Indirect and Customs Act

MODULE I
Constitutional Framework of Indirect Taxes before GST
In India, the constitution is Supreme and all laws and actions of
the Government are sub-ordinate to it. The constitution
provides that no tax shall be levied or collected except by
authority of law.

The Structure of Government in India is federal in nature. As

per article 1(1) of constitution, India shall be union of States.
There is a bifurcation of powers between union and states.

Government of India (Central Government) has certain powers

in respect of whole country. Each state (and union territory)
has certain powers in respect of that particular state (Union
 Indian constitution India has a three-tier federal structure,
comprising the following:- (a) The Union Government (b) The
State Government (c) The Local Government The power to
levy taxes and duties is distributed among the three tiers of
Government, in accordance with the provisions of Indian
Constitution. The constitution consists of a preamble, 25 parts
containing 448 articles and 12 Schedules.
 Provisions of constitution regarding taxation The power to levy and
collect taxes emerges from the constitution of India. The following are
the significant provisions of the constitution regarding taxation:
1. Article 265: It states that no tax shall be levied or collected except
by authority of law. In fact, it prohibits arbitrary collection of tax.
2. Article 246: The authority to enact law and levy taxes and duties is
given by constitution vide Article 246. The Parliament may make laws
for the whole of India or any part of the territory of India, the State
legislature may make laws for whole or part of the State.
3. Seventh Schedule (to Article 246): The Seventh Schedule contains
three lists which enumerate the matters under which the union and the
State Governments have the authority to make laws.
(a) List I (Union List)(entries 82 to 92): The Central Government has
the exclusive right to make laws in respect of any matter covered in
this list. Parliament makes law in this regard. Some of the items in
List I are defense of India, naval, military and air forces, atomic
energy and mineral resources, central bureau of intelligence and
investigation, railways, highways, currency, RBI, post office saving
bank, taxes on income other than agricultural income, duties of
customs, corporation tax, etc.
(b) List II (State List)(entries 45 to 63): It contains the matters in
respect of which the State Government has the exclusive right to
make laws. These matters include public order, police, local
government, public health and sanitation, hospital, burials and burial
grounds, crema- tion ground, libraries, water, fisheries, betting and
gambling, etc.
(c) List III (Concurrent List): It contains the matters in respect of
which both Central & State Governments have powers to make laws.
This list includes criminal laws, criminal procedure, marriage and
divorce, contracts including partnership, agency, bankruptcy and
insolvency, trust and trustees, trade unions, industrial and labour
disputes, etc.
Major Indirect Taxes out of the many Indirect Taxes provided by the
constitution, major source of income for the government were excise
duty levied on manufactured goods, customs duties levied on import
of Goods, service tax levied on rendering of service and VAT levied
on Sale of Goods. These major sources of income are summarized in
the following manner.
old Structure
1.Excise Duty 2.Customs Duty 3.Service Tax 4.Sales Tax/VAT
1.Entry No. 84, List I, Schedule VII
2. Entry No. 83, List I, Schedule VII
3. Residuary En- try No. 97, List I, Schedule VII
4. Entry Nos. 54 of List II (State VAT) and 92A of List (Central Sales
Tax)
Taxable Event is Manufacture
Taxable Event is Import & Export of Goods
Taxable Event is rendering of Service
Taxable Event is Transfer of owner- ship
The value added tax (VAT) was introduced in India in 2005. It is a
multi point system of taxation on sale of goods wherein a mechanism
is provided to grant credit for tax paid on inputs. Under VAT, the tax is
collected in Stages an transactions involving sale of goods. The input
tax (i.e. paid on purchases) is rebated against output tax (i.e. tax
payable on sales). Under the VAT system, the net tax payable is
calculated in the following manner:
VAT = Tax collected on sales - Tax paid on purchases
 What is Cascading Effect ?
The cascading effect implies charging tax on tax. In other words, at the
time of levy of tax, the total value is considered which is inclusive of
all taxes paid up to that point. In this manner, if the tax is always
charged on the selling price of the product, the burden of tax keeps on
increasing at each point of sales. In this process, the effect of taxation
magnifies as at each level tax is calculated on value, which includes
taxes already levied and paid. The charging of tax on tax is called as
‘Cascading Effect of tax’.
VAT has eliminated cascading effect VAT has been developed to avoid
cascading effect of taxes. This has become possible as tax is effec-
tively charged only on value addition at each stage and not on the entire
sale price. The cascading effect has been prevented through tax credit
system, called as Input Tax Credit.
Input Tax Credit If any registered dealer is purchasing goods within a
particular state and has paid value added tax and subsequently the
goods were sold in the same state, in that case such registered dealer
shall be allowed to take credit for input tax, subject to certain
conditions.

In other words, the tax is im- posed at each stage on the entire Sales
value and the tax paid at the earlier stage is allowed as set off. This
credit availability is called as “Input Tax Credit”.

