,
opportunity was given to rectify the defect, but appellant neglected]. - same view in
Umadevi Kamalakar Patni In re (2019) 74 GST 30 = 104 taxmann.com 235 (AAR -
Maharashtra).
Withdrawal of application for advance ruling - There is no provision for withdrawal of
application submitted for advance ruling, but there is no prohibition either. In CM Enviro
Systems (P.) Ltd., In re [2018] 100 taxmann.com 214 (AAR - Karnataka), applicant was
allowed to withdraw his application for advance ruling - similar order in Sodexo Food
Solutions P Ltd. In re (2018) 70 GST 572 = 98 taxmann.com 321 (AAR-Tamil Nadu) * Compass
Group (India) Support Services (2018) 70 GST 611 = 98 taxmann.com 174 (AAR- Karnataka) *
Manipal Academy for Higher Education, In re [2018] 100 taxmann.com 118 (AAR -
Karnataka).* Shaikh Ayub Shaikh Ali, In re (2019) 75 GST 393 = 108 taxmann.com 556 (AAR-
Maharashtra) * Eurofins Advinus Ltd. In re (2019) 75 GST 775 = 109 taxmann.com 341 (AAR-
Karnataka) * Indo Autotech Ltd. In re (2019) 76 GST 380 = 110 taxmann.com 134 (AAR-
Rajasthan). * Haworth India (2019) 76 GST 560 = 110 taxmann.com 471 (AAR-TN) * Life
Health Foods, In re [2020] 78 GST 339 = 113 taxmann.com 433 (AAR - Maharashtra)* Man
Structurals P Ltd. In re (2020) 82 GST 713 = 119 taxmann.com 122 (AAR-Rajasthan).
52.3-6 Certification of copies of the advance rulings pronounced by the Authority
A copy of the advanced ruling shall be certified to be a true copy of its original by any
member of the Authority for Advance Rulings - Rule 105 of CGST and SGST Rules, 2017.
52.3-7 Appeal against order of Advance Ruling
Appeal can be filed against order of Authority of Advance Ruling before Appellate Authority
for Advance Ruling - section 100 of CGST Act.
Appellate Authority for Advance ruling will be constituted by State/Union Territory - section
99 of CGST Act.
Appellate authority cannot decide issue which was not before original authority -
Appellate authority cannot decide issue which was not before original authority of advance
ruling - Divisional Forest Officer, In re (2018) 70 GST 395 = 97 taxmann.com 565 (AAAR-
Uttarakhand).
Time limit for filing appeal before AAAR, the restrictions on condoning delay - As per
section 100(2) of CGST Act, appeal to AAAR against order of AAR should be filed within 30
days from date of communication of the order. This period can be extended by further 30
days. AAAR cannot condone delay and cannot admit appeal beyond that period - Nuetech
Solar Systems In re (2019) 76 GST 293 = 108 taxmann.com 260 (AAAR-Karnataka) * Durga
Projects & Infrastructure (P.) Ltd., In re [2019] 112 taxmann.com 396 = 77 GST 625 (AAAR-
Karnataka).
 1033

No appeal if AAR does not accept the application for advance ruling - Appeal cannot be
filed before AAAR if AAR does not accept the application for advance ruling - Tirumala Milk
Products (P.) Ltd., In re [2021] 123 taxmann.com 3 (AAAR-Karnataka).
No appeal against rectification order of AAR - In Durga Projects & Infrastructure (P.) Ltd.,
In re [2021] 125 taxmann.com 105 (AAAR-Karnataka), appellant filed a rectification
application against original advance ruling order of AAR before AAR itself. Rectification
application was not admitted by AAR as there was no error apparent on record. Thus,
original advance ruling stood without any corrections. Appellant filed appeal against the
rectification order. It was held that appeal should have been filed against said original
advance ruling order and not rectification application. Hence, appeal filed against
rectification order is not appealable - same view in NMDC Ltd., In re [2021] 124 taxmann.com
459 (AAAR-Karnataka).
[The decisions seems to be too theoretical, as in that case, the provision of rectification of
order by AAR are meaningless].
52.3-8 Form and manner of appeal to the Appellate Authority for Advance Ruling
An appeal against the advance ruling issued under section 98(6) of the Act shall be made on
the common portal in form GST ARA-2. It shall be accompanied by a fee of ten thousand
rupees, to be deposited in the manner specified in section 49 of the Act - Rule 106(1) of CGST
and SGST Rules, 2017.
Department can also file appeal against advance ruling under section 98(6) of CGST Act in
form GST ARA-03 - Rule 106(2) of CGST and SGST Rules, 2017.
The appeal, the verification contained therein and all relevant documents accompanying
such appeal shall be signed, in case of concerned officer or jurisdictional officer, by an officer
authorized in writing by such officer; and (b) in the case of an applicant, in the manner
specified in rule 26 of CGST Rules - Rule 106(3) of CGST and SGST Rules, 2017.
52.3-9 Provisions of electronic application for advance ruling apply to manual applications
also
The Rules provide for making application for Advance Ruling through GSTN portal. However,
since the GSTN portal is not in position to accept application for Advance Ruling, provision
of manual application for Advance Ruling is being made. Hence, it is provided that all
processes or procedures specified in Rules include manual filing of application, intimation,
reply, declaration, statement or issuance of any notice, order or certificate in prescribed
forms - Rule 107A of CGST Rules, inserted w.e.f. 15-11-2017.
52.3-10 Copies of the advance rulings pronounced by the Authority
A copy of the advance ruling pronounced by the Appellate Authority for Advance Ruling and
duly signed by the Members shall be sent to - (a) the applicant and the appellant (b) the
concerned officer of Central Tax and State/Union Territory Tax (c) the jurisdictional officer
of Central Tax and State/Union Territory Tax; and (d) the Authority for Advance Ruling - Rule
107 of CGST and SGST Rules, 2017.
The copies will be sent in accordance with the provisions of section 101(4) of the Act.
52.3-11 Binding nature of Advance Ruling
 1034

Advance Ruling of authority, AAAR or NAAAR shall be binding only on the applicant and
jurisdictional tax authorities, unless law, facts or circumstances supporting the original
advance ruling have changed - section 103 of CGST Act amended vide Finance (No. 2) Act,
2019 with effect from date to be notified.
The ruing of NAAAR shall be binding on department only in respect of taxable persons with
same Income Tax PAN. The ruling will also bind applicants and registered persons with same
Income Tax PAN - section 103(1A) of CGST Act amended vide Finance (No. 2) Act, 2019 with
effect from date to be notified.
52.3-12 Rectification of order by AAR, AAAR or NAAAR
AAR, AAAR or NAAAR can rectify its order within six months, if any error apparent from
records brought to its notice - section 102 of CGST Act amended vide Finance (No. 2) Act,
2019 with effect from date to be notified.
52.3-13 Advance ruling void if obtained by fraud or suppression of facts
Advance ruling obtained by fraud or suppression of facts or misrepresentation of facts can
be declared void by AAR, AAAR or NAAAR - section 104 of CGST Act amended vide Finance
(No. 2) Act, 2019 with effect from date to be notified.
52.3-14 Appeal before NAAAR against order of AAAR if there are conflicting rulings
Appeal against order of Authority of Advance Ruling (AAR) of a State/Union Territory was
lying with Appellate Authority of Advance Ruling (AAAR) of the State/Union Territory. There
was no provision for filing further appeal or revision (except writ petition before High Court).
It was found that in some cases, the Appellate Authority of Advance Ruling (AAAR) of two
States/Union Territories were giving conflicting advance rulings on same question [Though
of course, in majority of cases, the orders were same as both were favouring revenue, as
usual].
Now, provision has been made to file appeal before National Appellate Authority for
Advance Ruling, against order of Appellate Authority of Advance Ruling (AAAR).
National Appellate Authority for Advance Ruling (NAAAR) will be constituted by Central
Government on recommendation of GST Council, under section 101A of CGST Act inserted
vide Finance (No. 2) Act, 2019 with effect from date to be notified.
The provisions are not notified so far (till January, 2021).
52.4 GST compliance rating
Every registered person may be assigned a GST compliance rating score by Government
based on his record of compliance with the provisions of this Act. The GST compliance rating
score shall be determined on the basis of parameters to be prescribed in this behalf.
The GST compliance rating score shall be updated at periodic intervals and intimated to the
taxable person and also placed in the public domain in the manner prescribed - section 149
of CGST Act.
There is also provision of black listing a taxable person. If he is black listed, the input tax
credit will be available to recipient only when the supplier (who is black listed) actually pays
tax.
52.5 Obligation to furnish information return by various authorities
 1035

Information relating to taxable person is available with various authorities like taxable
person himself, authorities of State and Central Government collecting taxes, income tax,
banks, Registrar of companies, RTO, Registrar of land records, Collector, Stock Exchange,
depository, RBI, GSTN Network etc.
Such authorities are required to furnish information return as may be prescribed - section
150(1) of CGST Act.
The information that can be called by Commissioner may be relating to payment of taxes
relating to goods or services, bank account, consumption of electricity, sale or exchange of
goods or property etc.
The person who is responsible to maintain records or statements in respect of aforesaid
information shall supply the information return to prescribed authority as required by him.
If the information as supplied is defective, the prescribed authority can give the person
concerned opportunity to rectify the defect within 30 days. If the information is not
corrected, it will be as if the information has not been submitted to prescribed authority.
If the information is still not supplied, the prescribed authority shall service a notice on him
to furnish information within 90 days - section 150(3) of CGST Act.
There is exactly similar provision in section 285BA of Income Tax Act, 1962 and section 108A
of Customs Act.
If information return is not supplied, penalty can be imposed under section 123 of CGST Act
(parallel provision in section 108B of Customs Act).
52.6 Power to call for information
The Commissioner or an officer authorised by him may, by an order, direct any person to
furnish information relating to any matter dealt with in connection with CGST Act, within
such time, in such form, and in such manner, as may be specified therein - section 151 of
CGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified.
Present provision for collection of statistics - The Commissioner may, if he considers that it
is necessary so to do, by notification, direct that statistics may be collected relating to any
matter dealt with by or in connection with this Act - section 151(1) of CGST Act [provision
being amended]
Upon such notification being issued, the Commissioner, or any person authorised by the
Commissioner in this behalf may call upon all concerned persons to furnish such information
or returns as may be specified therein relating to any matter in respect of which statistics is
to be collected - section 151(2) of CGST Act [This sub-section is being omitted].
To ensure uniformity all over India, such notification will be issued by Commissioner or Joint
Secretary in Board - section 168(2) of CGST Act.
52.6-1 Bar on disclosure of information obtained under sections 150 and 151
No information * with respect to any matter given for the purposes of section 150 or section
151 shall, without the previous consent in writing of the concerned person or his authorised
representative, be published in such manner so as to enable such particulars to be identified
as referring to a particular person and no such information shall be used for the purpose of
any proceedings under this Act, without giving an opportunity of being heard to the person
 1036

concerned - section 152(1) of CGST Act amended vide Finance Act, 2021 w.e.f. date to be
notified.
*- The words were 'of any individual return or part thereof'.
Nothing in section 152 shall apply to the publication of any information relating to a class of
taxable persons or class of transactions, if in the opinion of the Commissioner, it is desirable
in the public interest to publish such information - section 152(3) of CGST Act.
52.7 Taking assistance from an expert
Any officer not below the rank of Assistant Commissioner may, having regard to the nature
and complexity of the case and the interest of revenue, take assistance of any expert at any
stage of scrutiny, inquiry, investigation or any other proceedings before him - section 153 of
CGST Act.
52.8 Drawal of samples
The Commissioner of CGST/SGST or an officer authorized by him may take samples of goods
from the possession of any taxable persons, where he considers it necessary, and provide a
receipt for any samples so taken - section 154 of CGST Act.
List of laboratories other where samples can be sent for testing has been given in CBI&C
circular Nos. 44/2017-Cus dated 16-11-2017 and 11/2018-Cus dated 17-5-2018.
52.9 Persons discharging functions under the Act shall be deemed to be public servants
All persons discharging functions under the Act shall be deemed to be public servants within
the meaning of section 21 of the Indian Penal Code, 1860 - section 156 of CGST Act.
Protection of actions taken under the Act in good faith - No suit, prosecution or other legal
proceedings shall lie against (a) the President, State President, Members, officers or other
employees of the Appellate Tribunal or any other person authorised by the said Appellate
Tribunal (b) any officer appointed or authorised under this Act- for anything which is in good
faith done or intended to be done under this Act or the rules made thereunder - section 157
of CGST Act.
Disclosure of confidential information by a public servant - All particulars contained in any
statement made, return furnished or accounts or documents produced in accordance with
the Act, or in any record of evidence given in the course of any proceedings under the Act
(other than proceeding before a Criminal Court), or in any record of any proceedings under
the Act shall be treated as confidential - section 158(1) of CGST Act.
Its disclosure is permitted only in specified situations and cases - section 158(3) of CGST Act.
Information relating to class of taxable persons or class of transactions can be published in
public interest by Commissioner- section 152 of CGST Act read with section 158(3)(i) of CGST
Act.
To ensure uniformity all over India, such publication shall be done by Commissioner or Joint
Secretary in Board - section 168(2) of CGST Act.
52.10 Publication of information respecting persons in certain cases
If the Commissioner, or any other office authorized by him in this behalf, is of opinion that
it is necessary or expedient in the public interest to publish the names of any person and any
other particulars relating to any proceedings or prosecutions under the Act in respect of such
 1037

person, it may cause to be published such names and particulars in such manner as it thinks
fit - section 159(1) of CGST Act.
No publication under this section shall be made in relation to any penalty imposed under
the Act until the time for presenting an appeal to the First Appellate Authority under section
79 has expired without an appeal having been presented or the appeal, if presented, has
been disposed of.
In the case of firm, company or other association of persons, the names of the partners of
the firm, directors, managing agents, secretaries and treasures or managers of the company,
or the members of the association, as the case may be, may also be published if, in the
opinion of the Competent Authority, circumstances of the case justify it - Explanation to
section 159(2) of CGST Act.
52.11 Assessment, adjudication, notice etc. not to be invalid on minor grounds
No assessment, re-assessment, adjudication, review, revision, appeal, rectification, notice,
summons or other proceedings done, accepted, made, issued, initiated, or purported to
have been done, accepted, made, issued, initiated in pursuance of any of the provisions of
the Act shall be invalid or deemed to be invalid merely by reason of any mistake, defect or
omission therein, if such assessment, re-assessment, adjudication, review, revision, appeal,
rectification, notice, summons or other proceedings is/are in substance and effect in
conformity with or according to the intents, purposes and requirements of the Act or any
earlier law - section 160(1) of CGST Act.
52.12 Service of notice cannot be challenged if acted upon
The service of any notice, order or communication shall not be called in question if the
notice, order or communication, as the case may be, has already been acted upon by the
person to whom it is issued or where such service has not been called in question at or in
the earliest proceedings commenced, continued or finalised pursuant to such notice, order
or communication - section 160(2) of CGST Act.
52.13 Rectification of clerical mistakes in order
If there is clerical or arithmetical error or mistake, arising from any accidental slip in any
order, summons, notice, certificate etc., it can be rectified if mistake is brought to notice of
CGST/SGST/UGST officer within three months. Rectification cannot be done after six
months. This limit of six months is not applicable for correcting a clerical or arithmetical
mistake, arising from any accidental slip or omission - section 161 CGST Act.
Rectification of order of demand should be in form GST DRC-08 - rule 142(7) of CGST Rules,
2017.
52.14 Charges for supplying copy of any document
Wherever a copy of any order or document is to be provided to any person on an application
made by him for that purpose, there shall be paid such fee as may be prescribed - section
163 of CGST Act.
52.15 Amalgamation of companies - Supplies during interim period are taxable under GST
 1038

