Charge of GST – Comprehensive Study Notes (Ch 3)

EXTENT & COMMENCEMENT OF GST LAW

• The power to levy tax under GST is derived from the Constitution of India; 101st Constitutional Amendment Act, 2016 enabled levy of GST on supplies of goods or services or both. GST subsumed Central excise duty, State VAT and certain state taxes and service tax (Chapter 1 reference).
• Taxable event under GST is SUPPLY (Chapter 2 discussion referenced).
• CGST and SGST/UTGST apply to intra-State supplies; IGST applies to inter-State supplies.
• Levy and collection provisions:
  • CGST Act, 2017: levy on intra-State supplies (Sec 9).
  • IGST Act, 2017: levy on inter-State supplies (Sec 5).
• Intra-State vs inter-State: generally, if supplier location and place of supply are in the same State/UT, it is intra-State; if in two different States/UTs or a mix of State and UT, it is inter-State. The concepts of ‘place of supply’ and ‘location of the supplier’ are elaborated in Chapter 4 (Place of Supply).
• Import/export provisions are not covered at intermediate level; to be discussed at Final level.

LEVY & COLLECTION OF CGST & IGST

• Section 9 of the CGST Act: levy of Central Tax on all intra-State supplies of goods or services (except alcoholic liquor for human consumption) on the value determined under section 15; not exceeding $20\%$.
• Sub-section (2): petroleum crude, HSD, motor spirit (petrol), natural gas, and aviation turbine fuel leviable from dates notified by the Government on Council recommendations.
• Sub-section (3): government may notify categories of supply to be paid on reverse charge basis by recipient (and all provisions apply as if recipient is liable).
• Sub-section (4): government may notify class of registered persons who shall pay tax on reverse charge in respect of supplies from an unregistered supplier to specified registered recipients.
• Sub-section (5): government may notify categories of services where GST on intra-State supplies is paid by an electronic commerce operator (if supplied through it); otherwise, liability shifts to recipient as if supplier.
• Re reverse charge via ECO: where ECO has no physical presence, a person representing it in taxable territory is liable to pay tax; if no representative, ECO must appoint a person to pay tax.
• Section 5 of the IGST Act (Levy & Collection): levy on all inter-State supplies; tax collected in prescribed manner and payable by the taxable person; similar reverse charge provisions as under CGST/SGST for specified categories and unregistered suppliers; ECO provisions analogous to IGST.

RELEVANT DEFINITIONS

• Central tax: tax levied under Sec 9 of CGST Act [Sec 2(21)].
• Integrated tax: tax levied under the IGST Act [definition in the Act].
• State tax: tax levied under any State GST Act [Sec 2(104)].
• Goods: movable property excluding money and securities, but includes actionable claims, growing crops, grass, and land-attached items severable before supply or under contract [Sec 2(52)].
• Electronic Commerce (EC): supply of goods/services/both over digital/electronic networks [Sec 2(44)].
• Electronic Commerce Operator (ECO): owner/operator/manager of a digital platform for electronic commerce [Sec 2(45)].
• Exempt supply: supply that attracts nil rate or is wholly exempt under sections 11 (CGST) or 6 (IGST) and includes non-taxable supply [Sec 2(47)].
• Non-taxable supply: supply not leviable to tax under this Act or under IGST Act [Sec 2(79)].
• Aggregate turnover: value of all taxable supplies (excluding inward supplies on which tax is payable by recipient under RCM), exempt supplies, exports, and inter-State supplies of persons having the same PAN; computed on all-India basis; excludes Central tax, State tax, UT tax, integrated tax and cess [Sec 2(6)]. [Prescribed definition applies; also defined across multiple subsections including Sec 2(87)].
• Prescribed: as per rules under the Act on the Council’s recommendations [Sec 2(87)].
• Business: as defined in Sec 2(17).
• Consideration: in relation to the supply includes payment (money or otherwise) or monetary value of acts/forbearance and includes: (a) inducement for supply; (b)-(i) various activities connected to supply; (j)-(i) government/public authority activities; and includes value of deposits (subject to conditions) [Sec 2(31)]. Note: deposits are not considered payment unless applied as consideration for the supply [Sec 2(31)].
• Recipient: the person liable to pay consideration; or the person to whom goods/services are delivered or used; includes an agent acting on behalf of the recipient [Sec 2(93)].
• Registered Person: person registered under Sec 25 (not including those with unique identity number).
• Reverse charge: liability to pay tax by recipient instead of supplier under Sec 9(3)/(4) or Sec 5(3)/(4) of IGST Act [Sec 2(98)].
• Services: anything other than goods/money/securities but includes money-related services (e.g., use/conversion of money) for which a separate consideration is charged; includes facilitating transactions in securities [Sec 2(102)].
• Supplier: the person supplying the goods/services; includes an agent acting on behalf of the supplier.
• Taxable supply: supply of goods/services leviable to tax under CGST Act [Sec 2(108)].
• Taxable person: person registered or liable to be registered under Sec 22 or 24; includes unregistered persons who are liable to be registered, and those who voluntarily register [Sec 2(107)].