For example: Mr. Bhuvan is a registered dealer and has purchased

inputs worth ` 5,00,000 (plus VAT @ 4%). The actual sales in the
month were ` 9,00,000 (plus VAT @ 10%).
It means VAT paid on purchases = ` 20,000 [Calculated as ` 5,00,000 ×
4%]
Output VAT payable = ` 90,000 [Calculated as ` 9,00,000 × 10%]
Since, VAT paid on purchases can be adjusted against output VAT
payable;
the net VAT payable for the month shall be ` 90,000 minus ` 20,000. It
means after adjusting ITC, the net VAT liability is ` 70,000.
 Scope of input tax credit under VAT In Pre-GST era, the concept of ITC
was prevailing in VAT, Excise and Service Tax. The following
important points may be noted about the entitlement of ITC under VAT:
(a) It is allowed to a registered dealer.
(b) It is also allowed in respect at VAT paid on purchase of capital
goods.
(c) The Central Sales Tax (CST) paid on purchases made from outside
state is not allowed as ITC.
(d) It is allowed only if the purchases are made from a registered dealer.
(e) The ITC is not available in respect of purchases from a dealer who
has opted for composition scheme.
(f) It goods have been used to manufacture the exempted goods, ITC is
not available.
Variants of VAT: VAT is divided into three variants such as gross product
variants, income variants and consumption variants.
Gross Product Variants : Allows deduction on all purchases of raw
material and components but not for capital inputs, i.e taxes on capital
goods such as plant and machinery are not deductible from the tax base
in the year of purchase.
No deduction for the depreciated part of the plant and machinery in the
base year.
The economic base of Gross Product Variant is same as to Gross
National Product.
Tax on capital goods is not refunded then it is called Gross Product
Variants.
In this variant of VAT, capital goods carry a heavier tax burden as they
are taxed twice at the time they are purchased and also when the
products they produce are sold to consumers.
Thus Capital goods carry a heavier tax burden because they are taxed
twice and Modernization and upgrading of plant and machinery is
delayed due to this double tax treatment.
2. Income Variant :
Allows deduction on purchase on raw material, components, and
depreciation on capital goods.
In other words, the input tax credit for capital goods is not refunded
straightway but is refunded in accordance with the depreciation
schedule similar to the one used for income tax purposes.
Income Variant is same as the Net National Product. Methods of
measuring depreciation depend on the life of an asset and on the rate of
inflation.
3. Consumption Variant : This is the most popular variant which is
worldwide accepted, since it does not affect decisions regarding
investment because the tax on capital goods is also available for set-off
against the VAT liability.
Hence, the system is tax neutral in respect of techniques of production
(labour or capital-intensive). In the foreign-trade sector, this variant
relieves all exports from taxation while imports are taxed. The
consumption variant is convenient from the point of administrative
expediency since the business gets set-off for the tax on services, it
does not cause any cascading effect.
Methods of calculating VAT
a)Addition Method:
This method is based upon identification of value
added that is aggregate at factor payment and profit. The payments
made to all the factors of production are rent, depreciation, hire
charges, interest on capital, wages, etc. these are called as factor
payments
VAT Liability = Tax Rate x Value Added
b) Invoice Method:
Under this method, the tax is levied on full sale
price. But, the credit is given for tax paid on purchases. Thus
effectively the taxed is levied only on value added. It may be noted
that Invoice Method is the most common and popular method for
computing the tax liability under VAT system.
c) Subtraction Method:
Under this method, the tax is paid on the
difference between sale price and value of purchases. There is no
question of tax credit as the tax has not been calculated on total
value of goods sold. The subtraction method could be further
analysed into direct subtraction method and indirect subtraction
method.
Direct Subtraction method = Aggregate value of sales
exclusive of tax – Aggregate value of purchases
exclusive of tax.
Indirect Subtraction method = Tax inclusive value of sales
– tax inclusive value of purchases.
 Defects in structure of InDirect taxes before GST
over the period of almost six decades the prevailing indirect tax regime
created complexities and showed several shortcomings forcing
Government to overhaul the existing system. These short comings are
summarised below:
1. Cascading Effect: Both central and state Government levy tax on the
same goods. Former levy tax on manufacture of goods and the later levy
VAT on sale of very same goods. State Government does not permit
credit of excise duty paid by the manufacture to the dealer on sale of
goods. Thus VAT is also payable on excise duty component of the price
resulting in cascading effect. Similarly service tax is payable on
rendering of service. No credit of service tax paid on input service used
in selling of goods is provided by the state government. So tax is levied
on tax. It boosted inflation.
 2. Multiplicity of Tax/Cess: Multiple taxes were levied in pre GST
regime like Excise duty, VAT, Entry tax, luxury tax, Entertainment tax,
Service tax, octroi etc. These taxes were in additions to various cesses
imposed by State and Central Government like krishi kalyan Cess,
clean energy cess etc. All this made the tax structure very cumbersome.
3. Overlapping of Jurisdiction: over the years, distinction between
goods and services has become hazy, due to which there is overlapping
of state VAT and Central Service tax on transactions like works
contract, food related services of restaurants, caterers, computer
software, SIM cards, renting of movable property etc. In these cases it
was difficult to judge whether the transaction was sale of goods or
rendering of service. Therefore both the central and state Government
would impose tax.
 4. Rivalry amongst states: Pre-GST regime of indirect tax was not
destination based tax but origin based tax. In that regime taxes are
collected and utilized by the state administration where goods/services
are transacted/manufactured or supplied. This would encourage state to
provide sales tax/VAT relief to attract industries and at the same time
discourage supply of goods from other state by imposing entry tax,
octroi, luxury tax etc. on goods coming from other states.
5. Hindrance to Integrated market system: India despite being one
nation could not develop into a national market due to invisible
barriers of Central State tax, VAT, entry tax etc. as mentioned in last
point. These invisible barriers were visible in the form of check posts
on the boundaries of states.
6. Loss of Man and Truck hours: Due to check posts mounted by
states on entry point million of man hours and Truck hours were lost
Besides that huge corruption was involved which made logistics
management a costly affairs.