In case of amalgamation of companies, the scheme specifies 'effective date' of

amalgamation. However, actual date of order of NCLT (earlier High Court) approving
amalgamation comes later.
Section 87(1) of CGST Act specifically provides that when two or more companies are
amalgamated or merged in pursuance of an order of court or of Tribunal or otherwise and
the order is to take effect from a date earlier to the date of the order and any two or more
of such companies have supplied or received any goods or services or both to or from each
other during the period commencing on the date from which the order takes effect till the
date of the order, then such transactions of supply and receipt shall be included in the
turnover of supply or receipt of the respective companies and they shall be liable to pay tax
accordingly.
As per section 87(2) of CGST Act, notwithstanding anything contained in the said order, for
all purposes of CGST Act, the said two or more companies shall be treated as distinct
companies for the period up to the date of the said order and the registration certificates of
the said companies shall be cancelled, where necessary, with effect from the date of the said
order.
Earlier controversy - In CST v. ITC Hotels (2012) 34 STT 112 = 16 taxmann.com 54 (CESTAT),
assessee was providing services to its holding company during April 2004 to September
2004. Amalgamation between the holding company and assessee was approved from
'appointment date' w.e.f. 1-4-2004. However, Court order was received later and final order
was filed with Registrar of Companies on 23-3-2005. Assessee filed refund claim in respect
of services provided to its holding company during April 2004 to September 2004. It was
held that from the appointed date i.e. 1-4-2004, the assessee and its holding company were
one and the same entities and hence service provided by it to itself is not liable to service
tax. Hence, refund is admissible - same view in CCE v. IOC Ltd. (2012) 34 STT 508 = 17
taxmann.com 226 (CESTAT SMB) * Usha International v. CST (2016) 55 GST 171 = 67
taxmann.com 360 (CESTAT).
In S Maruthappan v. CCE (2007) 11 STT 456 (CESTAT SMB), a diploma holder engineer was
engaged on retainership basis, which was in nature of employment. It was held that service
tax can be charged only when transaction is on 'principal to principal' basis. This basic
requirement is absent and hence demand of service tax is not sustainable.
Registration after merger or amalgamation or scheme - In a case of transfer pursuant to
sanction of a scheme or an arrangement for amalgamation or, as the case may be, demerger
of two or more companies by an order of a High Court, Tribunal or otherwise, the transferee
shall be liable to be registered, where required, with effect from the date on which the
Registrar of Companies issues a certificate of incorporation giving effect to such order of the
High Court or Tribunal - section 22(4) of CGST Act.
Transfer of input tax credit on Merger, amalgamation or sale of business - Where there is
a change in the constitution of a registered person on account of sale, merger, demerger,
amalgamation, lease or transfer of the business with the specific provision for transfer of
liabilities, the said registered person shall be allowed to transfer the input tax credit which
remains unutilized in his electronic credit ledger to such sold, merged, demerged,
 1039

amalgamated, leased or transferred business in the such manner as may be prescribed -

section 18(3) of CGST Act.
52.16 Income Tax TDS
Bill of contractor is inclusive of GST. Hence, doubt is whether income tax TDS should be on
net amount (i.e. exclusive of GST) or gross amount inclusive of GST.
CBDT, vide circular No. 23/2017 dated 19-7-2017 has clarified that income tax TDS should
be on net amount excluding GST.
Earlier, CBDT, vide circular No. 4/2008 dated 28-4-2008 had stated that service tax paid does
not partake nature of 'income' of service provider. He is only acting as collecting agency of
Government for collecting service tax. Hence, TDS is required to be paid on net amount
excluding service tax. This clarification was in respect of TDS under section 194-I in respect
of rent paid to landlord.
CBDT, vide circular No. 1/2014 dated 13-1-2014 had clarified that wherever as per terms of
agreement/contract, service tax is charged separately, TDS is not required to be made on
service tax component under section 194J of Income Tax Act.
Now these provisions will continue to apply in case of GST also w.e.f. 1-7-2017.
CBEC vide MF(DR) circular No. 23/2017 dated 19-7-2017 has clarified that the CBDT circular
No. 1/2014 dated 13-1-2014 in respect of service tax shall apply to GST also.
In CIT v. Rajasthan Urban Infrastructure Development Project (2013) 359 ITR 385 (Raj HC), it
was held that 'any sum paid' under sections 194-I and 194J of Income Tax Act cannot include
service tax.
GST to be calculated on gross amount i.e. including Income Tax TDS - In case of import of
services, the GST is required to be calculated on gross amount payable to supplier of services
who is out of India i.e. including income tax TDS - TVS Motor v. CCE (2012) 37 STT 232 = 25
taxmann.com 475 (CESTAT) * Salim & Associates v. CCE (2007) 9 STT 392 = 7 STR 48 (CESTAT)
However, in Magarpatta Township v. CCE (2016) 55 GST 454 = 68 taxmann.com 285
(CESTAT), it has been held that if income tax TDS is borne by assessee himself, TDS is payable
only on invoice value and not on TDS amount.
Service tax collected and deposited with Government is not income and cannot form part
of 'gross receipts' - Service tax collected and deposited with Government is not income and
cannot form part of 'gross receipts' for the purpose of computing presumptive income under
section 44BB of Income Tax Act - DIT v. Mitchell Drilling International (2015) 234 Taxman
818 = 62 taxmann.com 24 (Del HC DB).
Tax collected is trading receipt - In Chowringhee Sales Bureau v. CIT (1973) 87 ITR 542 (SC)
and Sinclair Murray v. CIT (1974) 97 ITR 615, it has been held that sales tax collected is trading
receipt in the hands of seller - same principle has been enunciated in respect of excise duty
in Jonnalla Narasimharao & Co. v. CIT (1993) 200 ITR 588 = 68 Taxman 340 (SC) and CIT v. T
Naggi Reddy (1993) 202 ITR 253 (SC).
In Ishwardas Sons v. CIT (2006) 156 Taxman 340 (Ker HC DB), it was held that sales tax and
turnover tax collected is trading receipt and could be included in income of assessee, even
if the tax is disputed and amount is collected as 'deposit'.
 1040

The same principle should be applicable to service tax and it may be held as trading receipt
of service provider. If so, it will be included in the income.
52.17 Meaning of 'branded goods' in case of food items
In case of some items like chena, paneer, honey, wheat, rice, pulses, cereals, flour of cereals,
GST @ 5% applies if these are supplied in unit container bearing brand name. It was clarified
that this tax applies only when brand name or trade name is registered under Trade Marks
Act, 1999 and the registration is in force. Unless the brand name is registered, GST will not
apply. However, taxable persons started cancelling the trade mark registrations. Hence,
notification Nos. 1/2017-CT (Rate), 2/2017-CT (Rate), 1/2017-IT (Rate) and 2/2017-IT (Rate)
all dated 28-6-2017 have been amended w.e.f. 22-9-2017.
Earlier provision required that GST will apply only if brand name was registered. Now, that
provision has been removed.
Now, the exemption will not be available to goods under brand name registered as on 15-5-
2017, even if de-registered later.
In case of goods sold under brand name which is not registered, exemption will be available
only if the brand owner agrees to surrender actionable claim in respect of unregistered
brand name. This requirement has been explained below.
Registration of brand name is not mandatory under Trade Marks Act or Copyright Act. An
owner of brand name gets protection in respect of that brand name, even if that brand name
is not registered. He can sue other person for passing off action. He also has copyright
protection even if brand name is not registered.
This right of owner of unregistered brand name is termed as 'actionable claim'. Hence, it is
provided that if goods are sold under unregistered brand name, GST will be payable unless
the register person surrenders i.e. forego his right of actionable claim in respect of such
unregistered brand name.
Forgoing an actionable claim or enforceable right on a brand name - For this purpose, he
has to file affidavit before jurisdictional Commissioner of Central Excise foregoing his
actionable claim. He also has to print in indelible ink that he had foregone his actionable
claim or enforceable right voluntarily in respect of brand name. This declaration should be
in English and regional language - Annexure I to Notification No. 1/2017-CT dated 28-6-2017
inserted w.e.f. 22-9-2017.
The phrase 'brand name' means brand name or trade name that is to say, a name or a mark
such as symbol, monogram, label, signature, or invented word or writing which is used in
relation to such specified goods for the purpose of indicating, or so as to indicate a
connection in the course of trade between such specified goods and some person using such
name or mark with or without any indication of the identity of that person - Explanation
(ii)(a) to Notification No. 1/2017-CT dated 28-6-2017, as amended w.e.f. 22-9-2017.
Registered brand name means - (A) a brand registered as on 15-5-2017 under Trade Marks
Act, 1999 (Even if subsequently de-registered) (B) a brand registered as on 15-5-2017 under
the Copyright Act, 1957 (C) a brand registered as on 15-5-2017 under any law for the time
being force in any other country - - Explanation (ii)(b) to Notification No. 1/2017-CT dated
28-6-2017, as amended w.e.f. 22-9-2017.
 1041

Mere 'manufactured by' or 'marketed by' can be a brand name - In Aditya Birla Retail Ltd.,
In re [2018] 68 GST 830 = 93 taxmann.com 105 (AAR - Maharashtra), goods were sold
through 'More' stores (Malls). The goods did not bear any logo or 'Aditya Birla Retail'.
However, the goods were marked as 'manufactured by' or 'marketed by' Aditya Birla Retail
Ltd. It was held that mere 'manufactured by' or 'marketed by' 'Aditya Birla Retail Ltd. can be
a brand name. Even words such as 'Value', 'Choice' or 'Superior' cab be 'brand name' [as
goods were already sold with such marking from More stores Malls) - view confirmed in
Aditya Birla Retail Ltd. In re (2018) 69 GST 484 = 96 taxmann.com 290 (AAAR).
In CCE v. Grasim Industries Ltd. (2005) 4 SCC 194 = 183 ELT 123 (SC 3 member bench).
assessee was manufacturing cement. Following words were used on the bag, 'Manufactured
by Dharani Cements Ltd., A subsidiary of Grasim Industries Ltd'. It was held that this name
indicated connection in course of trade between the product and 'Grasim Industries Ltd.',
which is a well known cement manufacturer, and this is sale of goods under 'brand name'
[Hence, exemption available to small units will not be available]. This judgment is valid in
GST issue also.
If supply of frozen food is made to institutional customers in package bearing name of
supplier company and phone number (as per statutory requirement), exemption is not
available - Abad Fisheries P Ltd. In re (2019) 76 GST 173 = 108 taxmann.com 235 (AAR-
Kerala).
52.17-1 Meaning of 'Unit Container'
There seems to be no general definition of the term 'unit container'. However, this word has
been used at many places in Central Excise Tariff.
For example, Chapter Note 3 of Chapter No. 4 states as follows - 'In this chapter, the
expression 'unit container' means a container, whether large or small (for example - tin, can,
box, jar, bottle, bag or carton, drum, barrel or canister), designed to hold a predetermined
quantity or number'.
In G Claridge & Co. v. CCE (1991) 52 ELT 341 = 1991 taxmann.com 1317 (SC), it was expression
'container' in heading 48.18 of Tariff has to be construed to mean 'packing container' which
are analogous to boxes and cartons, i.e. an enclosed receptacle which can be used for
storage and transportation. Egg trays cannot be said to be 'containers' - quoted and followed
in Hardcastle Restaurants v. CCE (2007) 211 ELT 607 (CESTAT), where strong prima facie view
was held that food items served in open wrappers or containers cannot be said to have been
packed in 'unit container'
In Surya Agro Oils v. CCE 2000(16) ELT 514 (CEGAT), it was held that the term 'unit container'
covers not only small such as tiny tins, cans, bags, plastic bags etc., but also big bags, drum,
barrel, box etc. - same view in Surya Agro Oils v. CCE 2005 (188) ELT 97 (CESTAT), where it
was held that a bag of 10 Kg. is 'unit container'.
In CCE v. Costa & Co. 2004 (173) ELT 394 (CESTAT), it was held that predetermined weight of
meat packed in poly pouches is 'unit container'.
Paper carton bearing logo of Pizza Hut used for packing and transportation of pizza or
chicken wings is not a 'unit container'. 'Unit container' connotes packages of a pre-
determined quantity which is indicated on the container - Dodsal Corporation v. CCE (2011)
 1042