COMPOSITION LEVY (Overview)

• Section 10 provides a composition levy as an optional, simplified tax scheme for small taxpayers to reduce compliance burden.
• Two main schemes under 10: (i) 10(1) & 10(2) – general composition for goods/restaurant services; (ii) 10(2A) – composition for service providers (not eligible for 10(1)) with lower rate.
• The scheme is designed to be simple: lower rates and quarterly payments via Form GST CMP-08; annual return for composition suppliers.
• Registration under GST is compulsory to opt for composition.
• The concept can cover marginal supplies of services (other than restaurant services) up to a specified cap when mixed with goods and/or restaurant service, under the second proviso to 10(1).

TURNOVER FOR COMPOSITION LEVY (Aggregate Turnover under Section 2(6) & Section 10)

• Aggregate turnover for composition is the sum of all outward supplies falling into four categories: taxable supplies, exempt supplies, exports, inter-State supplies of a person having the same PAN, computed on an all-India basis.
• Exclusions: inward supplies on which tax is payable by the recipient under reverse charge; CGST/SGST/UTGST/IGST/cess; value of exempt supplies of services by deposits/loans/advances where consideration is represented by interest or discount (with some exclusions).
• Explanation 1 to Section 10 clarifies that aggregate turnover includes supplies from 1st April of the preceding financial year up to the date the person becomes liable for registration; excludes exempt supplies of certain services as described above.
• Turnover used to determine eligibility for composition is not necessarily the turnover on which tax is paid under composition; tax in composition is paid on the turnover of taxable supplies (goods and/or services) in the State/UT for the current FY under the applicable rate.
• For the purposes of Section 10, aggregate turnover is computed on an all-India basis for same PAN; turnover includes inter-State outward supplies and exports (for eligibility, not for computation of tax rate within a state).

RATES UNDER COMPOSITION LEVY (Section 10)

• Composition rate for goods under 10(1): broadly 1% (CGST + SGST/UTGST) of turnover for most goods; specific goods/categories have distinct rates:
  • Manufacturers (not listed goods): ½% of turnover in State/UT.
  • Restaurant service: 2½% of turnover in State/UT.
  • Any other supplier eligible for 10(1): ½% of turnover of taxable goods/services in State/UT.
• Composition rate for services under 10(1): 6% (3% CGST + 3% SGST/UTGST) of turnover in State/UT.
• Special Category States (except Assam, Himachal Pradesh and J&K): Turnover limit for eligibility under 10(1) is $75\ lakh$; for other States/UTs it is $1.5\ crore$. For Assam, HP and J&K the limit is $1.5\ crore$.
• 50 lakh threshold for 10(2A) eligibility (services-focused scheme), with an effective rate of 6% (3%/3%) of turnover in State/UT.
• A mixed supplier (goods + services) can avail composition if total turnover qualifies; there are provisions about marginal supplies (up to 10% of turnover or ₹5 lakh, whichever is higher, for 10(1); or up to 50 lakh for 10(2A) – depending on qualification).
• Section 10(3) says the option under composition lapses if aggregate turnover for the year crosses the threshold (1.5 crore for 10(1) or 50 lakh for 10(2A)); withdrawal must be filed, and the option may be denied retroactively in certain cases via SCN.
• All registered persons having the same PAN must opt for composition uniformly; if one opts out or into normal scheme, others on same PAN may become ineligible (Proviso to 10(2) and 10(2A)).
• The scheme requires compliance with conditions (Rule 5): reverse charge on inward supplies, not being casual or non-resident, etc. Must display eligibility marks on bills and notices, and certain goods (specified under Notification 14/2019) are restricted for composition (e.g., ice cream, pan masala, certain building materials).
• If a supplier opts for composition, he cannot issue a tax invoice; he must issue a Bill of Supply; ITC is not allowable; and turnover must be reported in Form CMP-08 and annual return.
• Withdrawal/denial of composition option triggers a 7-day window for withdrawal notification and a 30-day requirement to file stock-related statements (Rule 64/Rule 3-4 discussion). For multi-branch PAN, withdrawal is deemed applicable to all branches.