7. Difficulty in Compliance for Taxpayers: As mentioned already pre

GST regime had multi- plicity of Tax and consequently tax laws.
Moreover each tax had a different taxable event like manufacture for
Excise, VAT for sales etc. Also there were multiple of Tax
authorities. Compliance required voluminous efforts on the part
taxpayers. It also promoted Inspector raj.
8. Difficulty in Cross Verification of Credit availed by Assessee: Earlier it
was difficult for the tax department to get the verification report from
supplier of goods to know whether the supplier has issued particular
invoice on the basis of which input tax credit has been taken by the
purchaser. Due to lack of online data the verification was done off line.
often the report of supplier was not received or received after
considerable lapse of time. Many scrupulous dealer exploited this and
availed fraudulent credit.
9. Tax Evasion: Burden of compliance, multiplicity of tax laws increased
the propensity to evade taxes. Fudging of records, concealment of
transaction, bribing the tax officials were the tools adopted to remain out
of tax net.
10. Huge Amount of litigation: with multiple tax laws each having
different taxable events result was lot of disputes regarding availment of
credit, determining manufacture of goods, value of goods, classification
of goods etc. Dispute settlement mechanism is almost choked with such
disputes resulting in pendency of tax demands.
RATIONALE FOR GST
As mentioned in the preceding sections the six decade old indirect tax regime had
become too cumbersome and obstructive for the growth of our Nation, a major
overhaul was required.
This came in the form of GST which was made effective from 1-7-2017. GST will
subsume almost 17 central and state taxes and 21 cesses and bring nation under
united, common market with simplified tax structure, with emphasis on greater self
compliance environment.
It shall ignite the growth of economy through a comprehensive but simple indirect
tax regime which, aims at enlarging tax base not by coercion but compliance,
ensures vertical equity of taxes yet lowers overall tax rates.
GST in based on the concept of Value Added Tax (VAT) whereby the cascading
effect is extinguished completely. Also GST is a consumption and “destination
based” tax system, unlike the earlier System which was based on origin of sale or
manufacture.
This feature reduces the regressive impact of indirect taxes. So GST
brings benefits to all the stakeholders namely industry, Government and
consumer.
1) Benefits to the government
a) GST aims to make India a Common market with common tax rates
and procedures. It will boost foreign investment and “Make in India”
campaign
b) The states will be benefited due to improvement in investment cult in
the country
c) The uniform SGST and IGST rates actually reduce the incentive for
tax evasion
d) It will bring buoyancy to the government revenue by widening the
tax base and improving the tax payer compliance.
Benefits to trade and Industry:
a) The multiplicity of indirect taxes has been reduced
b) By allowing a set off of prior stage taxes for the transactions across
the entire value chain, GST leads to mitigation of ill effects of
cascading.
c) Due to uniformity in tax rates, the common national market has
been developed
d) The export has been classified as zero rated supply, it will boost
the exports.
Benefits to Customer:

a)It is a relatively simple tax system

b)On Account of mitigation of cascading effect, there is
a reduction in prices of goods and services
c)The pricing structure is uniform through the country
d)The taxation system is more transparent.
Benefits of GST
1. Integrated National Market: GST aims to make India a common
market with common tax rates and procedures and remove the
economic barriers thus paving the way for an integrated economy at the
national level. This will ensure seam less and smooth movement of
goods and service across the nation.
2. Elimination of Cascading Effect: Cascading of tax occurs when each
successive transfer is being taxed inclusive of previous tax levied. At
certain occasions, a particular activity is taxed by both Center and State
Government which leads to duality of taxes. This results in cascading
effects of Taxes. GST will overcome the problem of tax cascading
through Input Tax Credit Mechanisms and ultimate burden of taxes to
be paid would be on the consumer of Goods and Services.
 3. Removal of Multiplicity of Taxes: GST will remove all the multiple
taxes which are levied in the present regime. Duties & Taxes like Excise
Duty. Value Added Tax, Entry Tax, Luxury Tax, Entertainment Tax,
octroi, and Services Tax shall subsume under GST. There shall remain
only one tax called GST. It will bring transparency and ease of doing
business in India.
4. Increase in GDP: GST will certainly bring ease of doing business in
India. It is expected that the Ease of Doing Business Index of India
which remains around 63 shall improve gradually. It will certainly bring
trust and faith in the taxation regime, leading to huge capital inflow
from Foreign Investors. There shall be boom in the manufacturing as
well as service sector leading to GDP Growth.
5. Efficient Administration by Government: GST is a fully automated
tax regime. From filing of returns to refunds to assessment proceedings
everything shall be online. There shall be least physical interaction
between the taxpayer and the revenue authorities. online System is set
to bring transparency, lower corruption and better administration by the
Government.
Structure of GST
Dual model of GST
Central Taxes to be subsumed in CGST for intra state supply of
goods and services
State taxes to be subsumed in SGST/UTGST for intra state or
union territory supplies of goods and services
IGST is chargeable on inter-state supplies, imports and exports.
Compensation cess is leviable on certain luxury goods. Exports are
however considered as zero rated supply
GST has four tier tax structure with zero rate, lower rate of 5%, two
standard rates of 12 and 18% and higher rate of 28%
Additional Cess: the New GST structure will collect an additional cess
on the top of 28% GST. The cess will only be applied on demerit goods
like coal, paan masala, tobacco, aerated drinks, and motor vehicles.
Tax rates:
GST has been structured in a way that essential services and food
times are placed in the lower tax brackets while luxury services and
products have been placed in higher tax bracket.
The GST council has placed over 1300 goods and 500 services under
four tax slabs.
The tax on Gold is kept at 3% and rough precious and semi-precious
stones are placed at a special rate of 0.25% under GST
Taxes subsumed in GST(Goods and Service Tax)
Central LeviesSubsumed
1 Central Excise duty
2 Additional Excise duty
3 Service Tax
4 Excise duty under medicinal and
Toilet preparation Act
5 Counter Vailing Duty and Special
CVD
6 Central Sales Tax
7 Central Surcharges and Cesses
State Levies Subsumed
1 State surcharges and cesses
2 Entertainment Tax
3 Tax on Lottery, betting &
Gambling
4 Entry Tax and Purchase Tax
5 VAT / Sales Tax
6 Luxury Tax
7 Taxes on Advertisement
Taxes not subsumed in GST:
Central Taxes : Basic Customs duty, Research and Development
Cess, Export Duty, Anti Dumping duty, Safeguard duty, etc