263 ELT 719 (CESTAT) - similar prima facie view in Hardcastle Restaurants v. CCE (2017) 63
GST 435 = 84 taxmann.com 222 (CESTAT).
In AOV Agro Food (P.)Ltd., In re [2018] 69 GST 126 and 384 = 95 taxmann.com 217 (AAR-
Haryana) and Gitwako Farms (India) (P.) Ltd., In re [2018] 69 GST 126 = 95 taxmann.com 200
(AAR- Haryana,) the taxable person was supplying whole (Sheep/Goat) animal carcass in its
natural shape in frozen state in different weight and size packed in LDPE bags. It was not
standardized to hold a uniform pre-determined quantity. One or two such LDPE bags were
further packed in HDPE bags were supplied to Army. It was held that the product does not
qualify as product put up in unit container - same view in MUN Agro Industries P Ltd. In re
(2018) 99 taxmann.com 261 (AAR - Maharashtra) * Monrovia Leasing and Finance (P.) Ltd.,
In re [2018] 98 taxmann.com 342 (AAR - Maharashtra)
There was exactly contrary view in Ahmednagar District Goat Rearing & Processing Co-op
Federation Ltd., In re [2018] 68 GST 602 = 93 taxmann.com 267 (AAR -
Maharashtra)However, this view has been reversed in Ahmednagar District Goat Rearing &
Processing Co-op Federation Ltd., In re [2018] 70 GST 269 = 97 taxmann.com 386 (AAAR -
Maharashtra) and it was held that the supply is not in unit container.
[weights were different of each package and was packed in plastic bags. The decision of AAR
Haryana was correct and has been approved by Appellate Authority in Maharashtra].
In a contrary view, if the frozen chicken pieces are packed in polythene bags and marked
with product name, brand name and net weight (actual weight and hence pre-determined
quantity), it would be 'unit container'. The branded frozen chicken will be classified under
HSN 02071200 and taxable @ 5% - Gitwako Farms In re (2019) 74 GST 264 = 105
taxmann.com 300 (AAR-Raj) -view confirmed in Gitwako Farms (India) (P.) Ltd., In re [2020]
121 taxmann.com 163 (AAAR-RAJASTHAN), Branded Frozen Chicken packed by assessee in
individual LDPE bag in predetermined number (one in number) is taxable. [Though weights
were varying, number was always 'one'].
Really, weights were different of each package (though number was 'one' in all cases) and
was packed in plastic bags. The decision of AAR Haryana seems correct and has been
approved by Appellate Authority in Maharashtra.
52.17-2 What is 'branding' of goods
Mere mention of name of manufacturer does not convert an item into 'branded item' - VRS
Confectionery v. CCT (2017) 88 taxmann.com 282 (Mad HC).
Mere marking of name of customer and details like crop year, name of jute mill etc. is not
branding of goods - RDB Textiles v. CCE (2018) 66 GST 193 = 90 taxmann.com 405 (SC).
Name of company can be 'trade name' - In CCE v. Grasim Industries (2005) 4 SCC 194 = 183
ELT 123 (SC 3 member bench), it was held that a trade name can be a name in which or by
which a person or body carries on their trade. It would, if the context so permits, include the
name of company.
52.18 Area based exemptions
There were Area Based exemptions (J&K, Himachal Pradesh, North East States) in respect of
Central Excise to manufacturers having plants in those States. In GST, there will be no
exemption from GST. The manufacturing units in this area will be required to pay GST and
 1043

net GST paid by them in cash (after deducting ITC) will be allowed as refund to them - S Nos.
22 and 73 of Tweet FAQ released by CBI&C on 26-6-2017.
A scheme of budgetary support has been notified vide Ministry of Commerce and Industry,
DIPP Notification No. 1(K1)/2017-DBA-II/NER dated 5-10-2017.
It is applicable to units in Jammu and Kashmir, Uttarakhand, Himachal Pradesh and North
East including Sikkim.
58% of CGST paid and 29% of IGST paid in cash ledger account after utilization of ITC will be
refunded. Manufacturer has to apply giving prescribed details and affidavit cum indemnity
bond.
Procedure for manual disbursal of budgetary support under GST has been specified in
circular No. 1061/10/2017-CX dated 30-11-2017.
The units have to register online. Details have to be filed online as per procedure prescribed
in CBI&C circular No. 1067/6/2018-CX dated 5-10-2018.
52.19 Goods and Services Tax Practitioners
Filing of return is not going to be easy for small tax payers. Hence, a provision has been made
to approve 'GST Practitioners'.
Eligibility conditions, duties and obligations, manner of removal and other conditions of GST
Practitioners will be prescribed by rules - section 48(1) of CGST Act.
A registered taxable person may authorise an approved GST Practitioner to furnish the
details of outward supplies under section 37, the details of inward supplies under section 38
and the return under section 39 (monthly return), section 44 (annual return or section 45
(final return after closure) and to perform such other functions in such manner as may be
prescribed - section 48(2) of CGST Act. The words in italics inserted vide CGST (Amendment)
Act, 2018 w.e.f. 1-2-2019.
The responsibility for correctness of any particulars furnished in the return or other details
filed by the GST Practitioner shall continue to rest with the registered person on whose
behalf such return and details are filed -- section 48(2) of CGST Act.
52.19-1 Application for enrolment as Goods and Service Tax Practitioner
An application in form GST PCT-1 may be made to the officer authorised in this behalf for
enrolment as Goods and Services Tax Practitioner (GST Practitioner) by any person who
satisfies the conditions specified in rule 83(1) of CGST and SGST Rules, 2017.
These requirements are as follows: (i) he is a citizen of India; (ii) he is a person of sound mind;
(iii) he is not adjudicated as insolvent; (iv) he has not been convicted by a competent court
for an offence with imprisonment not less than two years.
Assistant/Deputy Commissioner having jurisdiction over the place declared as address in the
application for enrolment in form GST PCT-1 will be officer authorized to approve the
application. The applicant may choose either the Centre or the State as the enrolling
authority in item 1 of Part II of GST PCT 1 form - CBI&C circular No. 9/9/2017-GST dated 18-
10-2017.
Qualifications required - The GST Practitioner should have any of following qualifications -
 1044

(a) retired officer of the Commercial Tax Department of any State Government or of the
Central Board of Indirect Taxes and Customs, Department of Revenue, Government
of India, who, during his service under the Government, had worked in a post not
lower in rank than that of a Group-B gazetted officer for a period of not less than two
years or [The words in italics substituted w.e.f. 1-2-2019]
(b) enrolled as sales tax practitioner or tax return preparer under Vat or service tax law
for five years. However, he has to pass examination conducted by Commissioner
within one year; or
(c) Graduate in commerce, law, banking, business management or foreign equivalent
degree; or
(d) he has passed final examination of CA, CMA or CS Institute.
(e) Sales Tax Practitioner under earlier State Vat Laws for a period of not less than five
years
(f) Tax Return Preparers under earlier service tax law

[clauses (e) and (f) inserted w.e.f. 13-6-2018].

52.19-2 Approval of GST Practitioner on receipt of application
On receipt of the application as above, the authorised officer shall either enroll the applicant
as a GST Practitioner and issue a certificate to that effect in FORM GST PCT-2 or reject his
application where it is found that the applicant is not qualified to be enrolled as a GST
Practitioner - Rule 83(2) of CGST and SGST Rules, 2017.
The enrolment made under rule 83(2) shall be valid until it is cancelled.
Examination to enroll as GST Practitioner - The aforesaid persons can continue as GST
Practitioner, but they have to pass examination when conducted by Commissioner. In case
of enrolled as sales tax practitioner or tax return preparer under Vat or service tax law for
five years, they have to pass examination within thirty months from 'appointed date' i.e.
from 1-7-2017 - proviso to Rule 83(3) of CGST and SGST Rules, 2017. [The period of one year
has been extended to 18 months w.e.f. 13-6-2018 and further extended to 36 months w.e.f.
1-2-2019. Even that period may not be sufficient].
National Academy of Customs, Indirect Taxes and Narcotics (NACIN) has been notified as
authority to conduct examinations of GST Practitioner - Notification No. 24/2018-CT dated
28-5-2018 and rule 83A(2) of CGST Rules inserted w.e.f. 30-10-2018.
Examination will be conducted twice in a year and details will be published on website of
CBIC, NASIN common portal and GST Council and in newspapers - rule 83A(3) of CGST Rules
inserted w.e.f. 30-10-2018.
Examination should be passed within two years of enrolment.
First examination by NACIN on 31-10-2018 - As per CBIC press release dated 17-9-2018, the
examination GSTPs who are already enrolled shall be conducted on 31.10.2018 from 1100
hrs to 1330 hrs at designated examination centres across India.
 1045

The registration for this examination can be done by the eligible GSTPs on a registration
portal, link of which (https://nacin.onlineregistrationform.org/) will also be provided on
NACIN and CBIC websites. The applicants are required to make online payment of
examination fee of Rs. 500 at the time of registration for this exam.
Programme for further examinations have not been notified. However, it is expected that
such examinations will be held on regular basis.
Second examination was on 7-12-2018.
Pattern of the Examination- It will be a Computer Based Online Examination. PAPER: GST
Law & Procedures, Time allowed: 2 hours and 30 minutes, Number of Multiple Choice
Questions: 100, Language of Questions: English and Hindi, Maximum marks: 200, Qualifying
marks: 100, No negative marking - rule 83A(7) of CGST Rules inserted w.e.f. 30-10-2018.
Syllabus for examination: (1) CGST Act, 2017 (2) IGST Act, 2017 (3) SGST Acts, 2017 (4)
UTGST Act, 2017 (5) GST (Compensation to States) Act, 2017 (6) CGST Rules, 2017 (7) IGST
Rules, 2017 (8) All SGST Rules, 2017 (9)Notifications, Circulars and orders issued from time
to time - Annexure A to rule 83A of CGST Rules inserted w.e.f. 30-10-2018.
Disqualification if GST Practitioner found guilty - If any GST Practitioner is found guilty of
misconduct in connection with any proceeding under the Act, the authorised officer may, by
order, in form GST PCT-4 direct that he shall henceforth be disqualified under section 48 of
CGST Act. Before issuing such order, he should give him a notice to show cause in form GST
PCT-3 for such misconduct and give him a reasonable opportunity of being heard, before
passing order of disqualification - Rule 83(4) of CGST and SGST Rules 2017.
Any person against whom an order under rule 83(4) is made may, within thirty days from
the date of the order under rule 83(4), appeal to the Commissioner against such order - Rule
83(5) of CGST and SGST Rules, 2017.
Surrender of enrolment of GST practitioner - A GST Practitioner may surrender his
enrolment of GST practitioner by submitting application electronically in form GST PCT-06.
The Commissioner or Officer empowered by him may cancel registration after making
enquiry, by issuing order in form GST PCT-07 - rule 83B of CGST Rules inserted w.e.f. 18-7-
2019.
52.19-3 Taxable person may authorize GST Practitioner to file return on his behalf
Any taxable person may, at his option, authorise a GST Practitioner on the Common Portal
in form GST PCT-5. He can, at any time, withdraw such authorisation in form GST PCT-5. The
GST Practitioner so authorised shall be allowed to undertake such tasks as indicated in form
GST PCT-5 during the period of authorization - Rule 83(6) of CGST and SGST Rules, 2017.
52.19-4 Confirmation from taxable person about return filed by GST Practitioner
If a statement required to be furnished by a taxable person has been furnished by the GST
Practitioner authorised by him, a confirmation shall be sought from the taxable person over
email or SMS and the statement furnished by the GST Practitioner shall be made available
to the taxable person on the Common Portal.
 1046

If the taxable person fails to respond to the request for confirmation till the last date of
furnishing of such statement, it shall be deemed that he has confirmed the statements
furnished by the GST Practitioner - proviso to Rule 83(7) of CGST and SGST Rules, 2017.
52.19-5 Work that can be done by GST Practitioner on behalf of a taxable person
A GST Practitioner can undertake any or all of the following activities on behalf of a taxable
person, if so authorised by the taxable person -
(a) furnish details of outward and inward supplies.
(b) furnish monthly, quarterly, annual or final return.
(c) make deposit for credit into the electronic cash ledger.
(d) file a claim for refund.
(e) file an application for amendment or cancellation of registration.
(f) furnish information for generation of e-way bill.
(g) furnish details of challan in form GST ITC-04.
(h) file an application for amendment or cancellation of enrolment under rule 58 [This
rule requires enrolment of owner or operator of godown or warehouse] and
(i) file an intimation to pay tax under the composition scheme or withdraw from the
said scheme - Rule 83(8) of CGST and SGST Rules, 2017 - clauses (f) to (i) inserted
w.e.f. 1-2-2019.

Confirmation shall be sought from the taxable person on e-mail or SMS to be obtained -
Where (a) any application relating to a claim for refund or (b) an application for amendment
or cancellation of registration or (c) where an intimation to pay tax under composition
scheme or to withdraw from such scheme has been submitted by the goods and services tax
practitioner authorised by the registered person, a confirmation shall be sought from the
registered person. The application submitted by the said practitioner shall be made available
to the registered person on the common portal. Such application shall not be further
proceeded with until the registered person gives his consent to the same - proviso to Rule
83(8) of CGST and SGST Rules, 2017 amended w.e.f. 1-2-2019.
Enrolment in any one State or Union Territory is sufficient - Enrolment in any one State or
Union Territory is sufficient for working in other State or Union Territory, to carry out work
specified in rule 83(8) - Rule 83(11) of CGST and SGST Rules, 2017.
Consent of taxable person authorizing GST Practitioner to file return - Any taxable person
opting to furnish his return through a GST Practitioner shall- give his consent in form GST
PCT-5 to any GST Practitioner to prepare and furnish his return; and before confirming
submission of any statement prepared by the GST Practitioner, ensure that the facts
mentioned in the return are true and correct - Rule 83(9) of CGST and SGST Rules, 2017.
Duties of GST Practitioner - The GST Practitioner shall prepare the statements with due
diligence; and affix his digital signature on the statements prepared by him or electronically
verify using his credentials - Rule 83(10) of CGST and SGST Rules, 2017.
 1047

52.19-6 Appearance of GST Practitioner before authority on behalf of taxable person

A GST Practitioner can appear before any authority, in connection with any proceeding
under the Act on behalf of any taxable person or person only if his name has been enrolled
as GST Practitioner under rule 83.
A GST Practitioner attending on behalf of a registered person or an unregistered person in
any proceeding under the Act before any authority shall produce before such authority, if
required, a copy of the authorization given by the taxable person or person in Form GST-
PCT-5 - Rule 83 of CGST and SGST Rules, 2017.
52.20 Reward scheme for Information from Informants Government Offi-cers
Like all tax departments, department can and does collect information from secret
informants (sometimes he is a disgruntled employee of the Company).
Guidelines for reward have been announced vide MF(DR) circular No. 20/2015-Cus dated
31-7-2015 as amended vide MF(DR) circular No. 29/2016-Cus dated 23-6-2016 and 36/2018-
Cus dated 5-10-2018.
Informants are eligible to get awards. Officers of GST, excise, NDPS and customs upto the
rank of Additional Commissioner are eligible for the award. Government servants in police
department, BSF, Coastal guards, CISF, State GST officers are eligible for reward.
Apex Reward Committee has been constituted for sanction of award exceeding Rs 50 lakhs.
 1048