TURNOVER IN STATE/UT FOR COMPOSITION LEVY

• Turnover in State/UT means the aggregate value of all taxable supplies and exempt supplies made within the State/UT by the taxable person, exports, and inter-State supplies made from that State/UT; excludes CGST/SGST/UTGST/IGST and cess.
• Exclusions: value of inward supplies on which reverse charge tax is payable; value of supplies from the first day of April to the date of registration; value of exempt supplies of certain services (interest/discount) as applicable.
• Inclusions/exclusions for computation of turnover in a State/UT are used to determine eligibility for 10(1) and 10(2A) within a current FY and are illustrated via sample scenarios (Illustrations 1–3).

RATE SCHEDULE & CLASSIFICATION (GST RATES AND CODES)

• Rates for goods (CGST/SGST/UTGST) are notified in six rate schedules: $0.125\%, 1.5\%, 2.5\%, 6\%, 9\%, 14\%$; IGST rates are the sum of CGST & SGST/UTGST equivalents: $IGST = CGST + SGST/UTGST$; Maximum IGST rate is $40\%$.
• Rates for services: six rates across CGST/SGST/UTGST: $0.75\%, 2.5\%, 3.75\%, 6\%, 9\%, 14\%$; IGST rates mirror these (1.5%, 5%, 7.5%, 12%, 18%, 28%). Nil-rated services are also notified.
• Goods classification: based on HSN (First Schedule to Customs Tariff Act, 1975); India extends HSN to 8-digits; Service classification uses a Government-developed Service Code; Chapter 99 for services with sections 5–9 for construction, real estate, etc.
• Rates for special sectors (e.g., real estate): various schemes including 1% for affordable housing, 5% for other residential/commercial real estate with ITC restrictions; specific conditions apply (e.g., ITC restrictions, 80% of inputs from registered suppliers, cement reverse charge, etc.).

EXEMPTIONS & ECOSYSTEM (REVERSE CHARGE AND ECOs)

• Several services are notified for reverse charge under CGST/IGST; detailed lists include GTA (Goods Transport Agency) service categories, legal services (advocates), arbitral tribunals, sponsorship services, government/local authority services, and many other service categories.
• ECO: Government may notify categories of services supplied via ECO for which tax on supplies through ECO is paid by ECO (section 9(5)); ECO may optionally pay tax via Form GSTR-3B on these restaurant services; TCS requirements for ECOs on these notifications are clarified (no TCS on notified restaurant services; EFT of ITC not reversed; no separate registration required for restaurant services via ECO for 9(5) cases).
• Examples: restaurant services via ECO; transportation by radio-taxi/omnibus; hotel accommodations via ECO; house-keeping via ECO; and other specified services.
• The ECO framework requires the ECO to pay taxes on restaurant services supplied through them and include these restaurant services in their aggregate turnover. If restaurant services are notified under section 9(5), the ECO may pay tax via Form GSTR-3B and may not collect TCS on those cases. Billing and ITC reversals are clarified in the circulars and notifications.