State Taxes: State Excise duty, stamp duty, professional tax, Motor
Vehicle tax , etc.
GST Council
The Goods and Service Tax Council is a joint forum of the Centre
and states to make recommendations to Union and States relating to
GST. GST council is the apex constitutional body (authority) to
decide the policies of GST.
The following are the important points as regards GST
Council
a) The Article 279A in Constitution of India makes provision
for Constitution of GST Council. This Article empowers
the President for the same.
b) The provisions relating to GST Council came into force on
12th September, 2016. The President constituted the GST
Council on 15th September, 2016.
c) The function of the council is to make recommendations to
the union and states on important issues like tax rates,
exemptions , threshold limits, dispute resolution, etc.
Members in GST Council
The following are the members of GST Council
a) The Union Finance Minister (Chair Person)
b) The Union Minister of State in Charge of Revenue or Finance
(Member)
c) The Minister in charge of Finance or taxation or any other
Minister nominated by each State Government (Member)
The members of the GST Council referred to clause ( c ) above
shall as soon may be choose one amongst themselves to be the
Vice- Chairperson of the Council for such period as they may
decide.
Present status of number of members in GST Council
Representation of No. of Members
Central Government 2
28 States 28
3 UT with Legislature 3
6 UT without separate Nil
legislature
Total Members 33
Recommendations of GST Council
a) The taxes , cesses and surcharges levied by the Union , the
States and the local bodies which may be subsumed in the
goods and service 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 service 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.
Date of Levy on Petroluem products
The GST Council shall also recommend the date on which GST be levied
on petroleum, crude, High Speed Diesel motor spirit, natural gas and
aviation turbine fuel.
GST Council proceedings are valid even if there is specified irregularity
No act or proceedings of the Goods and service Tax council shall be
invalid merely by reason of
a)Any vacancy in, or any defect in, the constitution of the council; or
b)Any defect in the appointment of a person as a memner of the council;
or
c)Any procedural irregularity of the council not affecting the merits of the
case
Mechanism to adjudicate any dispute
The Goods and service tax Council shall establish a mechanism to
adjudicate any dispute.
a) Between the Government of India and one or more States; or
b) Between the Government of India and any State or states on one side
and one or more other states on the other side; or
c) Between two or more states, arising out of the recommendations of
the councilor implementation thereof.
Decision making process at GST Council
As a part of the decision making process the member’s views are taken
On a given subject matter or resolution after deliberations and
discussions in the council.
In order to take a decision, two parameters are required namely
a)Valid Meeting
b) Valid Decision
Valid Meeting(Quorum of meeting)
In order to take a valid decision, there should be participation of
substantial members in the meeting. The minimum number of members
to be present in order to take official and legal actions is called as
quorum. The Article 279A provides that one half of the total number of
members of the GST council shall constitute a quorum for the meeting.
Total number of members are 33 x 50% = 17 members.
Thus the presence of 17 members constitutes a valid meeting of the
council.
Valid Decision
As per Article 279A (9) every decision of the GST council shall
be taken at a meeting by a majority of not less than three-fourths
of the weighted votes of the members present and voting, in
accordance with the following principles.
a)The vote of the Central Government shall have a weightage of
once third of the total votes cast , and
b)The votes of all the State Governments taken together shall have
a weightage of two thirds of the total votes cast, in that meeting.
Goods and Services Tax Network (GSTN)
The Goods and Services Tax Network is a non-government, non-profit
organization.
This portal will be used by the government to track every financial
transaction and will provide tax payers with all services – from
registration to filling taxes and maintaining all tax details.
GSTN helps India fulfil its dream of paperless transactions where the
compliances related to GST can be performed digitally with maximum
provision of automation.
It will establish a uniform interface for the tax payer and also create a
common and shared IT infrastructure between the Centre and States.
Salient features of the GSTN
1.Ownership : It is partly owned by Central Government (49%) and
partly by private players (51%) which include Banks and Financial
Institutions. The 49% holding is divided equally between the
central and state governments
2.Grant: The GSTN has also been approved for a non-recurring
grant of Rs.315 crores
3.Authorised Capital : The authorised capital of GSTN is Rs.10 Crore (
US$1.6 million)\
4.Management: The team GSTN is led by Mr.Navin Kumar (IAS) as
its Chairman and Mr.Prakash kumar as it CEO.
5.Technology partner: The contract for developing this vast
technological backend was awarded to Infosys is September, 2015.
6. Trusted National Information Utility:
The GSTN is a trusted National Information Utility (NIU)
providing reliable, efficient and robust IT backbone for the smooth
functioning of GST in India. It is a Capable of handling a large
number of confidential data on behalf of the Indian Tax payers. So
the information is kept confidential and secure.

7. Government Council: The Government has complete control over

GSTN including on the composition of the Board, ,mechanisms of
Special Resolution and shareholders Agreement, and agreements
between the GSTN and other State Governments.
8. Handles Complex Transactions: The proper functioning of GSTN
requires a strong IT infrastructure which can capture, process and
exchange the information, considering the volume of transactions all
over India, the adjustment of IGST at the government level is
extremely complex. The GSTN has made possible a rapid settlement
mechanism amongst the states and the centre.