GST Compensation Cess

53.1 Background
Presently, Central Sales Tax (CST) is collected by State Government from which goods are
supplied. Thus, CST is a production based tax. Since GST is a consumption based tax, the
State producing goods will not get tax revenue out of supply of goods. Thus, a big revenue
loss is expected to producing States like Maharashtra, Gujarat, Tamil Nadu, Karnataka,
Andhra Pradesh, Haryana etc. Consuming States like Bihar, Uttar Pradesh, Madhya Pradesh,
Chhattisgarh, Kerala, Orissa will be gainers in GST.
Hence specific provision has been made in Constitution for compensation to producing
States for five years.
Section 18 of Constitution Amendment Act effective from 16-9-2016 provides that
Parliament shall, on recommendation of GST Council, provide for compensation to States
for loss of revenue arising on account of implementation of GST for period upto five years
[Note that this section is not part of main Constitution. It is a stand-alone provision].
Goods and Services Tax (Compensation to the States) Act, 2017 [GST Cess Act for short] is to
give effect to this provision.
Surcharge on taxes for purpose of Union - Article 271 of Constitution of India (amended
w.e.f. 16-9-2016) provides that Union can levy surcharge on taxes and duties specified in
Articles 269 and 270 (i.e. on income tax, excise and CST), which will be retained by Union
and will not be distributed among States. this will not include surcharge on GST. Thus, even
if Union imposes surcharge on GST, it will have to be shared with States.
This Article is amended w.e.f. 16-9-2016 to provide that this will not include surcharge on
GST. Thus, even if Central Government imposes surcharge on GST, it will have to be shared
with States.
Constitutional validity of the Compensation Act, 2017 - Constitutional validity of Goods and
Services Tax (Compensation to States) Act, 2017 has been upheld in Union of India v. Mohit
Mineral (P.) Ltd. [2019] 2 SCC 599 = 69 GST 743 = 98 taxmann.com 45 (SC) - followed in FC
Agrawal Coal (P.) Ltd. v. Union of India [2018] 99 taxmann.com 306 (Gujarat HC DB).
53.2 Compensation to States
To enable Central Government to pay the compensation, a GST Compensation Cess is
proposed to be levied on supply of goods or services or both within India and also on import
of goods and services.
Sections 3 to 7 of GST Cess Act provide for mode of calculating compensation payable to
States.
Section 3 of GST Cess Act states that 14% per annum shall be considered as projected
nominal growth of revenue of States. This will be calculated at compounded rates as per
formula given in section 6 of GST Cess Act.
Section 4 of GST Cess Act states that financial year 2015-16 will be considered as base year.
Section 5 of GST Cess Act provides for calculation of base year revenue of each State.
 1049

Section 6 of GST Cess Act states that projected revenue for any year in a State shall be
calculated by applying the projected growth rate over base year revenue of that State. The
calculations as per formula will be on compounding basis.
Section 7 of GST Cess Act provides for calculation and release of compensation to States.
53.2-1 Levy of GST Compensation Cess by Central Government
Section 8(1) of GST Cess Act states that GST Compensation Cess shall be levied on goods or
services or both as provided in section 9 of CGST Act and section 5 of IGST Act. This cess is
to compensate States for loss of revenue arising out of implementation of GST. It will be for
five years from date of implementation of CGST Act. The period can be extended or curtailed
by GST Council.
GST Compensation Cess will be payable on basis similar to CGST Act - section 9 of GST Cess
Act.
State and Central Taxes subsumed in GST for purpose of compensation cess - A detailed
list of taxes and duties subsumed in GST for purpose of section 5(4) of GST Compensation
Cess have been notified vide Notification No. 1/2018-C dated 14-11-2018. These include CST,
Medical and Toilet Preparations (Excise Duties) Act, 1955, State Vat, State Entertainment
Tax, State Entry Tax, State Amusement and Betting Tax, State Luxury Tax, Forest
development etc.
No cess when GST payable under composition scheme - No GST Compensation cess shall be
leviable on supplies made by a taxable person permitted to opt for composition levy under
section 10 of the CGST Act, 2017 (i.e. composition scheme) - proviso to section 8(1) of GST
Cess Act.
53.2-2 Value for purpose of Compensation Cess
Value for purpose of GST Compensation will be as determined under section 15 of CGST Act
- proviso to section 8(2) of GST Cess Act.
53.2-3 CGST Rules adopted to GST Compensation Cess
GST Compensation Cess Rules, 2017 have been notified. All rules of CGST Rules have been
adopted, except that rules 3 to 7 and 117 to 120 will be omitted - Notification No. 2/2017-
Compensation Cess dated 1-7-2017.
53.3 Input Tax Credit of GST Compensation Cess
Input Tax Credit of GST Compensation Cess will be available - section 11(2) of GST Cess Act.
The input tax credit in respect of GST Compensation Cess on supply of goods and services
leviable shall be utilised only towards payment of GST Compensation Cess on supply of
goods and services leviable under section 8 of GST Cess Act - proviso to section 11(3) of GST
Cess Act.
In Orix Auto Infrastructure Services Ltd., In re [2019] 104 taxmann.com 9 (AAR - KERALA), it
was held that ITC of Compensation Cess paid on motor vehicles is allowed (where ITC of GST
paid on motor vehicles is allowable). [seems doubtful as compensation cess credit can be
utilised only for payment of compensation cess].
53.3-1 Supply on which GST Compensation Cess payable
 1050

GST Compensation Cess will be payable on supplies listed in Schedule to GST Compensation
Act - section 8(2) of GST Cess
Broadly, maximum GST Cess rates are as follows -
Pan Masala - 150%
Tobacco and tobacco products - Rs 4,170 per thousand sticks or 290% ad valorem or a
combination thereof
Coal, briquettes, ovoids and similar solid fuels manufactured from coal - Rs 400 per tonne
Aerated waters - 15%
Motor cars and motor vehicles for transport of less than ten persons, including drive and
also on station wagons and racing cars - 25% [It was 15% upto 2-9-2017. Increased to 25%
by Ordinance].
All Other supplies - 15%.
53.3-2 Effective rate of GST Compensation Cess
Actual rate of GST Compensation Cess w.e.f. 1-7-2017 are -
(a) 12% for aerated waters
(aa) 12% for Caffeinated Beverages falling under 22029990 (inserted w.e.f. 1-10-2019)
(b) 60% for pan masala
(c) 71% for unmanufactured tobacco with brand name (without lime tube)
(d) 65% for unmanufactured tobacco with brand name (without lime tube)
(e) Cigarettes and cigarillos and other tobacco products - varying rates per thousand
depending on length, filter
(f) Coal, lignite - Rs. 400 per tonne [GST Compensation Cess on Coal rejects supplied by
coal washery is Nil, if no ITC was availed by any person, w.e.f. 27-7-2018].
(g) Motorcycle with engine capacity exceeding 350cc - 3%
(h) Aircraft for personal use - 3%
(i) All other goods (other than motor vehicles falling under heading 8703) - Nil -
Notification No. 1/2017-Compensation Cess (Rate) dated 28-6-2017.

Compensation Cess payable on coal rejects by thermal power plant - Coal rejects supplied
by power plant is covered under HSN 2701 for levy of compensation cess. Exemption is
available only for coal rejects supplier by coal washery - Haryana Power Generation
Corporation Ltd., In re [2021] 124 taxmann.com 534 (AAR - Haryana).
GST Compensation Cess on motor vehicles falling under 8703 from 11-9-2017 -
(A) Motor vehicles for transport of not more than 13 persons including driver (except of
smaller size for which rate is 1%/3%) - 15% [the words in italics inserted w.e.f. 1-10-
2019].
 1051

(B) Electrically operated vehicles, fuel cell motor vehicles (item in italics inserted w.e.f.
27-7-2018) - Nil
(C) Cars for physically handicapped persons (only of smaller size as specified) - Nil [the
words in italics inserted w.e.f. 1-10-2019].
(D) LPG or petrol driven vehicles of engine capacity not exceeding 1200cc and length not
exceeding 4000 mm - 1%
(E) Diesel driven motor vehicles of engine capacity not exceeding 1500cc and length not
exceeding 4000 mm - 3%
(F) Vehicles, with both spark-ignition internal combustion reciprocating piston engine
and electric motor as motors for propulsion with engine capacity not exceeding
1200cc but length exceeding 4000 mm - 15%
(G) Vehicles, with both compression-ignition internal combustion piston engine [diesel-
or semi diesel] and electric motor as motors for propulsion of engine capacity not
exceeding 1500cc but length exceeding 4000 mm - 15%
(H) Mid sized cars - 17%
(I) Motor vehicles of engine capacity exceeding 1500cc [other than Sports Utility Vehicles
(SUVs) and utility vehicles] - 20%
(J) Sports Utility Vehicles (SUVs) and utility vehicles - 22%.
(K) Ambulance under headings 8702 and 8703 - Nil

No GST Compensation Cess w.e.f. 25-1-2018 on old cars sold, if ITC or Cenvat or set off not
availed - There is no GST Compensation Cess w.e.f. 25-1-2018 on old cars sold. However, the
exemption is not available if input tax credit under GST or Cenvat Credit under Cenvat Credit
Rules or ITC under State Vat was availed - Notification No. 1/2007- Compensation Cess (Rate)
dated 28-6-2017 as amended on 25-1-2018.
GST Compensation Cess on motor vehicles during the period 1-7-2017 to 11-9-2017 - (a)
Motor vehicles for transport of ten or more persons including driver - 15% (b) Vehicles of
engine capacity not exceeding 1200cc and length 40000 mm - 1% (c) Diesel vehicles upto
1500cc capacity - 3% (d) Other motor vehicles (high end cars) - 15%
GST Compensation Cess on service of hiring of motor vehicles - (a) In case of supply of
service of transfer of right to use goods on which GST Compensation Cess is applicable -
same rate of cess as applicable on supply of similar goods (mainly applicable to motor
vehicles) (b) In case of all other services - Nil - Notification No. 2/2017-Compensation Cess
(Rate) dated 28-6-2017.
GST Compensation Cess on leasing of motor vehicles purchased prior to 1-7-2017 - The GST
Compensation Cess will also be 65% of applicable rate on supply of the motor vehicles
involving transfer of title in goods. This exemption is valid upto 1-7-2020 only - Notification
No. 6/2017-CC (Rate) dated 13-10-2017.
 1052

Other supplies have been exempted by notification - Though the schedule to GST
(Compensation Cess) Act specifies 15% GST on 'All Other Supplies', this is only an enabling
provision. There will be no GST Compensation on supplies other than SIN goods or luxury
goods as Compensation Cess has been exempted on all other goods.
53.4 Other provisions relating to GST Compensation Cess
Taxable person will have to pay tax and file returns.
All provisions relating to filing returns under IGST Act will apply in case of GST Compensation
Cess - section 9 of GST (CSLR) Act.
All provisions of CGST Act and IGST Act will apply to GST Compensation Cess - section 11(1)
and 11(2) of GST (CSLR) Act.
Refund of GST Compensation Cess to UN and specified international organisations -
Section 9(2) of GST (Compensation to States) Act, 2017 provide that all provisions of CGST
Act (including refunds) will apply to Compensation Cess. Hence, Refund of GST
Compensation Cess is permissible to UN and specified international organisations under
section 55 of CGST Act - CBI&C circular No. 68/42/2018-GST dated 5-10-2018.
No refund of GST Compensation Cess under inverted duty structure in respect of tobacco
products - There will be no refund of GST Compensation Cess under provisions of inverted
duty structure in respect of tobacco and manufactured tobacco substitutes falling under
chapter 24 - Notification No. 3/2019-Compensation Cess (Rate) dated 30-9-2019 [This
provision should apply only for supplies made on or after 1-10-2019, as the notification does
not have any retrospective effect].
53.4-1 Crediting proceeds of GST Compensation Cess
The proceeds of the GST Compensation Cess leviable under section 8 shall be credited to a
non-lapsable fund known as the GST Compensation Fund in the Public Account, and shall be
utilized for purposes specified in section 8 of GST Compensation Cess - section 10(1) of GST
Cess Act.
All amounts payable to the States under section 7 of GST Cess Act shall be paid from the
Goods and Tax Compensation Fund.
50% of the amount remaining unutilized in the GST Compensation Fund at the end of the
transition period shall be transferred to the Consolidated Fund of India as share of Centre
and balance 50% shall be distributed amongst the States on the basis of total revenue from
SGST and UTGST in the last year of transition period -- Section 10(3) of GST Cess Act.
However, as per section 10(3A) of GST (Compensation to States) Act (as introduced by GST
(Compensation to States) Amendment Act, 2018 w.e.f. 1-2-2019, the distribution to States
shall be as per base year revenue as determined under section 5 of GST Cess Act. If there is
shortfall of the amount collected in the Fund against compensation to be released under
section 7 of the GST Cess Act for any two months' period, 50% of the shortfall (but not
exceeding total amount transferred to Centre and States) shall be recovered from Centre
and balance 50% shall be recovered from the States in the ratio of their base year revenue.
Accounts of Fund shall be audited by C&AG or any person appointed by C&AG. The Audited
Accounts will be placed before Parliament -- Section 10(5) of GST Cess Act.
 1053

53.4-2 Miscellaneous provisions in respect of compensation cess

Section 12 of GST Cess Act provides for powers of Central Government to make rules. Section
13 provides that these rules will be placed before Parliament.
Section 14 of GST Cess Act makes provisions for removal of difficulties by issuing order by
Central Government on recommendation of GST Council.
53.4-3 GST Compensation Cess is covered under 'zero rated supply'
Basic principle is that taxes should not be exported. Exports have to be zero rated. This
principle applies to GST Compensation Cess also. Hence, (a) Exporters can claim refund of
GST Compensation Cess (b) Compensation Cess will not be charged on goods exported under
bond or LUT - CBE&C circular No. 1/1/2017-Compensation Cess dated 26-7-2017.
 1054

Transitory Provisions
54.1 Transitory Provisions
Eligible Cenvat credit of eligible duties (and Vat credit of State Vat) on inputs and input
services under existing law, can be carried forward, within such time and in such manner -
section 140(1) of CGST and SGST Act. - The words 'eligible duties' inserted vide CGST
(Amendment) Act, 2018, with retrospective effect from 1-7-2017. The words 'within such
time' inserted vide Finance Act, 2020 w.r.e.f. 1-7-2017.
Unavailed Cenvat Credit on eligible capital goods not carried forward in a return can be taken
- section 140(2) of CGST and SGST Act.
Transitory credit taken after due date disallowed with retrospective effect to nullify
judgments of High Court - In many cases High Court had allowed transitory credit even
when required returns were not filed before due date. To get over the judgments, it is
provided that transitory credit taken after due date will be disallowed if return filed beyond
due date. This amendment is with retrospective effect to nullify judgments of various High
Courts- section 140 of CGST Act amended with retrospective effect.
In some of the judgments of High Court, it was held that transitory credit is a vested right
and any time limit cannot be fixed to avail that right. Hence, section 140 has been amended
with retrospective effect to add the words 'within such time'.
This amendment may even affect those cases where the taxable person could not file GST
TRAN-1 in time due to technical glitches with GSTN.
This provision has been notified and made effective on 18-5-2020, of course with
retrospective effect.
Really, this is against specific promise of BJP that tax laws will not be amended with
retrospective effect.
Retrospective amendments to disallow carry forward of certain Cenvat Credit and nullify
some HC decisions - Section 140 of CGST Act has been amended with retrospective effect
from 1-7-2017 vide CGST (Amendment) Act, 2018 to disallow carry forward of certain Cenvat
Credit and nullify some HC decisions. Parallel changes are being made in SGST Acts by State
Governments.
The amendments (with retrospective effect from 1-7-2017) are summarised below -
The carry forward of Cenvat credit will be only of eligible duties.
Additional duty of excise levied under section 3 of Additional Duties of Excise
(Textiles and Textile Articles) Act, 1978.