REVERSE CHARGE MECHANISM (RCM) – PRACTICAL DETAILS

• Two primary RC mechanisms exist:
  1) Section 9(3) CGST/SGST (or 5(3) IGST) – taxation on specified notified goods/services where the recipient pays tax.
  2) Section 9(4) CGST/SGST (or 5(4) IGST) – taxation on specified categories of goods/services purchased from an unregistered supplier by specified class of registered recipients.
• Categories of services under RC: GTA services to specified recipients (GTA) with forward charge or reverse charge depending on recipient type; services by an individual advocate to a business entity (reverse charge in many cases); services by directors to company; insurance agents; recovery agents; security services to registered persons; artists, authors, etc. to publishers/companies; rent of immovable property by government authorities to a registered entity (reverse charge); and many others.
• Important distinctions:
  • GTA RC: If GTA supplies transport to specified recipients, the recipient pays tax under reverse charge (RCM) under certain scenarios; if the GTA supplies to unregistered recipients, the recipient is not covered; specific rules exist for whether the recipient is a Body Corporate or other entity.
  • Director services: If a director provides services to the company in a personal capacity, those services fall under RC for the company; if the director is an employee and the services relate to employment, many part of the remuneration may fall outside RC under Schedule III.
  • For services supplied via an ECO, RCM may apply or not depending on the specific category and notification; the ECO framework ensures the correct party pays the tax.
• Examples and Table: Industry-specific RC cases (GTA, advocates, arbitral tribunals, sponsorships, security services, etc.) illustrate who bears tax—recipient vs supplier.

ELECTRONIC COMMERCE OPERATOR (ECO) FRAMEWORK

• ECO means an entity operating an electronic platform for supply of goods/services; often acts as intermediary, but may also be the supplier.
• The government may notify certain services supplied through ECO on which tax is payable by ECO as if ECO is the supplier for CGST/IGST purposes (Sec 9(5)).
• Notable categories notified include transportation of passengers via ECO (radio-taxi, motorcab, etc.), transport via omnibus, hotel accommodations, housekeeping, and restaurant services not subject to TCS by ECO in certain notified cases.
• The ECO framework interacts with TCS/ITC and aggregation in annual returns; ECOs do not necessarily need to take separate registration for paying tax on these notified restaurant services (subject to notification specifics).
• When a restaurant service and other supplies are in a single order via ECO, guidance is given on whether ECO raises separate invoices for restaurant services and other goods/services; it is often advisable for ECO to raise separate bills for restaurant services to simplify tax treatment.
• The ECO may declare the notified restaurant services in Form GSTR-3B and pay GST, while TCS on other supplies remains the responsibility of the supplier via the notification process.

ADDITIONAL NOTES & PRACTICAL EXAMPLES

• Classification of a supply is essential to determine rate (HSN for goods; Service Codes for services). Rates are notified in rate schedules; classification is based on the First Schedule of the Customs Tariff Act, 1975 and HSN; India adopts 8-digit HSN codes.
• Special real estate discussion: under the real estate sector, GST rates and ITC restrictions are heavily detailed; there are exemptions for affordable housing; ITC restrictions include 80% of inputs from registered suppliers (except certain exemptions) and reverse charge provisions may apply for cement/capital goods.
• Tax on inter-State supplies: IGST is the sum of CGST and SGST; where certain items are not taxed (e.g., alcoholic liquor for human consumption, petroleum products for now), IGST is not leviable on these items.
• Amendments (Finance No. 2 Act, 2024): Section 9(1) clarified that extra neutral alcohol used in manufacturing alcoholic beverages is not within CGST on intra-State supplies; Section 10(5) added reference to new section 74A for penalties; these amendments are effective from 01.11.2024 for certain provisions and are relevant for September 2025 and January 2026 exams.
• Illustrative problems (Quiz/Illustrations) in the module cover scenarios such as: determining who is liable to pay tax under different RC scenarios, how composition levy affects turnover, and how turnover is computed under Section 10 for eligibility and rate calculation. Example illustrations cover multiple states and cross-border supply considerations, including special category states and the 8 states with higher turnover limits.