9. Sharing of expenses: The user charges will be paid entirely by the

Central Government and the State Governments in equal proportion
(50:50) on behalf of all users. The State share will be then
apportioned to individual states in proportion to the number of tax
payers in the state.
Functions of GSTN portal
The GSTN portal acts as a window for interaction between the GST
tax payers of the country and the Department.
This portal facilitates end to end compliances regarding GST Tax
including registration, receiving invoice details and returns,
facilitation of payment of taxes by the tax payer, refunds, etc.
It has to support about 3 billion invoices per month and the
subsequent return filing for 65 to 70 lakh tax payers.
The functions of the GSTN are as follows:
a) To Facilitate the registration of the persons
b) To Forward the returns to central and state authorities
c) To compute and settle the IGST among union and states
d) To facilitate the matching of tax payment details with banking network
e) To provide various MIS reports to the Central and the State
Governments based on the tax payer return information
f) Providing analysis of tax payer’s profile, and running the matching
engine for matching, reversal and reclaim of input tax credit.
GST Suvidha Providers
The GSTN has selected certain IT, IT es and Financial technology
companies to be called as GST Suvidha Providers(GSPs). The function
of GSPs is to develop applications to be used by tax payers for
interacting with GSTN.
They facilitate the tax payers in uploading invoices as well as filing of
returns and act as a single stop shop for GST related services.
They customize products that address the needs of different
segment of users. GSPs may take the help of application
service providers who act as a link between taxpayers and
GSPs.

Goods and Services Tax Identification number(GSTIN)

The goods and services identification number is the unique
number each taxpayer will receive once they have registered
on the common portal. It comprises of its PAN number and
codes denoting the state it is registered in entity number in that
particular state, alphabet Z and a check code of a single
number.
State Compensation Mechanism
In GST era, there is paradigm shift from production based tax to
destination /consumption based tax. Because of which there is loss of
revenue to the producer state.
So the major issues were :
How to compute the net loss of revenue to a particular state?
Who will compensate for this loss and how the funds would be arranged?

Accordingly section 18 of the Constitution Ammendment Act provides

that the parliament shall on the recommendation of GST council, provide
for compensation to states for loss of revenue arising account of
implementation of GST. The period of Compensation is restricted upto
5 years.
Consequently the parliament as enacted “Goods and Service Tax
(Compensation to states) Act, 2017.
As per Section 7 of the GST Tax(Compensation to states) Act, 2017,
states and union territories with legislatures have to be compensated for
review losses arising out of implementation of GST during the five year
transition period beginning from the date on which the SGST Act of the
concerned state has come into force.
Manner of calculation and release of compensation
1) Projected growth rate (section 3): The projected nominal growth of
revenue subsumed for a state during the transition shall be 14% p.a.
2) Base year (section 4) is taken as 2015-16
3) Base year revenue:(sec.5) The base year revenue for a state shall
be the sum of revenue collected by the state and the local bodies
during the base year, net of refunds.
The taxes included are:
VAT, sales tax , purchase tax, tax collected on works contract or any
other similar tax.
Central sales tax
Entry tax, octroi, local body tax or any other similar tax
Taxes on luxuries including taxes on entertainments, amusements
betting and gambling, etc.
The taxes on advertisement or any other similar tax
The duties of excise on medicinal and toilet preparations levied by the
Union but collected and retained by the concerned State Government
Any Cess or surcharge or fee leviable under various entries of list-II of
the seventh schedule to the Constitution.
Taxes not to be included in calculation of Base year revenue
1.Sale or purchase of petroleum products, alcoholic liquor for human
consumption.
2.The entertainment tax levied by the State but collected by local bodies.
Calculation and release of Compensation ( section 7)
a) The Compensation payable to a state shall be provisionally calculated
and released at the end of every two months period.
b) IT shall be finally calculated for every financial year after the receipt
of final revenue figures, as audited by the comptroller and Auditor
general of India
c) In case any excess compensation has been released, such amount is
adjusted against compensation of subsequent financial year.
The Total compensation = Projected Revenue – Actual Revenue
Levy and collection of Cess (Section 8(1))
1.It will be levied on Intra-State and Inter-State supplies of goods or
services or both.
2. It will be collected in such manner as may be prescribed
3. It will levied on the recommendation of the council
4. It will be levied for a period of 5 years or for such period as may
be prescribed.
5. The cess will not be levied on supplies made by taxable person
who has opted for composition scheme under section 10 of the
CGST Act, 2017.
Rate of GST compensation Cess (Section 8(2))
The cess is levied on such supplies of goods and services as
specified in the schedule on the basis of value, quantity or such
basis at such rate not exceeding the rate set forth in the schedule
given below.
1. Pan Masala - 135% ad valorem
2. Tobacco - Rs. 4170 per thousand sticks or 290% advalorem
or a combination thereof.
3. Coal - Rs.4,000 per tonne.
4. Aerated waters – 15% advalorem
5. Motor cars - 15% advalorem
6. Any other supply – 15% advalorem
Registration
The registration legally recognises a person as supplier of goods and
services .
It also authorizes him to collect taxes from his customers and pass
on the credit of such taxes paid to the purchasers of goods or
recipient of services.
The Registered person can claim the input tax credit of taxes paid by
him and also utilize the same for payment of taxes due.
Advantages:
1. Legal Recognition: The supplier gets nation-wise legal
recognition as a supplier of goods and services in India.
2. Authorisation for collection of tax.
3. Benefit of Input Tax Credit
4. Seamless flow of funds: The registration allows the seamless credit
of the input tax credit from the manufacturer/importer to the last
supplier in the chain. It also facilities the seamless flow of funds from
the centre and States from where the goods /services are supplied and
tax paid to cross utilization of IGST credit and then to the consuming
states of goods and services.
5. Accounting for Taxes: There are running electronic ledger maintained
on the dashboard of a taxpayer by GSTN. These would be updated in
real time on an activity in connection with these ledgers by the tax
payer. These ledgers are Electronic Cash ledger, Electronic Credit
Ledger and Electronic liability ledger.
Definition of taxable person sec 2(107)
Taxable person means a person who is registered or liable to be
registered under section 22 or 24.
A taxable person means
a)Registered person is a taxable person
b)Even an unregistered person who is liable to be registered is a taxable
person.
c)A person not liable to be registered, but has taken voluntary
registration and got himself registered is also a taxable person.