It is worth noting that BJP, when came to power, had specifically stated that there will be no
retrospective amendment to tax laws to disadvantage of tax papers. This retrospective
amendment is clearly against the solemn promise made by BJP.
Some confusion has been created by use of the words 'eligible duties'. Hence, it has been
clarified vide CBI&C circular No. 87/06/2019-GST dated 2-1-2019 that transitional credit of
service tax will be allowed to be carried forward. Further, transitional credit is not linked to
stock on 30-6-2017. For this, some amendments made by Amendment Act, 2018 to
 1055

Explanation 1(i) of Explanation 2(i) of section 140(1) of CGST Act have not been notified and
not made effective, though other provisions have been notified and made effective on 1-2-
2019.
What happens if a taxable person could not migrate? - There are many taxable persons
who could not migrate due to system problems of GSTN. In that case, earlier, only option
was to apply for fresh registration. In that case, if the taxable person gives reference of old
registration number, he was allowed to take transitional credit - FAQ No. 17 issued by CBI&C
on 20-7-2017.
However, now, a specific procedure has been prescribed vide Notification No. 31/2018-CT
dated 6-8-2018 for those who had obtained provisional registration number (PRD) till 31-12-
2017 but did not get final GST Registration Number.
They should furnish details in form given in the notification to jurisdictional State/Central
Government Officer before 31-1-2019. They will receive email from GSTN. Then they should
log to www.gst.gov.in and then fill in form GST REG-01. Then they will get Application
Reference Number (ARN) and new GSTIN. Then they are required to submit specified details
by email before 28-2-2019. They will be deemed to be registered w.e.f. 1-7-2017
[Notification No. 31/2018-CT dated 6-8-2018 as amended on 31-12-2018].
They can file GSTR-3B and GSTR-1 return for the period July 2017 to February 2019 before
31-3-2019 - (a) proviso to Notification No. 21/2017-CT dated 8-8-2017, Notification No.
35/2017-CT dated 15-9-2017, No. 56/2017-CT dated 15-11-2017, No. 16/2018-CT dated 23-
3-2018 and Notification No. 34/2018-CT dated 10-8-2018 all amended on 31-12-2018 (in
respect of GSTR-3B) and (b) second proviso to Notification No. 43/2018-CT dated 10-9-2018
and first proviso to Notification No. 44/2018-CT dated 10-9-2018 amended on 31-12-2018.
Filing of GST TRAN-1 by those who could not file the form earlier - Many taxable persons
could not file GSTR TRAN-1 due to technical difficulties. They can file declaration upto 30-3-
2020 - rule 117(1A) of CGST Rules, amended w.e.f. 1-1-2020 and order No. 1/2020-GST dated
7-2-2020.
Those who file GST TRAN-1 before 31-3-2020 as per aforesaid provision can submit
declaration in form GST TRAN-2 by 30-4-2020 - proviso to Rule 117(4)(iii) of CGST Rules,
inserted w.e.f. 10-9-2018 and amended on 1-1-2020.
In many cases, High Court has allowed filing of TRAN-1 if it could not be filed in time due to
technical issues in GSTN. In one such case, in Union of India v. Adfert Technologies (P.) Ltd.
[2020] 115 taxmann.com 29 (SC), SLP filed by department has been dismissed by SC.
54.1-1 Meaning of existing law
There are parallel definitions in CGST Act and SGST Act.
Existing law means any law, notification, order, rule or regulation, relating to levy and
collection of duty or tax on goods or services or both passed or made before commencement
of CGST Act by Parliament or any authority or person having power to make such law,
notification, order, rule or regulation - section 2(48) of CGST Act.
Existing law means any law, notification, order, rule or regulation, relating to levy and
collection of duty or tax on goods or services or both passed or made before commencement
 1056

of SGST Act by the Legislature or any authority or person having power to make such law,
notification, order, rule or regulation - section 2(48) of SGST Act.
54.1-2 Conditions for carry forward of central duties as contained in return filed on 30-6-
2017
The conditions for eligibility of input tax credit of excise duty paid on input goods are as
follows -
The taxable person should not be paying GST under composition scheme under
section 10 of CGST or SGST Act.
The input tax credit should be allowable under CGST and SGST Act.
The taxable person should have filed all returns for last six months i.e. from January,
2017 onwards.
The input tax credit should not be relating to goods manufactured and cleared under
exemption notification notified by Government [no such notification has been so far
notified by Central Government]
If the inputs were received from EOU/STP/EHTP, the credit will be available to the
extent provided in rule 3(7) of Cenvat Credit Rules.
The registered person is required to submit application electronically in form GST
TRAN-1 within 90 days - Rule 117(2)(b) of CGST and SGST Rules, 2017. Time limit for
filing GST TRAN-1 has been extended to 27-12-2017 - Order No. 10/2017-GST dated
15-11-2017.
The amount of credit specified in form GST TRAN-1 will be automatically credited to
electronic credit ledger of applicant in form GST PMT-2 - Rule 117(3) of CGST and
SGST Rules, 2017.
If credit is wrongly taken, it can be recovered under section 73 or 74 with interest -
Rule 121 of CGST and SGST Rules, 2017.

Extension of time limit for filing GST TRAN-1, GSTR-3B and GSTR-1 - Many taxable persons
could not file GSTR TRAN-1 due to technical difficulties. They can file declaration upto 31-3-
2020.
Many taxable persons could not file GSTR TRAN-1 due to technical difficulties. They can file
declaration upto 30-3-2020 - rule 117(1A) of CGST Rules, amended w.e.f. 1-1-2020 and order
No. 1/2020-GST dated 7-2-2020.
Those who file GST TRAN-1 before 31-3-2020 as per aforesaid provision can submit
declaration in form GST TRAN-2 by 30-4-2020 - proviso to Rule 117(4)(iii) of CGST Rules,
inserted w.e.f. 10-9-2018 and amended on 1-1-2020.
Which credit is allowable for transfer - Section 140(1) of CGST Act and SGST Act states that
the registered person can carry forward Cenvat credit of eligible duties and Vat credit as
contained in the return filed on 30-6-2017. The words in italics inserted vide CGST
(Amendment) Act, 2018 with retrospective effect from 1-10-2017.
 1057

Hence, there is no doubt that credit of basic excise duty, CVD, special CVD of 4% and service
tax as indicated in excise return filed for June 2017 (filed in July 2017) is eligible. The reason
is that all these are defined as Cenvat credit in rule 3(1) of Cenvat Credit Rules.
Some confusion has been created by use of the words 'eligible duties'. Hence, it has been
clarified vide CBI&C circular No. 87/06/2019-GST dated 2-1-2019 that transitional credit of
service tax will be allowed to be carried forward. Further, transitional credit is not linked to
stock on 30-6-2017. For this, some amendments made by Amendment Act, 2018 have not
been notified and will not be made effective on 1-2-2019.
Credit of education cess and SAHE cess not available - Credit of education cess and SAHE
Cess is not admissible - same view in CMI FPE Ltd. In re (2018) 70 GST 25 = 97 taxmann.com
22 (AAR-Maharashtra).
This is also clear in view of retrospective amendment made to section 140 of CGST Act w.e.f.
1-7-2017 vide CGST (Amendment) Act, 2018. This amendment has not been made effective
though other provisions have been notified and made effective on 1-2-2019.
If the taxable person had taken credit in TRAN-1 of education cess and SAHE Cess, he should
reverse it immediately.
No credit of KKC and SBC - As per rule 3(7)(d) of Cenvat Credit Rules (inserted w.e.f. 1-6-
2016), Cenvat credit of KKC can be utilised for payment of Krishi Kalyan Cess (KKC) only.
Further, KKC is not included in definition of 'Cenvat Credit' in rule 3(1) of Cenvat Credit Rules.
Hence, the credit of KKC will not be available to be carried forward - view confirmed in S. No.
91 of Tweet FAQ released by CBI&C on 26-6-2017 - same view in Kansai Nerolac Paints Ltd.
In re. [2018] 93 taxmann.com 58 (AAR- MAH.).
As per rule 3(7)(d) of Cenvat Credit Rules (inserted w.e.f. 1-6-2016), Cenvat credit of KKC can
be utilised for payment of Krishi Kalyan Cess (KKC) only. Further, KKC is not included in
definition of 'Cenvat Credit' in rule 3(1) of Cenvat Credit Rules. Hence, the credit of KKC will
not be available to be carried forward - view confirmed in S No. 91 of Tweet FAQ released
by CBI&C on 26-6-2017 - same view in Kansai Nerolac Paints Ltd., In re [2018] 68 GST 1 = 93
taxmann.com 58 (AAR- Maharashtra) - view confirmed in Kansai Nerolac Paints Ltd., In re
[2018] 96 taxmann.com 153 (AAAR - Maharashtra).
However, in Sutherland Global Services v. AC CGST (2019) 111 taxmann.com 264 (Mad HC),
it has been held that transitional credit of EC, SHEC and KKC can be availed and can be carried
forward under GST regime - same view in Siddharth Enterprises v. Nodal Officer (2019) 109
taxmann.com 62 (Guj HC).
No credit of Swachh Bharat Cess - Swachh Bharat Cess (SBC) was not eligible for Cenvat
Credit Rules. Hence, there is no question of carry forward of credit of SBC - S No. 91 of Tweet
FAQ released by CBI&C on 26-6-2017.
Credit of Clean Energy Cess is not available for payment of GST Compensation Cess - Credit
of Clean Energy Cess cannot be used for payment of GST Compensation Cess - Union of India
v. Mohit Mineral (P.) Ltd. [2018] 69 GST 743 = 98 taxmann.com 45 (SC).
No credit of any cess not specified in Explanations 1 and 2 of section 140 - Krishi Kalyan
Cess, Education Cess, Cess collected as Additional duty of customs under section 3(1) of
Customs Tariff Act and any other cess not specified in Explanation 1 or 2 to section 140 of
 1058

CGST Act will not be eligible for carry forward - Explanation 3 to section 140 of CGST Act
inserted vide CGST (Amendment) Act, 2018, with retrospective effect from 1-7-2017.
54.1-3 Conditions for carry forward of state taxes as contained in return filed on 30-6-2017
The conditions for eligibility of input tax credit of State Vat and entry tax (where applicable)
paid on input goods are as follows -
The taxable person should not be paying GST under composition scheme under
section 10 of CGST or SGST Act.
The input tax credit should be allowable under SGST Act.
The taxable person should have filed all returns for last six months i.e. from January,
2017 onwards.
Credit as attributable to claim under section 3, 5(3), 6, 6A or 8(8) of CST Act that is
not substantiated in the manner specified in rule 12 of CST (Registration Rules), 1957
shall not be eligible to the electronic credit ledger.
The registered person has to submit application in form GST TRAN 1 within 90 days -
Rule 117(1) of CGST and SGST Rules, 2017.
The amount of credit specified in form GST TRAN-1 will be automatically credited to
electronic credit ledger of applicant in form GST PMT-2 - Rule 117(3) of CGST and
SGST Rules, 2017.
If credit is wrongly taken, it can be recovered under section 73 or 74 with interest -
Rule 121 of CGST and SGST Rules, 2017.

Which credit is allowable for transfer - Section 140(1) of SGST Act states that the registered
person can take input tax credit of State Vat and entry tax carried forward in the return filed
on 30-6-2017 [check SGST Act or your State and confirm about entry tax or other taxes
eligible for carry forward]
Details of sales under CST Act - If goods were supplied under CST Act, details of claims and
CST forms (C, F, H, I, E-I/E-II shall be submitted within 90 days. Serial numbers of C and F
forms and certificates in forms E, H, F or I should be submitted in support of the claim -
proviso to rule 1(1) of State Transitional Provision Rules.
No State Vat Credit when inter-state supply has been made and forms under CST not
required - Second proviso to section 140(1) of SGST Act [section 18(1) of UTGST Act] states
that if the taxable person is engaged in inter-state sales, the credit as attributable to claim
under section 3, 5(3), 6, 6A or 8(8) of CST Act which is not substantiated in the manner
specified in rule 12 of CST (Registration Rules), 1957 shall not be eligible to the electronic
credit ledger.
Validity of this proviso has been upheld in Willowood Chemicals (P.) Ltd. v. Union of India
[2018] 98 taxmann.com 100 (Gujarat HC).
However, in Brand Equity Treaties Ltd. v. UOI [2020] 116 taxmann.com 415 (Delhi HC DB), it
was held that time limit of 90 days for submitting TRAN-1 is directory and not mandatory.
The return can be filed within normal limitation period of three years.
 1059

As per third proviso to section 140(1) of SGST Act [section 18(1) of UTGST Act], when the
claim is substantiated, the amount will be refunded to the taxable person.
What the provision means is as follows -
CST rate is 2% of the recipient issues C form. Similarly CST is not payable if form F, H, I or J
or E-II is received. If the form is not received then CST payable is equal to State Vat rate.
Thus, if State Vat is 15%, then if C, H, I or J or E-II form is not received CST is payable @ 15%.
Now, it is possible that as on 30-6-2017, inter-state sales have been made but required form
under CST has not been received upto 30-9-2017. In that case, it means that the claim is not
substantiated. Hence, the credit equal to difference between 15% and CST paid [2% or Nil
as applicable] will not be available for carry forward.
The refund will be available when the required forms under CST Act are received.
As per rule 12(7) of CST Rules, declaration in forms C and E-I/E-II are required to be submitted
to assessing authority within three months after end of the period to which it relates.
One C and E-I/E-II declaration is required to be obtained per quarter. Hence, after end of
quarter, within three months, the declarations should be submitted to Assessing Authority.
If goods were supplied under CST Act, details of claims and CST forms (C, F, H, I. E-I/E-II shall
be submitted within 90 days - proviso to rule 1(1) of Transitional Provision Rules.
Thus, if forms are not submitted within 90 days, input tax credit to that extent cannot be
carried forward.
This has been clarified in FAQ No. 39 of FAQ on Mining issued by Directorate General of
Taxpayer Services on 31-7-2017.
No restriction if Vat credit in return is Nil or when no inter state sales - There is no
restriction if Vat credit in return is Nil as in that case, there is no carry forward. Similarly,
there are no restrictions in carry forward of State Vat credit if there were no inter state sales
or if all required forms under CST Act are received within 90 days.
54.1-4 Procedure to be followed in respect of inputs
The registered person shall file declaration in form GST TRAN-1 within the period specified
in rule 117 of CGST Rules or such further period as extended by Commissioner, furnishing
proportion of supply on which Vat or service tax has been paid before 30-6-2017 but the
supply made after 1-7-2017 and Input Tax Credit admissible thereon - Rule 118 of CGST and
SGST Rules, 2017 as amended on 29-9-2017. [Really, it is not 'Input Tax Credit'. It is credit of
tax paid prior to 30-6-2017].
Validity of time limit specified in rule 117 has been upheld in Willowood Chemicals (P.) Ltd.
v. Union of India [2018] 98 taxmann.com 100 (Gujarat HC).
Time limit prescribed by Rule 117 of 2017 Rules to upload Form GST TRAN-1 on common
portal in order to avail of benefit of ITC is mandatory and, said Rule 117 of 2017 Rules, is
intra vires section 140 - P.R. Mani Electronics v. Union of India [2020] 117 taxmann.com 868
(Madras HC).
However, in Brand Equity Treaties Ltd. v. UOI [2020] 116 taxmann.com 415 (Delhi HC DB), it
was held that time limit of 90 days for submitting TRAN-1 is directory and not mandatory.
The return can be filed within normal limitation period of three years.
 1060