SUMMARY OF KEY NUMBERS AND FORMULAE

• Maximum CGST rate: $20\%$; Maximum IGST rate: $40\%$.
• Rate schedules (goods): $0.125\%, 1.5\%, 2.5\%, 6\%, 9\%, 14\%$ for CGST/SGST/UTGST; IGST rates mirror these in aggregate (subject to inter-State rules).
• Rate schedules (services): $0.75\%, 2.5\%, 3.75\%, 6\%, 9\%, 14\%$ for CGST/SGST/UTGST; IGST rates mirror these (e.g., 1.5%, 5%, 7.5%, 12%, 18%, 28%).
• Composition levy rates under 10(1):
  • Goods (manufacturers etc.): 1% of turnover in State/UT; Restaurant services: 2.5%; Others: 1%.
  • Services: 6% of turnover in State/UT.
• Special turnover limits for composition: 75 lakh for 8 Special Category States; 1.5 crore for other States/UTs; Assam, HP, J&K have 1.5 crore limit; 50 lakh for 10(2A).
• Eligibility for 10(2A): aggregate preceding year turnover up to ₹50 lakh; not eligible for 10(1) or for inter-State outward supplies.
• Important definitions:
  • Aggregate turnover: Taxable + Exempt + Exports + Inter-State supplies (all-India basis for same PAN) minus inward supplies on which reverse charge applies and taxes/cess.
  • Turnover in State/UT for composition: includes taxable + exempt supplies within State/UT; excludes CGST/SGST/UTGST/IGST/cess; excludes inward reverse-charge values and supplies from April 1 of FY up to registration.

AMENDMENTS AND EXAMINATIONS (2024 UPDATE)

• Finance (No. 2) Act, 2024 amendments to Sec 9(1) and Sec 10(5) were notified; effective for future exams (post-September 2025, January 2026) as per the Institute’s guidance; students should refer to the amended texts for those examinations.

PRACTICAL TAKEAWAYS

• When classifying a supply, determine whether it is intra-State or inter-State; apply CGST/SGST/UTGST or IGST accordingly.
• Reverse charge mechanisms shift tax liability from supplier to recipient in specified cases; always verify whether the recipient is eligible to pay under RCM or forward charge depending on the scenario.
• For composition levy, determine eligibility based on aggregate turnover on an all-India basis under the same PAN, considering pretend-year turnover and special-category state rules; ensure uniform adoption across the PAN and comply with all notification rules for eligible goods/services.
• ECOs have specific notification provisions for certain restaurant services and other notified services; understand when ECO pays and when tax is collected at source to ensure correct reporting and ITC handling.
• Keep track of amendments and Council recommendations for rate adjustments, RCM categories, and beverages/alcohol exceptions, as well as the introduction of new sections like 74A for penalties.

QUICK REFERENCE SNAPSHOTS

• Intra-State GST: CGST + SGST/UTGST; value = transaction value under Sec 15; max CGST rate = $20\%$; max IGST rate = $40\%$.
• Inter-State GST: IGST; rate = sum of applicable CGST and SGST/UTGST; not applicable to alcohol for human consumption; IGST also applicable on import of goods and services.
• Aggregate Turnover (2(6)): includes taxable supplies, exempt supplies, exports, inter-State supplies; excludes inward supplies on which reverse charge applies and taxes/cess.
• 10(1) vs 10(2A): 1% goods, 2.5% restaurant, 1% others (goods) or 6% services under 10(1); 10(2A) at 6% on services with ₹50 lakh preceding-year turnover cap.
• Special Category States: eight states with ₹75 lakh cap under 10(1); others ₹1.5 crore; Assam/HP/J&K have ₹1.5 crore cap; preceding-year turnover calculations are on PAN basis.
• Notifications to watch: 14/2019 (goods), 12/2017, 13/2017 (RCM categories), 9(5) (ECO restaurant services), 10/2017 (RCM for various services), and 17/2017 (ECO restaurant services), among others.