Section 22 to 30 of chapter VI of Central Goods and Service Tax Act

stipulate the provisions relating to registration.
I.Persons liable for Registration( section 22)
a) Based on the threshold limit:
Every supplier shall be liable to be registered under this Act in the
State or Union Territory, other than special category states, from
where he makes a taxable supply of goods or services or both if his
aggregate turnover in a financial year exceeds twenty lakh rupees.

In Special category states ( Manipur, Mizoram, Nagaland and Tripura)

(CSGT Amendment Act, 2018 for section 22) the aggregate turnover
in a financial year exceeds ten lakh rupees.
With effect from 1-4-2019 registration is not required in the case of
person who in engaged in exclusive supply of goods and who
aggregate turnover in the financial year does not exceed Rs.40 lakhs.
Exceptions to above rule
1) Persons required to make compulsory registration under section
24.
2) Persons engaged in making supplies of ice-cream other edible
ice, whether or not containing cocoa. Pan masala, tobacco and
other related products
3) Persons engaged in making intra-state supplies in the
State of Arunchal Pradesh, Manipur, Meghalaya, Mizoram,
Nagaland, Puducherry, Sikkim, Telangana, Tripura and
Uttarakhand.
4) Persons who have opted for Voluntary Registration.
b) Persons registered under earlier Indirect Tax laws to migrate
Every person who, on the day immediately the appointed day, is
registered or holds a license under an existing law, shall be liable
to be registered under this Act with effect from the appointed day

c) 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 of such
transfer or succession.
d) In Case of Amalgamation or DeMerger: the transferee shall be liable
to be registered, 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.
II. Persons not liable for Registration (Section 23)
a) Exemption from registration :
i) Any person engaged exclusively in the business of supplying goods
or services or both that are not liable to tax or wholly exempt from
tax under this Act or under the Integrated Goods and Services Act
ii) Any agriculturist to the extent of supply of produce out of
cultivation of land.
b) Persons notified by the Government.
III. Compulsory Registration (section 24)
The following categories of persons shall be required to be registered
under this Act
i) Persons making any inter-state taxable supply
ii) Casual taxable persons making taxable supply
iii) Persons who are required to pay tax under reverse charge
iv) Person who are required to pay tax under sub-section ( 5) of
section 9
v) Non Resident taxable person making taxable supply
vi) Persons who are required to deduct tax under section 51 whether or n
ot separately registered under this Act
vii)Persons who make taxable supply of goods and 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 this Act;
ix) Persons who supply goods or services or both other than supplies
specified under section ( 5) of section 9, through such electronic
commerce operator who is required to collect tax at source under section
52
x) Every electronic Commerce operator who is require to collect tax at
source under section 52
xi) Every person supplying online information and database access or
retrieval services from a place outside India to a person in India , other
than a registered person and
xii) Such other person or class of person as may be notified by the
Government on the recommendations of the council.
1) If a person makes inter state taxable supply, then it is compulsory for
him to get registered under GST.
The only exception in this regard is inter-state supply of services , the
registration is required only if his aggregate turnover computed on all
India basis exceeds 20 lakhs
2) Casual taxable person is a person occasionally undertakes
transactions involving supply of goods or services or both in the course
or furtherance of business, whether as prinicipal, agent or in any other
capacity, in a state/UT where has no fixed place of business. Threshold
limit of 20 lakhs is available CTP who is making inter state taxable
supplies of notified handicraft goods and availing the benefit of
exemption from registration.
3) Usually the supplier is liable to pay GST who transfers the incidence
to recipient. But there are provisions contained under section 9(3) and
9(4) wherein the recipient is liable to pay tax. This is called as reverse
charge.
4) This category covers those Electronic commerce operators who are
required to pay tax in respect of intra-state supplies of specified
categories of services supplied through it. The specified services
include transportation of passengers, accommodation and house
keeping services.
5) Non Resident taxable person occasionally undertakes transactions
involving supply of goods or services or both in the course or
furtherance of business, whether as prinicipal, agent or in any other
capacity, in a state/UT where has no fixed place of business.
6)To deduct TDS @1% from the payment made to the supplier of goods
and services where the total value of such supply under a contract
exceeds Rs.2,50,000.
Voluntary Registration (section 25(3))
Advantage : Because by virtue of section 9(4) of the CGST Act, in case
of supplies received from unregistered supplier by registered recipient,
recipient has to pay the tax under reverse charge. It enables a supplier
of goods or services or both to enhance it B2B transactions as the
business units would prefer receiving supplied from the registered
persons only.
Disadvantage : The voluntary registration creates the liability to pay
Tax. However they can cancel their registration at any time.
 When to apply for registration [section 25(1)]
On the basis of time limit for application for registration there are mainly types of registration