This decision in Brand Equity has been stayed by Supreme Court in UOI v. Brand Equity
Treaties Ltd. [2020] 117 taxmann.com 225 (SC).
Hence, In re hau Polymers (P.) Ltd. v. Union of India [2020] 117 taxmann.com 495 (Delhi HC),
prayer for allowing provisional manual filing of GST TRAN-I Form was not accepted, as High
Court has power, to direct respondents to accept GST TRAN-I Form at a later point of time,
if required.
In Subhas & Company v. CGST and CX [2020] 117 taxmann.com 521 (Calcutta HC), the time
limit specified in rule 117 has been held as directory and it was held that details can be filed
within normal period of three years, if return could not be filed in time due to technical
glitches.
The GST TRAN-1 declaration can be revised once - rule 120A of CGST Rules, inserted w.e.f.
15-9-2017.
Time limit for filing TRAN-1 has been extended to 30-11-2017 - Order Nos. 07/2017-GST and
08/2017-GST both dated 28-10-2017.
54.2 Eligibility of central duties and Vat paid on capital goods which was not carried
forward
In Central Excise, Cenvat credit of capital goods is available in two stages of 50% each. In
some States, State Vat credit of capital goods is available in 2 or 3 years.
In such cases, it is possible that some input tax credit of excised duty or education cess or
SAHE Cess paid on capital goods is not availed. Similarly, some input tax credit of State Vat
or entry tax paid on capital goods may not have been availed.
This will also happen in case of capital goods received during 1-4-2017 to 30-6-2017.
In such cases, the unveiled credit on capital goods, not carried forward in return filed for
June 2017, can be availed - section 140(2) of CGST Act and SGST Act.
The condition is that such credit should be allowable under existing law (Central Excise Act
or State Vat or Service Tax Law as applicable) as well as under CGST and SGST Act.
If credit not available earlier on capital goods, it cannot be taken in transitory provision -
In Geojit Financial Services Ltd. In re (2018) 70 GST 614 = 98 taxmann.com 160 (AAR - Kerala),
applicant was not subject to tax under Vat laws prior to 30-6-2017. He had stock of
computers, laptops etc. in stock on 30-6-2017. It was held that the applicant cannot take ITC
of taxes paid on such computers and laptops, as he was not entitled to such credit prior to
30-6-2017. - view upheld in appeal in Geojit Financial Services Ltd., In re (2019) 72 GST 632
= 103 taxmann.com 171 (AAAR - Kerala).
54.2-1 Procedure to be followed in respect of capital goods
The registered person shall file a declaration in form GST TRAN-1 giving details of credit
availed and unavailed on capital goods.
The declaration shall give details of credit availed on capital goods and credit yet to be
availed - Rule 117(2) of CGST and SGST Rules, 2017.
54.3 Eligible duties and taxes on goods which were held in stock on 30-6-2017, if person
was not eligible to take Cenvat credit earlier
 1061

A taxable person who was not eligible to take Cenvat Credit but is now under GST can take
input tax credit of excise duty which was paid on the stock with him, if he has Invoice or
other documents evidencing payment of excise duty.
A registered person (a) who was not liable to be registered under earlier law (i.e. excise or
service tax) or (b) who was engaged in the manufacture of exempted goods or provision of
exempted service or (c) who was providing works contract service and paying service tax
under abatement scheme under Notification No. 26/2012-ST dated 20-6-2012 (paying
service tax @30% on construction of complex) or (d) first stage dealer or (e) second stage
dealer or (f) a registered importer or a depot of a manufacturer, shall be entitled to take
credit in his electronic cash register of eligible duties in respect of inputs in stock and inputs
contained in semi-finished or finished goods lying in stock on the appointed day, within such
time and in such manner as may be prescribed, subject to prescribed conditions. There
should be duty paying document with him which are not more than 12 month old. The
supplier of service should not be eligible for any abatement under CGST Act - section 140(3)
of CGST Act. [The words in italics inserted vide Finance Act, 2020 w.r.e.f. 1-7-2017].
The conditions are as follows -
The input or goods are to be used for making taxable supplies under CGST Act.

The registered person is eligible for input tax credit under CGST Act.
The registered person is in possession of invoice (under excise law) or other duty
paying document (like Bill of Entry) evidencing payment of duty.
The document [invoice or Bill of Entry] should not be more than 12 months old prior
to 30-6-2017. - This time limit of 12 months has been held as valid in JCB India v. UOI
(2018) 67 GST 52 = 92 taxmann.com 131 (Bom HC DB). However, it has been held
invalid in case of Filco Trade Centre v. UOI (2018) 69 GST 532 = 97 taxmann.com 314
(Gujarat HC DB) as the registered person had vested right in eligibility of credit of
excise duty paid on goods [The decision in case of first stage dealers, but principle
should apply in all cases].
The supplier of service is not eligible for any abatement under CGST Act.
If procurement is from EOU/STP/EHTP the input tax credit will be as per rule 3(7) of
Cenvat Credit Rules, 2004 - Rule 117(1) of CGST and SGST Rules, 2017.

The registered person is required to file stock statement electronically in form GST
TRAN-1 within 90 days - Rule 117(2)(b) of CGST and SGST Rules, 2017. Time limit for
filing GST TRAN-1 has been extended to 31-3-2020 - rule 117(1A) of CGST Rules,
amended w.e.f. 1-1-2020 and order No. 1/2020-GST dated 7-2-2020.
The amount of credit specified in form GST TRAN-1 will be automatically credited to
electronic credit ledger of applicant in form GST PMT-2 - Rule 117(3) of CGST and
SGST Rules, 2017.
If credit is wrongly taken, it can be recovered under section 73 or 74 with interest -
Rule 121 of CGST and SGST Rules, 2017.
 1062

54.3-1 Meaning of Cenvat, first stage dealer, second stage dealer

Expressions capital goods, first stage dealer, second stage dealer or manufacture has
meaning assigned to it in Central Excise Act, 1944 - Explanation to section 142 of CGST Act.
First stage and second stage dealers were eligible to issue Cenvatable Invoice. Similarly
registered importer and depot/consignment agent of manufacturer/importer was allowed
to issue Cenvatable Invoice.
Third stage dealer cannot issue Cenvatable Invoice - CCE v. SDL Auto (2010) 253 ELT 497
(CESTAT SMB).
First Stage dealer - As per Rule 2(ij) of Cenvat Credit Rules, 'First Stage Dealer' means a
dealer, who purchases goods directly from—
(i) the factory of manufacturer under Invoice issued by manufacturer under Central
Excise Rules or from the depot of the manufacturer or from consignment agent of
the manufacturer under cover of invoice or from any premises where the goods are
sold by or on behalf of the manufacturer under cover of invoice or
(ii) an importer or from depot of importer or from premises of his consignment agent of
the importer, under cover of an invoice.

It may be noted that Depot/consignment of manufacturer/importer is not a 'first stage

dealer'. Similarly, 'importer' is not a first stage dealer.
Second Stage dealer - Second stage dealer means a dealer who purchases goods from a first
stage dealer. - Rule 2(s) of Cenvat Credit Rules. Dealer of any subsequent stage after second
stage cannot issue Cenvatable Invoice.
If a dealer purchases goods from another person, he is 'second stage dealer' even if the name
of dealer is shown as 'Consignee' in the invoice of original manufacturer - Gautam Steel
Traders v. CCE (2011) 265 ELT 77 (CESTAT SMB)
54.4 Eligible taxes on goods which were held in stock on 30-6-2017, if person was not
registered under State Vat
A registered person who was not liable to be registered under State Vat law or who was
engaged in sale of exempted goods or tax free goods or goods which had suffered tax at first
point of their sale in the State and for subsequent sales are not subject to tax in the State in
State Vat Act, but the goods are now liable to SGST or where the person was entitled to
credit of input tax at the time of sale of goods can take input tax credit of State Vat which
was paid on the stock with him, if he has tax invoices or other documents evidencing
payment of State Vat. He has to submit stock statement - section 140(3) of SGST Act.
54.5 Deemed Input tax credit of tax on stock if invoice of supplier showing tax paid is not
available
Even if duty or tax paying document is not available, input tax credit will be available on
goods held in stock on 1-7-2017 (appointed day), within such time and in such manner as
may be prescribed - section 140(3) of CGST Act - words in italics inserted vide Finance Act,
2020 w.r.e.f. 1-7-2017.
 1063

As per Rule 117(4) of CGST and SGST Rules, 2017, the registered person can take input tax
credit as follows—
(A) In case of Central Excise, the provisions are as follows—
(a) If CGST rate is 9% or above [i.e. IGST rate 18% or above] he can take input tax credit
equal to 60% of the CGST payable on such goods when sold after 1-7-2017, if the
credit is used for payment of CGST. If the ITC is utilized for payment of IGST, the
credit shall be 30% of the IGST payable on such goods.
(b) If CGST rate is below 9% [i.e. IGST rate below 18%] he can take input tax credit equal
to 40% of the CGST payable on such goods when sold after 1-7-2017, if the credit is
used for payment of CGST. If the ITC is utilized for payment of IGST, the credit shall
be 20% of the IGST payable on such goods.

(B) In case of State Vat, the provisions are as follows—

Where tax is payable at first point of their sale and subsequent sales are not subject to State
Vat (this can happen where State Vat was payable on MRP basis), the provisions are as
follows—
(a) If SGST rate is 9% or above [i.e. IGST rate 18% or above] he can take input tax credit
equal to 60% of the SGST payable on such goods when sold after 1-7-2017, if the
credit is used for payment of SGST. If the ITC is utilized for payment of IGST, the credit
shall be 30% of the IGST payable on such goods.
(b) If SGST rate is below 9% [i.e. IGST rate below 18%] he can take input tax credit equal
to 40% of the SGST payable on such goods when sold after 1-7-2017, if the credit is
used for payment of SGST. If the ITC is utilized for payment of IGST, the credit shall
be 20% of the IGST payable on such goods.

54.6 Credit if taxable person was manufacturing exempted as well as taxable goods and
providing exempted or taxable services
A registered person who was manufacturing exempted as well as taxable goods and
providing exempted or taxable services but such goods are liable to GST, can take input tax
credit of Cenvat credit as per return filed under excise law or service tax. He can also take
input tax credit of duty paid on inputs held in stock and inputs contained in semi-finished
goods or finished goods held in stock on 1-7-2017 relating to such exempted goods or
services - - section 140(4) of CGST Act and SGST Act.
The registered person is required to file stock statement electronically in form GST TRAN-1
within 90 days - Rule 117(2)(b) of CGST and SGST Rules, 2017.
Time limit for filing TRAN-1 has been extended to 27-12-2017 - Order No. 10/2017-GST dated
15-11-2017.
Time limit for filing TRAN-1 Time limit for filing GST TRAN-1 has been extended to 31-3-2020
- rule 117(1A) of CGST Rules, amended w.e.f. 1-1-2020 and order No. 1/2020-GST dated 7-
2-2020.
 1064

The amount of credit specified in form GST TRAN-1 will be automatically credited to
electronic credit ledger of applicant in form GST PMT-2 - Rule 117(3) of CGST and SGST Rules,
2017.
The GST TRAN-1 declaration can be revised once - rule 120A of CGST Rules, inserted w.e.f.
15-9-2017.
If credit is wrongly taken, it can be recovered under section 73 or 74 with interest - Rule 121
of CGST and SGST Rules, 2017.
54.7 Credit if taxable person was engaged in sale of exempted as well as taxable goods or
tax free goods
A registered person who was engaged in sale of taxable goods as well as exempted or tax
free goods under State Vat, but now such goods are liable to GST, can take input tax credit
of Cenvat credit as per return filed under State Vat Act. He can also take input tax credit of
Vat paid on inputs held in stock and inputs contained in semi-finished goods or finished
goods held in stock on 1-7-2017 relating to such exempted goods or tax fee goods - section
140(4) of SGST Act.
The registered person is required to file stock statement electronically in form GST TRAN-1
within 90 days - Rule 117(2)(b) of CGST and SGST Rules, 2017.
The amount of credit specified in form GST TRAN-1 will be automatically credited to
electronic credit ledger of applicant in form GST PMT-2 - Rule 117(3) of CGST and SGST Rules,
2017.
If credit is wrongly taken, it can be recovered under section 73 or 74 with interest - Rule 121
of CGST and SGST Rules, 2017.
54.8 Registered person who was paying tax/duty at fixed rate or paying fixed amount
Registered person who was paying tax/duty at fixed rate or paying fixed amount under
earlier law can take input tax credit of excise duty paid or Vat paid on inputs held in stock or
contained in semi-finished goods and finished goods on 1-7-2017, within such time and in
such manner as pay be prescribed - section 140(6) of CGST Act and section 140(6) of SGST
Act [The words in italics inserted vide Finance Act, 2020, w.r.e.f. 1-7-2017].
The registered person is required to file declaration with stock details electronically in form
GST TRAN-1 within 90 days. Time limit for filing TRAN-1 Time limit for filing GST TRAN-1 has
been extended to 31-3-2020 - rule 117(1A) of CGST Rules, amended w.e.f. 1-1-2020 and
order No. 1/2020-GST dated 7-2-2020.
54.8-1 Suppliers of works contract service can take ITC of excise duty on inputs
The suppliers of works contract were paying service tax at fixed rate of 40% or 70% as
applicable. Hence, in my view, they can take Input Tax Credit of excise duty paid on their
inputs if they have excise duty paying document.
54.9 Credit Transfer Document
In case of costly consumer goods, white goods, cars, scooters etc. the dealers are normally
not registered under Central Excise as the customer is not interested in Cenvat credit.
In such cases, if they are entitled to only 60% credit of CGST (30% if IGST paid), they will be
dissuaded from keeping inventory on 30-6-2017. This is more so because they are required
 1065

to pass on the credit to the customer by reducing his price. In that case, he has no incentive
to avail the input tax credit.
Hence, provision has been made for transferring credit from manufacturer to dealer by way
of Credit Transfer Document.
In case of goods of value higher than Rs 25,000 which are identifiable by distinct number
(like engine number, chassis number, laptop number, air conditioner number, refrigerator
number), the manufacturer can pass on credit to dealer by issuing Credit Transfer Document
(CDR). Statement has to be submitted in TRANS 3, TRANS 3A and TRANS 3B.
The dealer can take input tax credit on basis of such Credit Transfer Document.
These provisions will be incorporated in Cenvat Credit Rules.
54.10 Payment of past dues of excise duty, service tax and wrongly availed ITC
In some cases, assessee may not have paid central excise duty and service tax in respect of
past period. In some cases, department may initiate recovery proceedings in respect of past
dues of excise duty and service tax and wrongly availed Cenvat credit.
The procedure in this regard has been explained in CBI&C circular No. 42/16/2018-GST dated
13-4-2018.
Broadly, when assessee pays past dues of Central Excise Duty, service tax and wrongly
availed Cenvat Credit or Vat credit on his own, he should pay as duty or tax as per earlier law
on website www.aces.gov.in and make payment through cbec-easiest gov. in. The payment
will be made through ICEGATE portal.
However, if there is recovery by tax authorities, such recovery will be under GST Law as per
provisions of section 142(6)(b) and 142(8)(a) of CGST Act and refund under section 142(8)(b)
of CGST Act, it will be under GST Law, unless paid by assessee under earlier laws. The
payment will be through electronic credit ledger or electronic cash ledger. It will be reflected
in part II of Electronic Liability Register in form GST PMT-01.
Payment of interest, penalty and late fee shall be payable through electronic cash ledger
only.
Pre-deposit of excise duty or service tax can be made through CGST Credit - Since recovery
of excise duty and service tax is under GST Law, pre-deposit can be made through CGST
Credit (even of arrears of excise duty and service tax) - Dell International Services v. CCT
(2019) 365 ELT 813 (CESTAT).
Demand and Recovery of wrongly availed Cenvat Credit or Cenvat Credit wrongly carried
forward - Recovery of wrongly availed Cenvat in past will be under CGST Act as per section
142(6)(b) of CGST Act, Similarly Recovery of Cenvat credit wrongly carried forward under
section 140 of CGST Act of wrongly availed Cenvat in past will be under CGST Act, - CBI&C
circular No. 42/16/2018-GST dated 13-4-2018.
Wrongly availed ITC under Excise Act or Service Tax law (existing law) and Cenvat Credit
wrongly carried forward as transitory credit in TRAN-1 will be as follows.
All such liabilities may be discharged by the taxpayers, either voluntarily in FORM GST DRC-
03 or may be recovered vide order uploaded in form GST DRC-07, and payment against the
said order shall be made in form GST DRC-03. The applicable interest and penalty shall apply
 1066

in respect of all such amounts, which shall also be paid in form GST DRC-03 - para 6 of CBI&C
circular No. 88/07/2019-GST dated 1-2-2019.
It is further clarified that the alternative method of reversing the wrongly availed CENVAT
credit under the existing law and inadmissible transitional credit through Table 4(B)(2) of
FORM GSTR-3B would no longer be available to taxpayers [This was allowed vide CBI&C
circular No. 58/32/2018-GST dated 4-9-2018].
54.11 Vat and service tax on composite works contract
It is possible that in case of works contract, State Vat and service tax was paid prior to 30-6-
2017 but the supply is completed after 1-7-2017. In such cases, the registered person can
take credit of State Vat and service tax paid on such transaction before 30-6-2017 - section
142(11)(c) of CGST Act and SGST Act.
The registered person shall file declaration in form GST TRAN-1 within 90 days, furnishing
proportion of supply on which Vat or service tax has been paid before 30-6-2017 but the
supply made after 1-7-2017 and Input Tax Credit admissible thereon - Rule 118 of CGST and
SGST Rules, 2017. [Really, it is not 'Input Tax Credit'. It is credit of tax paid prior to 30-6-
2017].
The GST TRAN-1 declaration can be revised once - rule 120A of CGST Rules, inserted w.e.f.
15-9-2017.
 1067

Constitutional Background of GST

55.1 Constitutional Background of GST
Understanding basic concepts of taxation under Constitution is essential to understand
scope and limitations of GST.
Constitution of India makes provisions relating to taxation powers of Union and States. GST
cannot be imposed as the Constitutional provisions stand today.
The Constitution of India has been to incorporate provisions relating to GST.
The Constitution (One Hundred and First Amendment) Bill, 2014 has been passed by Lok
Sabha on 6-5-2015. It has been passed by Rajya Sabha on 3-8-2016 after making certain
amendments. These amendments have been approved by Lok Sabha.
The Bill was ratified by 17 States. It was assented by President on 8-9-2016 and all provisions
relating to the Constitutional amendments have been notified on 12-9-2016 and 16-9-2016.
The relevant provisions of Constitution of India and the changes as made w.e.f. 16-9-2016
are discussed below.
55.1-1 Bifurcation of power between Union and States
Article 1(1) of Constitution of India states that India, that is Bharat, shall be a Union of States.
Thus, India has federal structure of governance, like USA, Australia, UAE etc. i.e. Union
Government and State Governments.
Naturally, when there are two authorities, bifurcation of power is required between Union
and State to avoid conflicts, disputes and ambiguities.
Article 245(1) of Constitution of India states that subject to provisions of Constitution,
Parliament may make laws for whole or any part of India and Legislature of a State may make
laws for the whole or part of the State.
Article 245(2) of Constitution of India clarifies that law made by Parliament can have extra-
territorial operation.
Article 246(1) of the Constitution specifies that Parliament has exclusive powers to make
laws with respect to any of the matters enumerated in List I in the Seventh Schedule to
Constitution.
As per Article 246(3) of Constitution of India, State Governments have exclusive powers to
make laws with respect to matters enumerated in List II (State List).
In respect of matters enumerated in List III (termed as 'Concurrent List'), both Parliament
and State Governments have power to make laws.
As per Article 246(4) of Constitution of India, Parliament can make laws in respect of Union
Territories even in respect of matters covered in State List.
55.1-2 Residuary powers with Parliament
Article 248 of Constitution of India makes it clear that Parliament has exclusive powers to
make any law in respect of any matter not enumerated in the Concurrent List or State List.
These include the power of making any law imposing a tax not mentioned in Concurrent List
or State List. This is also stated in entry 97 of List I of Seventh Schedule.
Thus, all residual powers are with Parliament i.e. Union Government.
 1068

55.1-3 Union List relevant to taxation

List I, called "Union List", contains entries like Defence of India, Foreign Affairs, War and
Peace, Banking etc.
Entries in this list relevant to taxation provisions, as amended w.e.f. 16-9-2016 are as follows
:
Entry No. 82 - Tax on income other than agricultural income.
Entry No. 83 - Duties of customs including export duties.
Entry No. 84 - Duties of excise on the following goods manufactured or produced in India,
namely (a) petroleum coke (b) high speed diesel (c) motor spirit (commonly known as petrol)
(d) natural gas (e) aviation turbine fuel and (f) tobacco and tobacco products [The entry was
reading as follows upto 16-9-2016] - Duties of excise on tobacco and other goods
manufactured or produced in India except (a) liquors for human consumption (b) opium,
Indian hemp and other narcotic drugs, - - but including medicinal and toilet preparations
containing alcohol or any substance included in sub-paragraph (b) of this entry.
Entry No. 85 - Corporation Tax.
Entry No. 86 - Taxes on the capital value of the assets, exclusive of agricultural land, of
individuals and companies, taxes on the capital of companies.
Entry No. 87 - Estate duty in respect of property other than agricultural land.
Entry No. 88 - Duties in respect of succession or property other than agricultural income.
Entry No. 89 - Terminal taxes on goods or passengers, carried by railways, sea or air; taxes
on railway fares and freights.
Entry No. 90 - Taxes other than stamp duties on transactions in stock exchanges and future
markets.
Entry No. 91 - Rates of stamp duty in respect of bills of exchange, cheques, promissory
notes, bill of lading, letter of credit, policies of insurance, transfer of shares, debentures,
proxies and receipts.
Entry No. 92 - Omitted [The entry was as follows upto 16-9-2016] - Taxes on the sale or
purchase of newspapers and on advertisements published therein.
Entry No. 92A - Taxes on the Sale or purchase of goods other than newspapers, where such
sale or purchase takes place in the course of inter-state trade or commerce [Now, w.e.f. 1-
7-2017, this entry is relevant only in respect of petroleum products and alcoholic liquor].
Entry No. 92B - Taxes on consignment of goods (whether the consignment is to the person
making it or to any other person), where such consignment takes place during Inter-state
trade or commerce [Now, w.e.f. 1-7-2017, this entry is relevant only in respect of petroleum
products and alcoholic liquor].
Entry No. 92C - Omitted [The entry was as follows upto 16-9-2016 -tax on services - even
that entry was never notified and was never effective.
Entry No. 96 - Fees in respect of any of the matters in this List, but not including fees taken
in any court.
 1069

Entry No. 97 - Any other matter not included in List II or List III including any tax not
mentioned in list II or list III. (Entry No. 97 covers all 'Residual Powers'.)
55.1-4 State list pertaining to taxation
State Government has exclusive powers to make laws in respect of matters in List II of
Seventh Schedule to our Constitution. These entries include Police, Public Health,
Agriculture, Land, water supplies etc.
Entries in this list relevant to taxation provisions, as amended w.e.f. 16-9-1016 are as
follows:
Entry No. 33 - Theatres and dramatic performances; cinemas subject to provisions of Entry
60 of List I; sports, entertainments and amusements.
Entry No. 34 - Betting and gambling.
Entry No. 45 - Land revenue, including the assessment and collection of revenue, the
maintenance of land records, survey for revenue purposes and records of rights, alienation
of revenues.
Entry No. 46 - Taxes on agricultural income.
Entry No. 47 - Duties in respect of succession to agricultural land
Entry No. 48 - Estate duty in respect of agricultural land
Entry No. 49 - Taxes on lands and buildings
Entry No. 50 - Taxes on mineral rights subject to any limitations imposed by Parliament by
law relating to mineral development.
Entry No. 51 - Duties of excise on the following goods manufactured or produced in the
State and countervailing duties at the same rate or lower rates on similar goods
manufactured or produced elsewhere in India - (a) alcoholic liquors for human consumption
(b) opium, Indian hemp and other narcotic drugs and narcotics - - but not including medicinal
and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of
this entry.
Entry No. 52 - Omitted [Till 16-9-2016] the entry was as follows - Tax on entry of goods into
a local area for consumption, use or sale therein (usually called Octroi or Entry tax).
Entry No. 53 - Taxes on the consumption or sale of electricity.
Entry No. 54 - 'Tax on 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 [Till 16-9-2016] the entry
was reading as follows - Tax on sale or purchase of goods other than newspaper, subject to
the provisions of entry 92A of List I (i.e. except tax on inter-state sale or purchase)
Entry No. 55 - Omitted [Till 16-9-2016] the entry was as follows - Tax on advertisements
other than advertisements in newspapers and advertisements broadcast by radio or
television.
Entry No. 56 - Tax on goods and passengers carried by road or in inland waterways.
 1070

Entry No. 57 - Taxes on vehicles, whether mechanically propelled or not, suitable for use on
roads, including tramcars subject to the provisions of entry 35 of List III (The principles on
which tax on mechanically propelled vehicles is concurrent subject under Entry 35 of List III).
Entry No. 58 - Taxes on animals and boats.
Entry No. 59 - Tolls
Entry No. 60 - Tax on professions, trades, callings and employment.
Entry No. 61 - Capitation taxes
Entry No. 62 - Tax on entertainment and amusements to the extent levied and collected by
a Panchayat or a Municipality or a Regional Council or a District Council [Till 16-9-2016 the
entry was reading as follows - Taxes on luxuries, including taxes on entertainments,
amusements, betting and gambling]. Simultaneously, para 8(3)(e) has been inserted in Sixth
Schedule to Constitution as follows 'taxes on entertainment and amusements'. Sixth
Schedule to Constitution of India contains provisions for administration of Tribal Areas in
State of Assam, Meghalaya, Tripura and Mizoram. Under the provisions of this Schedule,
District Councils are constituted for each autonomous district.
Entry No. 63 - Rates of stamp duty in respect of documents other than those specified in
the provision of List I with regard to rates of stamp duty.
Entry No. 66 - Fees in respect of any of the matters in this List (i.e. List II), but not including
fees taken in any court.
55.1-5 Concurrent list
List III of Seventh Schedule, called "concurrent list", includes matters where both Central
Government and State Government can make laws. This list includes entries like Criminal
Law and Procedure, Trust and Trustees, Civil procedures, economic and social planning,
education, boilers, electricity, newspapers, forests, social security, labour welfare, weights
and measures, trade unions, charitable institutions, price control, factories, etc.
There are only two entries relevant to taxation in this List.
Entry No. 44 - Stamp duties other than duties or fees collected by means of judicial stamps,
but not including rates of stamp duty.
Entry No. 47 - Fees in respect of any of the matters in this List (i.e. List III), but not including
fees taken in any court.
55.1-6 Amendment to empower Union and States to levy GST
Article 246A in Constitution of India has been inserted w.e.f. 16-9-2016 to give concurrent
powers to Parliament and legislature of each State to make laws with respect to goods and
services tax imposed by the Union or by such State.
For this purpose, 'State' will include 'Union territory with legislature'- Article 366(26B) of
Constitution of India [This will cover Delhi, Chandigarh and Puducherry].
These powers are notwithstanding anything contained in Articles 246 and 254 of
Constitution of India.
 1071