Type of Person When to apply for Registration

1. Person who is liable to be With in 30 days from the date on
registered under section 22 or which he becomes liable to
section 24(Except CTP/NRTP) registration
2 A casual taxable or a non- At least 5 days prior to the
resident taxable person commencement of Business
3 Voluntary Registration under No time limit
section 25(3)
4. Every person who makes a Within 30 days from the date on
supply from the territorial which he becomes liable to
waters of India registration
Where to apply for registration:
a) For three types of persons : In every such state/ UT in which he is
so liable
b) For the fourth type of persons: In the coastal state/UT where the
nearest point of the appropriate base line is located.
1.Single Registration : Under GST Regime there is single registration
for all the taxes .
2. State-wise registration:
c) Business entity having its branches in multiple states: A business
entity having it branches in multiple states will have to take
separate State-wise registration for its branches in different states.
b) Different branches in a single state: A business entity having its
multiple branches in the same state does not require multiple registration.
Such entity would have single registration where in it can declare one
place as Principal place of business and other branches as additional
places of business.
c) Multiple places of Business in a State: 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.
3. PAN based Registration: A person can obtain a single registration in
each state or a Union Territory on a single permanent account number
i.e., one registration number GSTIN per state.
Procedure for Registration [section 25 read with rules 8,9, and 10 of
CGST rules, 2017]
1. Delcare PAN, Mobile and email-id in Part A of FORM GST
REG-01 on the common portal, either directly or through a
facilitation centre notified by the commissioner
2. Validation/Verification of PAN, Mobile and email-id
3. Generation of TRN: on successful verification a Temporary
Reference Number shall be generated and communicated to the
applicant on the said mobile number and email-id.
4. Apply in Part B of GST REG 01 : using TRN the applicant shall
electronically submit an application in Part B of Form GST
REG-01, duly signed and verified through electronic verification
mode, along with the documents specified in the said form at the
common portal.
5. Issue of Acknowledgement: On receipt of such an application an
acknowledgement shall be issued electronically to the applicant in FORM
GST REG-02.
6.Verification of the application and grant of certificate: The application
shall be forwarded to the proper officer who shall examine the application
and the accompanying documents.
a) If same are found in order Rule 9(1) The proper officer approve the
grant of registration to the applicant with in a period of 7 working days
from the date of submission of application.
the registration shall be granted with in 30 days of submissions of
application, after physical verification of the place of business in the
presence of the said person, in the manner provided under Rule 25 and
verification of such documents as the proper officer may deem fit.
b. If application submitted is found to be deficient:
The proper officer issues notice to the applicant electronically in FORM
GST REG-03 with 7 working days from the date of submission of the
application
The applicant shall furnish such clarification information or documents
electronically, in FORM REG-04, with in 7 working days from the date
of the receipt of such notice.
If proper officer is satisfied with the clarification, he will grant
registration in FORM GST REG-06, with in 7 working days from the
date of receipt of information/clarification/documents.
If still not satisfied proper officer will reject the application for reasons to
be recorded in writing.
Applicability/ Non- Applicability of Rules for registration
The procedure for registration prescribed under rules 8,9,10 are also
applicable to:
A person paying tax under composition levy
Every person seeking voluntary registration
A casual taxable person.
However, procedure so laid down will not apply to
Non-Resident taxable person
A person required to deduct tax at source under section 51
A person supplying OIDAR services from a place outside India to a
non-taxable online recipient referred to in section 14 of GST Act
Separate registration forms and procedures have been prescribed for
each of the aforesaid persons.
SUO MOTU Registration by the proper Officer section 25(8) read with
Rule 16 It is a temporary registration by proper officer on suomotu
basis.
1. Order by Proper officer: On the basis of enquiry, inspection search or
any other proceedings under the Act, 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.
2. Effective date of registration: shall be effective from such order,
granting registration was given.
3. Action by person: they have two alternatives:
a) when order is accepted without dispute: an application is
submitted for registration according to rule 8 or rule 12 within 90days
b) When order is not accepted: then such person shall file an appeal
against such temporary registration within 30 days from the date of
issuance of such order of the Apellate Tribunal.
4. Verification and Certificate of Registration : rule 9 &10 will apply.
5.Effective date of registration shall be effective from the date of the
order of proper officer granting temporary registration.
Deemed Registration (section 26)
It means if registration/unique Identification number is granted
Act(CGST/SGST/ UTGST) and GSTIN is issued, it will be treated as if
registration has been granted under all the GST Acts including IGST Act.
Special provisions for grant of registration for CTP and
NRTP(section 27 read with rules 13 &15)
The following provisions are equally applicable on both.
1) No benefit of threshold limit
2) Registration before starting business: at least 5 days prior to
commencement of business
3) Taxable supplies after Registration
4) Advance deposit of tax has to be made equalivalent to the estimated
tax liability of such person for the period for which registration is
sought.
5) Period of validity of registration certificate : maximum 90 days
6) Extension of validation can be applied for another 90 days
7) Applicability of rules 9 and 10 the provisions relating to verification
of application and grant of registration
Casual Taxable person Non Resident Taxable person
A CTP does not have a fixed place NRTP does not have fixed place of
of business in the State /UT where business/ residence in India at all
he undertakes supply though he
might be registered with regard to
his fixed place of business in some
other state /UT
A CTP has to undertake The Business test is absent in the
transactions in the course of definition of NRTP
furtherance of business
A CTP has a PAN Being a Non-Resident person, he
does not have a PAN
The application form for The application form is GST
registration if GST REG-01 REG-9 which is specifically
which is the same as is for applicable on NRTP
normal taxable person