Article 246 of Constitution of India makes provisions for distribution of subject matter of
laws between Parliament and Legislatures of States. These are contained in three lists in
Seventh Schedule to Constitution of India.
Article 254 of Constitution of India makes provisions in case of inconstancy between laws
made by Parliament and laws made by The Legislature of States.
Thus, powers under Article 246A are overriding powers.
Exclusive powers of Parliament to make laws where tax is payable under inter-State
Transactions - As per Article 246A(2) of Constitution of India as amended w.e.f. 16-9-2016,
Parliament will have exclusive powers to make laws with respect of 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 to Article 246A of Constitution of India states that GST on inter-state supply of
petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas
and aviation and turbine fuel shall take effect from the date recommended by GST Council.
Residuary powers with Parliament - Article 248 of Constitution of India as amended w.e.f.
16-9-2016 provides that Parliament will have all residuary powers to make laws, including
taxation, but subject to Article 246A of Constitution of India (which confers concurrent
powers of Union and States to levy GST).
Entry 97 of List I of Seventh Schedule to Constitution of India also makes it clear that all
residual powers are with Centre i.e. Parliament.
Parliament has no powers in respect of State GST - Parliament will not have powers in
respect of State GST as Article 248 is subject to Article 246A of Constitution of India.
Powers of Parliament in case of emergency - Article 250 of Constitution of India is amended
to provide for emergency powers of Parliament to make laws for whole or part of India, with
respect to GST.
Definition of 'goods' - 'Goods' include all materials, commodities and articles - Article
366(12) of Constitution of India.
This is inclusive definition. It should cover all tangible and intangible movable property.
Definition of Services - 'Services' means anything other than goods - Article 366(26A) of
Constitution of India w.e.f. 16-9-2016.
This is very broad definition. Even immovable property can get covered in this definition.
55.1-7 Parliament to formulate principles for determining place of supply of goods
Parliament may, by law, formulate principles for determining (a) place of supply of goods or
services (b) when supply of goods or services or both are in the course of inter-State trade
or commerce -Article 269A(2) of Constitution of India inserted w.e.f. 16-9-2016.
55.2 Deemed sale of goods under Constitution
In addition to the aforesaid provisions, Constitution of India contains concept of 'deemed
sale', which was intruded mainly for purpose of levy of sales tax/Vat on goods by State
Government.
 1072

Article 366(29A) of Constitution of India, as amended by Constitution (46th Amendment)

Act, 1982, w.e.f. 2-2-1983 states as follows :
'Tax on the sale or purchase of goods' includes -
(a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any
goods for cash, deferred payment or other valuable consideration
(b) a tax on the transfer of property in goods (whether as goods or in some other form)
involved in the execution of a works contract
(c) a tax on the delivery of goods on hire-purchase or any system of payment by
instalments
(d) a tax on the transfer of the right to use any goods for any purpose (whether or not
for a specified period) for cash, deferred payment or other valuable consideration
(e) a tax on supply of goods by any unincorporated association or body of persons to a
member thereof for cash, deferred payment or other valuable consideration
(f) a tax on the supply, by way of or as part of any service or in any other manner
whatsoever, of goods, being food or any other article for human consumption or any
drink (whether or not intoxicating), where such supply or service, is for cash, deferred
payment or other valuable consideration.

And such transfer, delivery or supply of any goods shall be deemed to be a sale of those
goods by the person making the transfer, delivery or supply and a purchase of those goods
by the person to whom such transfer, delivery or supply is made.
This definition not being omitted - It is interesting to note that this definition has not been
omitted.
55.2-1 Concept of deemed sale of goods continuing under GST
Interestingly, concept of deemed sale of goods is continuing under GST regime also. It is not
clear what this provision is being continued, when the distinction between goods and
services is being abolished.
55.3 Restrictions on powers of taxation
Restrictions on power of State Government on imposition of tax on supply of goods and
services are provided in Article 286 of Constitution of India, as follows :
State Government cannot impose tax on supply of goods or services or both during
imports or exports; or tax on sale outside the State. [Article 286(1) of Constitution of
India] [The words in italics were as follows upto 16-9-2016 - 'sale or purchase']

Parliament is authorised to formulate principles for determining when a sale or

purchase takes place (a) outside the State (b) in the course of import and export.
[Article 286(2) of Constitution of India]

Omitted [Till 16-9-2016 the entry was as follows - Parliament can place restrictions
on tax on sale or purchase of goods declared as goods of special importance and State
 1073

Government can tax such declared goods only subject to these restrictions [Article
286(3) of Constitution of India].

55.3-1 No restriction on Inter-State Trade and Commerce

Each State and Union Territory has certain autonomy. However, the trade and commerce
has to be free all over India, without which India cannot be 'One Nation'. As we saw above,
tax on Inter-State sale/purchase can be imposed only by Central Government. Provisions in
respect of inter-State Trade and Commerce in Constitution of India are summarised below :
Trade, commerce and intercourse throughout the territory of India shall be free, subject to
provisions of Articles 302 to 304 of Constitution (as stated below). [Article 301 of
Constitution of India]
Restrictions on trade or commerce can be placed by Parliament in the public interest. [Article
302]
No discrimination can be made between one State and another or give preference to one
State over another [Article 303(1)]. Such discrimination or preference can be made only by
Parliament by law to deal with the situation arising from scarcity of goods [Article 303(2) of
Constitution of India]
State can impose tax on goods imported from other States or Union Territories, but a State
cannot discriminate between goods manufactured in the State and goods brought from
other States [Article 304(1) of Constitution of India].
State Legislature can impose reasonable restrictions on freedom of trade and commerce
within the State in public interest. However, such bill cannot be introduced in State
Legislature without previous sanction of the President [proviso to Article 304].
These provisions are continuing without any change.
55.3-2 Limitations of Taxation Powers
Article 265 of the Constitution states that "no tax shall be levied or collected except by
authority of law". Article 300A of the Constitution states that "no person shall be deprived
of its property save by authority of law".
55.4 Distribution of revenues between Union and States
Many important taxes are within the jurisdiction of Union Government. All residual powers
of collection of taxes are with Union Government. Thus, in federal structure as in
Constitution of India, Union Government is much stronger than State Governments. [In USA,
all residual powers are with States].
Since major revenue is collected by Union, it is necessary to distribute it among States. The
provisions are briefly as follows—
Duties levied by Union and Collected and appropriated by States - Article 268 of
Constitution of India states that stamp duties covered in Union List shall be levied by
Government of India but collected by States.
This Article made reference to duties of excise on medical and toilet preparations. This
reference has been omitted w.e.f. 16-9-2016, as these duties will be subsumed in GST.
 1074

For this purpose, 'State' will include 'Union territory with legislature'- Article 366(26B) of
Constitution of India inserted w.e.f. 16-9-2016 [This will cover Delhi and Puducherry].
Taxes levied and collected by Union but assigned to States - Article 269 of Constitution of
India enumerates taxes and duties which are levied and collected by Government of India
but assigned to States. These cover (a) tax on sale or purchase of goods in inter-State trade
or commerce (CST) (b) tax on consignment of goods in inter-State trade or commerce.
For this purpose, 'State' will include 'Union territory with legislature'- Article 366(26B) of
Constitution of India inserted w.e.f. 16-9-2016 [This will cover Delhi and Puducherry].
Presently, there is no tax on consignment of goods in inter-State transactions. Hence, only
CST is covered under these provisions.
Taxes levied and collected by Union and distributed between Union and States - Article
270 of Constitution of India provides that net proceeds of all taxes and duties referred to in
Union List, except the specified taxes, shall be levied and collected by Centre and shall be
distributed between Centre and States.
Thus, revenue from taxes like income tax and Central Excise are distributed between Centre
and States as per recommendation of Finance Commission, which is constituted under
Article 280 of Constitution of India.
The specified taxes (which shall not be distributed on basis of recommendation of Finance
Commission) are - (a) Duties and taxes referred in Articles 268, 269 and 269A (b) Surcharge
on taxes and duties referred to in Article 271 and (c) Any cess levied for specific purposes
under a law made by Parliament. [as amended w.e.f. 16-9-2016]
Article 268 refers to stamp duties.
Article 268A provided that tax on services shall be apportioned between Union and States.
This reference has been omitted w.e.f. 16-9-2016.
Article 269A refers to IGST on goods and services [inserted w.e.f. 16-9-2016]
Article 271 refers to surcharge on duties and taxes for the purpose of Union.
As per Article 270(1A) [as inserted w.e.f. 16-9-2016], the tax collected by the Union under
article 246A(1) shall also be distributed between the Union and the States in the manner
provided in article 246A(2).
As per Article 270(1B) of Constitution of India (as inserted w.e.f. 16-9-2016], the tax levied
and collected by the Union under Article 246A(2) and article 269A, which has been used for
payment of the tax levied by the Union under article 246A(1)and the amount apportioned
to the Union under article 269A(1), shall also be distributed between the Union and the
States in the manner provided in Article 246A(2).
This provision is only for distribution of portion of IGST collected by Union to States.
Apportionment of IGST between Union and States - As per Article 269A(1) (inserted w.e.f.
16-9-2016), IGST collected by Union will be apportioned between Union and States as per
law made by Parliament on the recommendation of GST Council.
As per Article 269(1A) (as inserted w.e.f. 16-9-2016], the amount apportioned to a State
under clause (1) shall not form part of the Consolidated Fund of India.
 1075

As per Article 269(1B), 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.
As per Article 269(1C) [inserted w.e.f. 16-9-2016], 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.
For this purpose, 'State' will include 'Union territory with legislature'- Article 366(26B) of
Constitution of India [This will cover Delhi and Puducherry] inserted w.e.f. 16-9-2016.
This provision is essentially in respect of payment of SGST to State where the SGST was used
for payment of IGST. Such adjustment among States will be made by Central Clearing Agency
on approval of Parliament.
The balance of IGST which will be retained by Union will be distributed between Union and
States on basis of recommendation of Finance Commission -Article 270(1A) of Constitution
of India.
Surcharge on taxes for purpose of Union - Article 271 of Constitution of India (amended
w.e.f. 16-9-2016) provides that Union can levy surcharge on taxes and duties specified in
Articles 269 and 270 (i.e. on income tax, excise and CST), which will be retained by Union
and will not be distributed among States. This will not include surcharge on GST. Thus, even
if Union imposes surcharge on GST, it will have to be shared with States.
This Article is amended w.e.f. 16-9-2016 to provide that this will not include surcharge on
GST. Thus, even if Union imposes surcharge on GST, it will have to be shared with States.
GST on inter-state transaction to be levied and collected by Union and distributed between
Union and States - Article 269A of Constitution of India (inserted w.e.f. 16-9-2016] provides
that GST on inter-State trade or commerce, shall be levied and collected by Centre and shall
be distributed between Centre and States by Parliament by law, on recommendation of GST
Council.
Effect of the amendment is that the IGST collected by Union on inter-state supply of goods
and services shall be apportioned between Union and States on basis of law passed by
Parliament on recommendation of GST Council.
This is really to cover adjustment among States by debit and credit with Central Clearing
Agency.
CVD on imports will also be apportioned - Tax on import of goods and services in the course
of import into territory of India shall also be apportioned by Parliament between Union and
States on basis of recommendation of GST Council - explanation to Article 269A(1) of
Constitution of India inserted w.e.f. 16-9-2016.
For this purpose, 'State' will include 'Union territory with legislature'- Article 366(26B) of
Constitution of India [This will cover Delhi and Puducherry].
Thus, CVD imposed on imports (in lieu of IGST) will be apportioned between Union and
States by Parliament on basis of recommendation of GST Council.
55.5 Constitution of GST Council
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Article 279A in Constitution of India inserted w.e.f. 12-9-2016 makes provision for
constitution of GST Council. This GST Council will make recommendations to Union and
States relating to GST.
For this purpose, 'State' will include 'Union territory with legislature'-Article 366(26B) of
Constitution of India [This will cover Delhi and Puducherry].
Any amendment to Article 279A of Constitution can be made only after ratification by 50%
of States -amendment to Article 368(2) of Constitution of India.
A 'Goods and Service Taxes Council' [GST Council] will be constituted [Article 279A(1) of
Constitution of India inserted w.e.f. 16-9-2016]
The Union Finance Minister is Chairperson of the GST Council. Following are its members -
(a) Union Minister of State for revenue or Finance (b) Minister of Finance or any other
Minister nominated by each State.
Vice Chairperson of GST Council will be elected by GST Council from amongst its members.
55.5-1 Decisions of GST Council by 75% majority
Decision in GST Council will be taken with at least 75% of weighted average voting in favour
of the decision. Union Government will have 33.33% voting power and States will have
66.67% voting power.
Thus, practically, Union Government has veto powers. Any decision in GST Council cannot
be taken without consent of Union Government.
Provision of decision with 75% voting means a few States cannot be adamant and block any
decision by GST Council. This is a good and sensible provision.
The calculations, as indicated in Statement of Objects and Reasons to the Constitution (One
Hundred and First) Amendment Act, 2016 are as follows—
WT = WC+WS
WS = (WST/SP) x SF
WT - Total weighted votes of all members in favour of a proposal.
WC - Weighted votes of Union. WC = 33.33% if Union is in favour of proposal. If Union is not
in favour of proposal, WC = 0.
WS - Weighted weights of States in favour of proposal.
SP - Number of States present and voting.
WST - Weighed votes of all States present i.e. 66.67%.
SF - Number of States voting in favour of proposal.
55.5-2 Binding nature of recommendations of GST Council
The recommendations of GST Council have some force but are not legally binding on
State/Central Government.
One interesting is issue is whether Central or State Government can unilaterally grant or
withdraw exemption or change rate of GST without any recommendation of GST Council.
55.5-3 Resolution of disputes among Union and States
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The Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute
arising out of the recommendations of the Council or implementation thereof - (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 - Article 279A(11) of Constitution of India [inserted w.e.f. 16-9-
2016]
55.5-4 Powers of GST Council
The GST Council is mainly a recommendatory body on various issues relating to GST.
GST Council will have statutory powers of recommendation in following situations—
(a) When petroleum products should be brought in the GST net
(b) Apportionment of revenue of IGST and CGST among Union and States
(c) Compensation to States for loss of revenue for period upto five years.

IGST Act, CGST Act, SGST Act and GST (Compensation to States) Act also specify various
aspects (like rate of GST, exemptions etc.), which can be decided by Central/State
Government on recommendation of GST Council.
As per Article 279A(4) of Constitution of India (inserted w.e.f. 16-9-2016), 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;
(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.

55.6 Stand-alone amendments which are not part of Constitution

The Constitution (One Hundred and First) Amendment Act, 2016 contains some sections.
However, these will not be part of main Constitution.
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[This appears rather strange way of doing things. If they are not part of Constitution, how
they can be termed as 'Constitutional Amendments'?].
Compensation to States - Parliament shall, on recommendation of GST Council, provide for
compensation to States for loss of revenue arising on account of implementation of GST for
period upto five years - Section 18 of Constitution (One Hundred and First Amendment) Act,
2016, effective from 16-9-2016.
States can continue with existing Vat laws for one year - As a transitory provision, State
Governments can continue with existing Vat law for one year after introduction of GST -
Section 19 of Constitution (One Hundred and First Amendment) Act, 2016 w.e.f. 16-9-2016.
Removal of difficulties - President can by order make provision for removal of any difficulty
in giving effect to provisions of the Amendment Act. Such order can be made only within
three years from date of assent to the Amendment Act - Section 20 of Constitution (One
Hundred and First Amendment) Act, 2016 w.e.f. 16-9-2016.