Entitled to claim ITC of all Entitled to ITC in respect of

inward supplies import of goods and/or services

Files returns in GSTR-1, GSTR-2 Files returns in GSTR-5

and GSTR-3.
Provisions different for CTP & NRTP
1. Registration Form Number: for CTP application Form GST REG 01
where as for NRTP application form GST REG-09.
2. Requirement of PAN: The registration of CTP is a PAN based
registration. But NRTP may be granted registration on the basis of
other prescribed documents like self attested copy of his valid
passport along with the application duly signed and verified and
signed by his authorized signatory who is an Indian Resident having
valid PAN
Amendment of Registration (Section 28 Read with rule 19)
1. Submission of Application at GST common portal: if there is any
change in the particulars furnished in registration application , then
an application is submitted within 15 days of such change, along with
the documents relating to such change at the GST portal.
2. Amendment or cancellation: the change in certificate due to
amendment does not warrant cancellation of registration under
section 29
3. Types of changes: the amendment may be related to either ‘Core
Field of information or Non-Core field of information’ the core field
information includes changes in
A) Legal name of business
B) Address of principal place of business
C) Address of additional and place of business
d) Addition, deletion or retirement of Partners, Karta, Managing
Committee, Board of Trustees, Chief Executive officer
4. Change in NON-CORE fields:
5. Change in Core Fields:
6. Change in PAN
7. Change applicable to all: The Change of particulars shall be applicable
for all registrations of a registered person obtained under provisions of
this chapter on same PAN.
8. Deemed Amendment: if the proper officer fails to take any action
i) Within 15 working days from the date of submission of the
application
i) Within 7 working days from the date of the receipt of the reply to
the show cause notice , certificate of registration shall stand
amended to the extent applied for and the amended certificate shall
be made available to the registered person on the common portal.

Cancellation or Suspension of Registration [section 29 read with

rules 20 to 22]
The cancellation under this section may be made:
a) On Application filed by registered person
b) On application filed by legal heirs (in case of death of registered
person)
c) By Proper officer on his own motion.
Circumstances of cancellation prescribed in section 29(1) :
the registration can be cancelled suo moto by proper officer or an
application made by registered person/legal heirs
i) 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
ii) There is any change in the constitution of the business
iii) The taxable person who is no longer liable to be registered
under section 22 or 24.
Circumstances of cancellation as per section 29(2)
i) When a registered person has contravened provisions of the
Act or the prescribed rules. The Rules 21 of CGST Rules,
2014 prescribes that the registration is liable to be cancelled
if the registered 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 the Act, or the rules
made thereunder; or
c)violation the provisions of section 171 or the related
rules;or
d) violates the provisions of rule 10A; or
e) Violations of conditions of taking ITC:
f) Mismatch of GSTR-1 and GSTR-3B
g) Violation of Rule 86B
ii) Where a registered person has not furnished returns for a continuous
period of six months. This period is 3 consecutive tax periods in case of
a person that opted for composition levy
iii) A voluntary registered person has not commenced the business with
in 6 months from the date of registration
iv) Where the registration has been obtained by means of fraud, wilful
mis-statement or suppression of facts.
4. Cancellation does not affect liability
5. Deemed cancellation : cancellation of registration under
SGST/UTGST shall be deemed to be a cancellation of registration under
CGST.
6. Settlement of Electronic Ledgers: every registered person who
registration is cancelled shall pay an amount by way of debit in
the electronic credit ledger or electronic cash ledger.
7. Input Tax Credit on Capital Goods: 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 such percentage points as may be
prescribed or the tax on the transaction value of such capital
goods or plant and machinery under section 15, which ever is
higher.
Meaning of period and manner of suspension or Registration
1. Where registered person has applied for cancellation of registration:
the registration shall be deemed to be suspended from
a) Date of submission of the application (OR)
b) The date from which cancellation is sought
Which ever is later.
2. Where cancellation of the registration has been initiated by the
Department on their own motion:
They can suspend the registration of such person, pending the
cancellation proceedings, without affording the said person a
reasonable opportunity of being heard. The person will be informed
about cancellation of registration in REG-31 electronically asking him
to explain within a period of 30 days as to why his registration shall not
be
3. No taxable supply: A registered person whose registration has been
suspended
Shall not make any taxable supply during the period of suspension
and
Shall not be required to furnish any return under section 39.
4.No refund during suspension:
5. Deemed Revocation: the suspension of revocation shall be deemed
to be revoked upon completion of the cancellation proceedings buy
the proper officer. Such revocation shall be effective from the date on
which the suspension had come into force.
Procedure for cancellation of Registration [Rules 20 and 22]
1. Electronic Submission of Application:
2. Details to be submitted:
3. Opportunity of being heard:
4. Liable amount has to be paid.
Revocation of Cancellation of Registration [ Section 30 read with
rule 23]
1.Application to Proper officer
Where the registration of a person is cancelled suo motu by the
proper officer, such registered person may apply for revocation of
the cancellation to such proper officer, in From GST REG-21,
within 30 days from the date of the service of the order of
cancellation of registration .
2. Default to be made good:
In case registration was cancelled for failure of registered person to
furnish returns before applying for revocation the person has to make
good the defaults.
3. If proper officer is satisfied: he may revoke the cancellation of
registration by an order in FORM GST REG-22 with in 30 days of
receipt of application and communicate the same to applicant.
4. If proper officer is not satisfied: he has to issue Show Cause Notice
( in FORM GST REG -23) to applicant who shall furnish the
clarification with in 7 working days. The reply is to be given in FORM
GST REG-24. The proper officer shall accept/ reject the same within
30 days of receipt of such information from the applicant.
5. Revocation applicable under all GST acts.
Aggregate turn over means:
Valuation of Taxable supplies - XXX
Exempted Supplies - XXX
Exports of goods/services - XXX
Inter-state supplies - XXX
Supply of goods by registered
Job worker after completion of
Job - XXX
Aggregate Turnover - XXX
In above computation the following are not included
CGST, SGST, UTGST, IGST & Compensation Cess